Supreme Court to hear another Case Involving Licensees in Good Standing who Challenge Patent Rights

By Dennis Crouch

Medtronic Inc. v. Boston Scientific Corp., Docket No. 12-1128 (Supreme Court 2013)

The Supreme Court has granted a writ of certiorari in a license dispute involving giants of the medical device world – Medtronic and Boston Scientific. Medtronic has licensed defibrillator patents owned by Mirowski Family Ventures and now controlled by Boston Scientific as exclusive licensee. U.S. Reissue Patent Nos. RE38,119 and RE39,897. Medtronic’s license gives it the right to challenge the patent in court even while still under license. That right to challenge is also supported by the Supreme Court’s 2007 decision in MedImmune. And, in a 2007 court filing, Medtronic did challenge the license – alleging that its new products did not infringe the patents in question.

Normally, the patentee has the burden of proving infringement. The odd ruling in this case came when the Federal Circuit flipped that normal approach and held instead that the burden shifts to the DJ plaintiff when the case involves a licensee-in-good-standing suing for declaratory judgment of non-infringement. The Supreme Court will now consider whether that burden shift is appropriate – and in all likelihood will reject the Federal Circuit’s decision 9-0.

Medtronic asks the following question:

In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

One question that the court needs to answer is whether its rules regarding licensee standing and burdens are hard-and-fast or instead whether they should be treated as default rules that can be altered by contracting parties.

Hal Wegner of Foley writes that the case will be briefed over the summer and heard early in the October 2013 Term.

34 thoughts on “Supreme Court to hear another Case Involving Licensees in Good Standing who Challenge Patent Rights

  1. IBP, in principle, I agree. However, the SC in Medimmune did seem to suggest that a licensee could keep his license and argue the dispute about infringement in a DJ action.

    In that posture, I do think he should have the burden of proof.

    But, I do note your confusion, thinking that what the Supremes had in mind was really a challenge to validity because erasing invalid patents was the public policy being endorsed by the exception.

  2. I wonder what Ned thinks about what you think about what he thinks about what I think.

    Hard to tell – there want much there regarding what you “think” – which was rather the reason for my post to you.

    Not sure what you think this “humpty bow down” phrase you use so mindlessly means anything other than you don’t have anything intelligent to say.

    But dont sweat it – expectations for you are set pretty low.

  3. Please – just say it.

    I did, Humpty. Now we can both wait for Ned’s answer. I wonder what Ned thinks about what you think about what he thinks about what I think.

    attempted trolling

    Do you think that EG thinks that the Supreme Court thinks that the Federal Circuit is trolling the Supreme Court? I wonder if Ned thinks that Prof. Crouch thinks about what EG thinks about that, or if you think that Ned thinks something less subjective (this being the key distinction in the controlling law).

  4. which more fundamental issue should entirely obviate consideration of the secondary persuasion-burden allocation issue.

    Obviate, or subsume? After all, the precision might be important here.

  5. Parties can easily sign licenses as a matter of convenience.

    True enough on its face. Maybe they should be more careful about potential estoppel effects of what they put to paper. Or do you think that they create no expectation interest by agreeing to something (even, or especially, in their pursuit of convenience)?

  6. Linguistic precision is important here.

    Nice of you to set up your own punch line. – re: 4:25 PM post.

  7. IBP When a licensee believes that a presumed-valid issued patent is actually invalid, what is the “actual controversy”?

    It is not whether the presumed-valid issued patent is infringed,

    The part in bold confused me, IBP. My understanding of the facts here is that the licensee is arguing non-infringement only. That’s the only issue: whether one element of the claims is not being practiced by the licensee.

    If the patent is held valid, then the licensee should have the burden of proving infringement under the mandatory counterclaim, as there are many elements required in addition to the validity of the underlying patent, to prove such infringement.

    The licensee has the burden of proving its own guilt? You must have meant that the licensor has the burden of proving infringement by the licensee.

  8. If you have something, anything to say, Malcolm.

    Please – just say it.

    Take your time. Think about it. Get some help if you need to, but this attempted trolling of yours is, well, rather pathetic.

  9. Ned, do you think that anon thinks that you think that Dennis thinks that the Supreme Court thinks that the Federal Circuit sees an eBay like rationale?

    Or something even more dangerous than that?????

  10. I’m trying to sort this out.

    When a licensee believes that a presumed-valid issued patent is actually invalid, what is the “actual controversy”?

