Guest Post by Megan M. La Belle, Assistant Professor at Catholic University of America, Columbus School of Law
Yesterday, the Supreme Court heard oral argument in Medtronic v. Boston Scientific, the first patent case of the term. The issue before the Court is whether the burden of proof in a declaratory judgment action should be on the patent owner to prove infringement or on the accused infringer to prove noninfringement. Ordinarily, the patent owner bears the burden of proving infringement, and the declaratory posture of a suit does not shift that burden. In Medtronic, however, the Federal Circuit created an exception for “MedImmune-type” cases since the patent owner cannot counterclaim for infringement. “Because the declaratory judgment plaintiff is the only party seeking the aid of the court,” the Federal Circuit reasoned, it should bear the burden of proving noninfringement.
Seth Waxman, on behalf of Medtronic, started his argument with the non-controversial proposition that patent law places the burden of proving infringement on the patent owner. Mr. Waxman went on to argue that the burden should not shift when the infringement question is raised in a declaratory judgment action – including MedImmune-type suits – because the Declaratory Judgment Act is merely a procedural device that does not alter substantive rights. For the most part, the justices appeared to agree with Mr. Waxman. However, a few questions were raised by Chief Justice Roberts, Justice Kagan, and Justice Kennedy about the fairness of allowing an accused infringer to enter into a license and then turn around and sue the patent owner for declaratory relief. In the Chief Justice’s words: “The idea is you’re moving along with the license, everybody’s happy. All of a sudden you jump into court. Why shouldn’t you have the burden as the party who seeks to disturb the status quo?”
Both Mr. Waxman and Curtis Gannon, arguing on behalf of the government as amicus curiae, addressed these questions of potential unfairness to the patent owner. They asserted that shifting the burden of proof was not the appropriate way to address the problem. Mr. Waxman suggested, instead, that patent owners could take certain steps to protect themselves, for instance by including specific contractual provisions in the license that contemplate a declaratory judgment action by the licensee. Mr. Waxman proposed a number of possible license provisions, including one that would increase the royalty rate if the accused infringer brings a declaratory judgment action, or a provision that makes the filing of a declaratory judgment action a breach of the license agreement. Mr. Gannon agreed with Mr. Waxman, and made one additional point. He said this problem of potential unfairness to the patent owner – assuming it is a problem – should be addressed by estoppel, not by shifting the burden of proof:
But even if there were some concern about the licensee turning around and challenging the agreement that it had previously made, it seems like the problem there is either that they should be estopped by what they already said in the agreement or Lear [v. Adkins] needs to be extended to keep them from being estopped in that way. But shifting the burden of proof seems like an odd way to get at solving whatever the quandary there might be.
The looming question since MedImmune is whether Lear allows patent owners to “license around” this problem as suggested, or whether such provisions undermine Lear’s policy of encouraging patent challenges. Unfortunately, Medtronic is unlikely to answer that question, so licensing parties will to continue to wonder if these types of provisions are in fact valid and enforceable.
Arguing on behalf of the patent owner, Mirowski Family Ventures, Arthur Neustadt defended the Federal Circuit’s decision in Medtronic. Mr. Neustadt contended that the Federal Circuit correctly applied the “default rule,” which allocates the burden of proof to the party seeking relief. Because Medtronic was the only party seeking relief in this case, Mr. Neustadt reasoned, it should bear the burden of proving noninfringement. Justice Scalia began the questioning by stating that this default rule generally doesn’t apply to declaratory judgment actions. So, Justice Scalia asked, “[w]hat’s different here?” Mr. Neustadt responded that this case is different because the patent owner could not assert a counterclaim for infringement due to the license. Justice Scalia was not persuaded by that argument because, as he explained, defendants in declaratory judgment actions often cannot counterclaim:
The whole purpose of the declaratory judgment statute is to enable you to sue before the other side has a cause of action against you. That’s the whole purpose of it. So – so why should the fact that the other side doesn’t have a counterclaim change anything? That’s usually the situation.
Following up on this line of questioning, Justice Ginsburg asked whether Mr. Neustadt was saying that the burden of proof should shift in every declaratory judgment action where only one party is seeking relief. Mr. Neustadt confirmed that that was his position; in his view, the burden shifting rule established in Medtronic should not be limited to patent cases. This question of how far the Medtronic rule might extend is also explored in an essay I recently published.
Throughout his argument, Mr. Neustadt made the point that this isn’t a dispute about infringement, it’s a dispute about claim coverage under the license agreement. In other words, because there’s a license in place, Medtronic cannot be infringing the patent. The justices seemed to think this was a distinction without a difference, however. At one point Justice Breyer said: “[Y]ou want to call that a claim coverage. I would call it no infringement. Call it what you wish.” Later in the argument, Justice Kagan disagreed with Mr. Neustadt’s characterization more directly: “You keep on saying it’s a question of claim coverage, but the question of claim coverage, all that is, is part of an infringement analysis.”
One issue the Court did not ask many questions about at oral argument was subject matter jurisdiction. While subject matter jurisdiction was not raised by the parties, an amicus brief filed by Tessera Technologies argued that the case does not arise under the patent laws because it’s really a contractual royalty dispute, not a dispute about patent infringement. Tessera relied heavily on the Supreme Court’s recent decision in Gunn v. Minton, which concerned the question of jurisdiction over patent malpractice actions. Yet, at yesterday’s argument, the only question raised on the topic was by Justice Ginsburg who asked the government for its views on subject matter jurisdiction. Mr. Gannon stated that the government believes this case arises under the patent laws. He explained that, in declaratory judgment actions, subject matter jurisdiction is determined by considering what claims would be asserted in the hypothetical coercive action brought against Medtronic. In other words, if Medtronic were to stop paying royalties and breach its license agreement, the patent owner would sue not only for breach of contract, but for patent infringement as well. Although the Court did not devote much time to subject matter jurisdiction, the issue was discussed at some length at a post-argument discussion hosted yesterday afternoon by the American University Washington College of Law. It will be interesting to see to what extent the Court addresses this jurisdictional question in its final decision.
A copy of the full transcript is available here.
The Court is expected to issue its decision before the end of June 2014.
