By Dennis Crouch
Medtronic v. Mirowski, ___ U.S. ___ (2014) [CaseText]
In a unanimous opinion, the US Supreme Court has reversed the Federal Circuit – holding that the patentee has the burden of proving infringement even in declaratory judgment actions by a licensee in good standing. I had previously noted that the Federal Circuit decision here was “odd” and likely to be rejected by the Supreme Court. The case should generally be seen as further emboldening licensees to challenge their licensed patents.
Medtronic has licensed a number of implantable heart stimulator patents from Mirowski. While still paying royalties (into an escrow account) and remaining in good-standing as a licensee, Medtronic filed a declaratory judgment action asserting that its products were not covered by the patent and that it therefore owed no contract damages. Prior to 2007, the Federal Circuit had ruled that a licensee in good standing had no declaratory judgment standing. However, in MedImmune, Inc. v. Genentech, Inc., 549 U. S. 118 (2007), the Supreme Court held that Article III’s case-or-controversy requirement can be satisfied by the fact that a licensee faced the threat of suit if it ceased making payments).
The district court sided with Medtronic – finding that Mirowski failed to prove infringement. However on appeal, the Federal Circuit vacated – holding instead the ordinary burden of proving infringement shifted in declaratory judgment cases a licensee in good standing. On writ of certiorari the Supreme Court has decided that the district court’s analysis is the better course of action and now holds that:
[W]hen a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee.
The Supreme Court based its decision on three notions: (1) the Patentee ordinarily bears the burden of proving infringement; (2) the Declaratory Judgment Act is only procedural; and (3) the burden of proof is a substantive aspect of the claim. Following this triple premise, the court concluded that the filing of a declaratory judgment action could not shift the burden of proof.
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The decision is fairly short, but has a few interesting aspects.
First, the court provided a policy-based analysis that calls-to-mind the problems faced by many accused infringers who receive a demand letter or broadly written complaint alleging infringement:
[The Federal Circuit rule can] create unnecessary complexity by making it difficult for the licensee to understand upon just what theory the patentee’s infringement claim rests. A complex patent can contain many pages of claims and limitations. A patent holder is in a better position than an alleged infringer to know, and to be able to point out, just where, how, and why a product (or process) infringes a claim of that patent. Until he does so, however, the alleged infringer may have to work in the dark, seeking, in his declaratory judgment complaint, to negate every conceivable infringement theory.
It is this same sentiment that has been driving a movement to increase the pleading standards in patent cases.
Second, the court re-iterated its historic position that patent rights should be open to challenge as a mechanism for maintaining a well-balanced patent system.
The public interest, of course, favors the maintenance of a well-functioning patent system. But the “public” also has a “paramount interest in seeing that patent monopolies . . . are kept within their legitimate scope.” Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U. S. 806 (1945). A patentee “should not be . . . allowed to exact royalties for the use of an idea . . . that is beyond the scope of the patent monopoly granted.” Blonder-Tongue Laboratories, Inc. v. University of Ill. Foundation, 402 U. S. 313 (1971). And “[l]icensees may often be the only individuals with enough economic incentive” to litigate questions of a patent’s scope. Lear, Inc. v. Adkins, 395 U. S. 653, 670 (1969). The general public interest considerations are, at most, in balance. They do not favor a change in the ordinary rule imposing the burden of proving infringement upon the patentee.
Read the decision here: https://casetext.com/case/medtronic-v-mirowski
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Can License Terms Privately Change The Baseline Rules Set Here?: An ongoing and open question is whether the rules regarding licensee standing and burdens are hard-and-fast or instead whether they should are to be treated as default rules that can be altered by contracting parties. As an example, a licensee could agree (as part of a license agreement) not to file a declaratory judgment action challenging patent rights while in good standing or could agree that in a DJ action the licensee had the burden of proving non-infringement. The open question is whether these private contractual provisions would be deemed unenforceable on public policy grounds. Although open, the implicit suggestion from the decision is that those provisions would be unenforceable. I draw that conclusion from the court’s positive citation of Lear, Precision, and Blonder-Tongue.
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Standing: The Supreme Court began the opinion with a discussion of jurisdiction that seems to step-back somewhat from its recent decision in Minton v. Gunn. The particular question raised was whether the case was a patent lawsuit or instead merely a contract dispute. If the former, then the case is heard in Federal Court and by the Federal Circuit. If the latter, then the case would be in state court unless there the parties exhibit diversity jurisdiction and, a diversity case would have been appealed through a regional circuit court of appeals rather than to the Federal Circuit.
Subject matter jurisdiction over a declaratory judgment action is ordinarily based upon whether the complementary coercive action brought by the DJ defendant would necessarily present a federal question. Franchise Tax Bd. of Cal. v. Construction Laborers Vacation Trust for Southern Cal., 463 U. S. 1 (1983).
Here, the Supreme Court determined that the potential coercive action was patent infringement. The court based its conclusions upon its reading of the license that gave power to Mirowski to terminate the contract and sue for patent infringement if Medtronic stopped paying royalties. According to the Supreme Court, it is of no matter that Mirowski could instead sue for contract damages – a result that would have been much more likely. In its Amicus Brief, Tessera wrote:
Because there was simply no chance that the licensee suddenly would abandon the contractual dispute resolution procedure after nearly twenty years when it could resolve the very same patent issues within the contractual framework, and when both licensed patents were, in any event, set to expire within a year, a coercive patent infringement action by the licensor cannot reasonably be said to have been anticipated or threatened at the time of the initial filing.
The Supreme Court here rejected Tessera’s argument:
The relevant question concerns the nature of the threatened action in the absence of the declaratory judgment suit. Medtronic believes—and seeks to establish in this declaratory judgment suit—that it does not owe royalties because its products are noninfringing. If Medtronic were to act on that belief (by not paying royalties and not bringing a declaratory judgment action), Mirowski could terminate the license and bring an ordinary federal patent law action for infringement. Consequently this declaratory judgment action, which avoids that threatened action, also “arises under” federal patent law.
With this ruling, the Supreme Court has thrown another wrench in federal patent jurisdiction doctrine.