    It is not whether the presumed-valid issued patent is infringed, it is whether the disclosure made during prosecution satisfies the requirements of 35 USC for the grant of a patent.

    Why then is the counterclaim of infringement compulsory under Rule 13, if the licensee is continuing to make royalty payments? Either the licensor wins on validity, in which case the royalty payments continue under the license without any infringement ever occurring–or it loses on invalidity, in which case there is no valid action for infringement.

    Put another way, if the licensee continues to make royalty payments, “infringement” would not “arise out of the transaction or occurrence that is the subject matter of the opposing party’s claim”. That would only happen when the licensee has ceased to make royalty payments.

    The quote given by Medtronic from Medimmune is confusing, because the DJ action should not be sought to declare that an underlying patent is not infringed, it should be sought to declare that the underlying patent is not valid and that it cannot therefore form the lawful basis of an infringement action.

    Linguistic precision is important here. To REQUIRE a licensee to prove noninfringement is to have the tail wag the dog, because it relies entirely on the compulsory counterclaim of infringement, which is IMHO quite possibly unlawful to compel in the case in which royalty payments are continuing.

    Similarly, to REQUIRE a licensee to cease royalty payments is to unlawfully justify, after-the-fact, the “necessity” of the IMHO unlawful counterclaim, in the case where the licensee does not wish to needlessly expand the scope of the controversy by stopping royalty payments.

    So, IMHO, there are 2 possible outcomes that would make sense in this case:

    1) the counterclaim is ruled non-compulsory and unsupportable if royalty payments are allowed to continue, and the licensee therefore has no burden of proving non-infringement; or

    2) royalty payments are not allowed to continue, licensee must breach the licensing agreement, filing of counterclaim of infringement is compulsory, and either the licensor or licensee has the burden of proving infringement or noninfringement, respectively.

    I cannot see the benefit of outcome (2), because its only foundation is the exaltation of the compulsoriness of the counterclaim, which should never be exalted as it is a device of mere procedural convenience, which in such a case would be anything but convenient.

    The ISSUE is the validity of the patent, not whether a valid patent is infringed. The DJ applicant still has the initial burden of proving invalidity by disproving the presumed validity, and the situation is fair to all parties.

    Am I missing something?

    Yes, I understand the issue of the allocation of the burden of persuasion, but that doesn’t seem to me to be the important issue in this case–there seems to be a more fundamental issue of identification of the actual controversy, which more fundamental issue should entirely obviate consideration of the secondary persuasion-burden allocation issue.

    (1) should be the outcome if royalty payments are continuing.

    If royalty payments are discontinued, a mandatory counterclaim should be considered lawful in pursuit of judicial economy. If the patent is held invalid, end of infringement inquiry. If the patent is held valid, then the licensee should have the burden of proving infringement under the mandatory counterclaim, as there are many elements required in addition to the validity of the underlying patent, to prove such infringement.

    Is the existence of the license at some point in time sufficient justification for presuming that infringement would have occurred in the absence of the license? No. Parties can easily sign licenses as a matter of convenience.

    So, if the royalty payments are discontinued, I think that the patent owner should have the burden of proof on the issue of infringement.

  11. Nevermind, I get it. Yes it seems weird to put the burden of persuasion on the DJ defendant when they are not in a position to seek relief.

    It also seems weird to provide the licenssee two bites at the apple.

  12. An astute and interesting point, AC. I wonder if the potential Gunn v. Minton issue will come up during the final briefing/oral argument.

  13. Ned,

    The hypo in this part of the thread expressly indicates the licensee has stopped paying the royalty.

  14. Nope, the patentee sues for breach of contract. In state court, unless there is diversity. And it seems to me the patentee is entitled to res judicata that what the licensee sought to find was not covered by his royalty obligation really is covered by his royalty obligation. The only real issue will be how much of it did the licensee sell, to enable the accumulated royalty to be calculated.

  15. Schaffer, 546 US 49, 56 (2005)(The party seeking relief bears the burden of proof.)

    “The ordinary default rule, of course, admits of exceptions. See McCormick § 337, at 412-415. For example, the burden of persuasion as to certain elements of a plaintiff’s claim may be shifted to defendants, when such elements can fairly be characterized as affirmative defenses or exemptions.” Id. at 58.

  16. So, if the burden is on the DJ Plaintiff, what happens if the DJ Plaintiff loses? I suppose they could still chose to stop paying royalties; in which case the patentee would then sue for infringement.

