Summary of Oral Argument in Medtronic v. Boston Scientific by Prof. La Belle

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. 

 

19 thoughts on “Summary of Oral Argument in Medtronic v. Boston Scientific by Prof. La Belle

  1. 5

    Let me see if I understand. For new products, the patentee had to identify the products and the licensee could dispute that by filing a DJ action of non infringement. The is no possibility of an infringement action. The real question presented here is who has the burden in the contract of proving whether the new product is covered, the patentee or the licensee. This is a contract question and a state law question, not a matter of exclusive federal jurisdiction.

  2. 4

    What if the license agreement required disputes about whether a product was covered by the agreement or not to be submitted to mandatory arbitration, that failure to do so would be a breach, that royalties on all licensed products would then increase by a substantial amount.

        1. 3.1.1.1

          My reasons pretty much mirror those argued, I need not repeat them. How’s about your prediction brosef?

          1. 3.1.1.1.1

            I will make it soon. I was hoping that MM and anon would join in for some objective measure of who understands patent law.

  3. 2

    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. This exchange seems to suggest one form of a “better” license (from the patentee’s viewpoint, anyway). Why not draft an agreement where the penalty for breach of the contract better approximates the damages that would result from the hypothetical infringement, and where (in exchange) the patentee agrees not to sue for patent infringement in the event of breach. In this manner, the subject matter jurisdiction for the DJ action would disappear along with the threat of infringement … I think.

  4. 1

    “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” Scalia, gotta love how he cuts to the meat of the matter.

    1. 1.1

      That’s not the purpose of the DJ statute. J. Scalia – poster boy for mandatory retirement age for judges.

        1. 1.1.1.1

          Admittedly I only skimmed the article, but I didn’t see anything in it that supports the conclusion that “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.” Can you point to a particular passage in the article that you think supports that conclusion? (My guess is you can’t, and you won’t even bother to try providing one. What you’ve done is your usual 3 or 4 word Google or altlaw.org search and pulled this article out of your posterior.)As for Wiki, it defines declaratory judgement thusly: A declaratory judgment, also called a declaration, is the legal determination of a court that resolves legal uncertainty for the litigants. It is a form of legally binding preventive adjudication[1] by which a party involved in an actual or possible legal matter can ask a court to conclusively rule on and affirm the rights, duties, or obligations of one or more parties in a civil dispute (subject to any appeal). Parties that are involved in an “actual” legal matter (assuming that means a lawsuit) certainly have a cause of action. So do parties involved in a “possible” legal action. You may very well be infringing my patent. You may even admit it. We may even be in negotiations to remedy it. But just because I haven’t yet filed an infringement complaint against you doesn’t mean I don’t have a cause of action.

          1. 1.1.1.1.2

            “certainly have a cause of action”They necessarily have a set of facts sufficient to justify a right to sue to obtain money, property, or the enforcement of a right against another party? Nah bro, see Myriad. The sole person who had standing (at least by the federal circuit’s reckoning) had not infringed, so Myriad had no set of facts sufficient to justify a right to sue to obtain money, property or the enforcement of a right. And certainly Dr. Osterer, or whatever his name was, had no facts sufficient to justify a right to obtain money, property or the enforcement of a right, unless you consider his being able to practice the patented “invention” a “right” which I doubt. But it’s ok, my 5 second google searches bests your supposed lawl degree for like the 4th time just this month on account of your unfortunate lack of intelligence or reading the case under discussion. It’s ok bro, I know you try. It’s embarrassing when you do, usually, but at least you try, and it’s good enough to pay your day to day bills. “But just because I haven’t yet filed an infringement complaint against you doesn’t mean I don’t have a cause of action”Correct, but it doesn’t mean that you do either.

            1. 1.1.1.1.2.1

              As to what the article says specifically that I felt was agreeing with Scalia that is quite simple, it notes that a request for declaratory relief is generally superfluous when accompanied by another cause of action. If you had a cause of action, you’d simply use that. “See Gouriet v Union of Post Office Workers, 1978 App Cas 435, 501 (HL) (Diplock) (arguingthat a request for declaratory relief is “generally superfluous” when accompanied by another cause of action and is most useful “when an infringement of the plaintiff’s rights in the future is threatened or . . . there is a dispute between parties as to what their respective rights will be if something happens in the future See Gouriet v Union of Post Office Workers, 1978 App Cas 435, 501 (HL) (Diplock) (arguing that a request for declaratory relief is “generally superfluous” when accompanied by another cause of action and is most useful “when an infringement of the plaintiff’s rights in the future is threatened or . . . there is a dispute between parties as to what their respective rights will be if something happens in the future that a request for declaratory relief is “generally superfluous” when accompanied by another cause of action and is most useful “when an infringement of the plaintiff’s rights in the future is threatened or . . . there is a dispute between parties as to what their respective rights will be if something happens in the future”It also cites to this guy who is basically arguing that all the declaratory judgement laws did was create a faux cause of action under the guise of being procedural. link to papers.ssrn.com

              1. 1.1.1.1.2.1.1

                “See Gouriet v Union of Post Office Workers, 1978 App Cas 435, 501 (HL) (Diplock) (arguing that a request for declaratory relief is ‘generally superfluous’ when accompanied by another cause of action and is most useful ‘when an infringement of the plaintiff’s rights in the future is threatened or . . . there is a dispute between parties as to what their respective rights will be if something happens in the future'”That’s your authority? You do keep me laughing.

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