    In that infringement action, would the DJ ruling have any preclusive effect? After all, the finding of the first case would simply be that the DJ Plaintiff did not prove non-infringement, not that the devices don’t infringe. Would the entire case have to be relitigated?

  17. Ned,

    Do you think that Prof. Crouch sees an eBay-like “patent-law-should-be-like-any-other-law” rationale?

  18. It seems to me that this is simply a contract action and not a Federal question, so if the licensee cannot establish diversity, the case does not belong in Federal court. See Gunn v. Minton.

  19. It strikes me that any ‘prima facie’ and burden setting are strictly procedural norms and are to be set and followed expressly NOT on a case by case basis.

  20. Not an area I know much about, but…
    If the licensee simply withheld royalty payments on particular products, on the basis that they didn’t infringe, it would be up to the licensee to seek redress, which would mean proving infringement.
    If the licensee wants the comfort of a judgement of non-infringement, it seems reasonable to me that it ought to be required to state its case up front.

  21. Agreed.

    The more one thinks is through, the more one is puzzled by Dennis’s assumption that there’s going to be a 9-0 reversal of the Federal Circuit. That doesn’t make any sense.

  22. I went back to the earlier link on this case and what LB wrote seems reasonable:

    The patentee doesn’t have to make a showing on every element in a claim, because it is not trying to prove infringement. Instead, the patentee can limit its case to rebutting the DJ plaintiff’s showing as to non-infringement. Because you can prove non-infringement by showing the absence of only a single element, the prima facie case for this type of lawsuit is quite different than for a “normal” DJ case.

    It does seem to make practical sense, under the circumstances, to require the licensee to show why it believes that it is not infringing the licensed patents (it did, after all, take the license in the first place). As LB points out, non-infringement can often be proved decisively even with nearly every word in the claim left unconstrued. It seems more efficient (albeit marginally efficient) to require the licensee who is seeking the DJ to first present its theory of non-infringement in detail. I don’t see much unfairness resulting to either party by shifting the burden in this situation (it does seem to make things “simpler” for the patentee, but only in the sense that it does not need to prove uncontested irrelevant issues). The Supremes need to decide whether the deviation from the normal course can be justified by the modest (?) gains in judical economy.

  23. Would the Harlem Globetrotters prefer if the Washington Generals didn’t exist? You can’t win if there is no one else to play.

  24. I see.

    Now, if the infringer wishes to remove the products from the umbrella of the license, then a counterclaim for infringement would be in order and he patent owner would have the burden of proof.

    The infringer cannot have his cake and eat it too. The word “ingrate” comes to mind.

  25. The reason, in most DJ actions, the patentee bears the burden is that “infringement” is a compulsory counterclaim.

    Here, such a counterclaim is not possible.

    The Feds relied on Schaffer, 546 US 49, 56 (2005)(The party seeking relief bears the burden of proof.)

    “The ordinary default rule, of course, admits of exceptions. See McCormick § 337, at 412-415. For example, the burden of persuasion as to certain elements of a plaintiff’s claim may be shifted to defendants, when such elements can fairly be characterized as affirmative defenses or exemptions.” Id. at 58.

    That is why, again, in the ordinary DJ case, the burden shifts to the PO — because a claim of infringement is compulsory. Here, in this case, it is not and the default rule applies.

    In essence, the petition seeks to overturn or modify Schaffer.

  26. From this layperson’s perspective, it seems like the licensee should have the burden to prove that the accused products don’t fall within the scope of the license, but if they are successful, then there’s no nexus between the licensing agreement and the accused products, and so then it becomes just a normal infringement suit with no license involved.

  27. The Supremes like reversing everything the Federal Circuit does, if possible. They would prefer it didn’t exist.

  28. I agree with you on this one, Ned. Also, whether SCOTUS will reverse 9-0, or otherwise, because they choose to exert “veto power” over almost every Federal Circuit patent case they get generally, and in this instance specifically misapply who should have the burden of persuasion on the licensee-in-good-standing suing for a declaratory judgment of non-infringement is besides the point; it should be the DJ plaintiff who has the burden of persuasion on the noninfringement issue, as would be true for any other plaintiff trying to prove their cause of action.

  29. Typically, a license agreement will state the products licensed by definition and will have a bucket that alternatively states that the products licensed in terms of the scope of the claims. If the products in question meet the definition, and the licensee will not pay, that sounds more like an action on the contract if the licensee requests a declaration of non infringement.

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