Medtronic v. Mirowski – Supreme Court Holds Patentee Bears Burden Of Persuasion In Declaratory Judgment Action Brought By Licensee
In a unanimous decision, the U.S. Supreme Court held in Medtronic, Inc. v. Mirowski Family Ventures, LLC (No. 12-1128) that “[w]hen a licensee seeks a declaratory judgment against a patentee that its products do not infringe the licensed patent, the patentee bears the burden of persuasion on the issue of noninfringement.” This decision reverses a 2012 decision by the Federal Circuit that in such a case the party seeking the declaratory judgment bears the burden of persuasion of proving non-infringement of the patents at issue.
The parties had entered into a patent licensing agreement in 1991. As part of the agreement, Mirowski could give notice to Medtronic of Mirowski’s belief that a new Medtronic product infringed a Mirowski patent. If this happened, Medtronic could either cure the nonpayment of royalties or it could pay royalties but also challenge the assertion of infringement through a declaratory judgment action. If Medtronic chose to ignore the notice given by Mirowski, Mirowski could then terminate the license and bring an infringement action against Medtronic. In 2006, the parties modified their agreement providing that if Medtronic chose to pursue a declaratory judgment action, Medtronic could accumulate any disputed royalties in an escrow account, with the prevailing party receiving the escrowed royalties.
In 2007, the parties were at odds over a dispute concerning seven new Medtronic products. Medtronic then brought a declaratory judgment action in federal district court in Delaware, seeking judgment of non-infringement and invalidity of the patents at issue. During the litigation, there was a dispute between the parties over which party bore the burden of persuasion concerning the infringement issue: Medtronic as the plaintiff in the litigation or Mirowski as the patentee. The district court determined that Mirowski, “[a]s the part[y] asserting infringement,” bore the burden and ultimately held after a bench trial that Mirowski had not proved infringement.
The Federal Circuit reversed, holding that it was Medtronic who bore the burden of persuasion in proving non-infringement. The court acknowledged that normally it is the patentee, not the accused infringer, that bears the burden of proving infringement, and that this burden will not shift even where the patentee is a counterclaiming defendant in a declaratory judgment action. But, the court ultimately determined a different rule should apply in a case such as this where the patentee is “foreclosed” from asserting an “infringement counterclaim” by the “continued existence of a license.” The case was then appealed to the U.S. Supreme Court.
Before getting to the merits of the dispute concerning the burden of persuasion, the Supreme Court briefly discussed a jurisdictional matter raised in an amicus brief. The amicus asserted that the Federal Circuit did not have subject matter jurisdiction over the case because Mirowski’s underlying claim to which the declaratory judgment action related was a breach of contract, not a patent infringement, claim. The Supreme Court disagreed with this characterization as the license agreement specified that Mirowski could terminate the agreement and bring a claim of patent infringement. The Supreme Court therefore held there was subject matter jurisdiction.
Turning to the real question presented, the Supreme Court determined that “[s]imple legal logic, resting upon settled case law, strongly supports [the] conclusion” that the patentee bears the burden of persuasion regarding infringement in this type of case. The Court noted that (1) “[i]t is well established that the burden of proving infringement generally rests upon the patentee,” (2) the Declaratory Judgment Act is only “procedural” and leaves “substantive rights unchanged,” and (3) the burden of proof is a “substantive aspect of a claim,” citing prior Supreme Court precedent. The Court concluded that “[t]aken together these three legal propositions indicate that, in a licensee’s declaratory judgment action, the burden of proving infringement should remain with the patentee.”
The Court next considered policy considerations that ultimately led the Court to the same conclusion. The Court determined that shifting the burden depending on the form of the action “could create postlitigation uncertainty about the scope of the patent” as it is possible that a declaratory judgment plaintiff could fail to carry the burden of persuasion of non-infringement and the patentee, in a subsequent case, could also fail to carry its burden of persuasion of infringement. Further, having the licensee bear the burden of persuasion on non-infringement could “create unnecessary complexity by making it difficult for the licensee to understand upon just what theory the patentee’s infringement claim rests.” Finally, the Court explained that “burden shifting here is difficult to reconcile with a basic purpose of the Declaratory Judgment Act”, namely to “ameliorate the dilemma posed by putting one who challenges a patent’s scope to the choice between abandoning his rights or risking suit” (internal quotations omitted).
The Supreme Court then discussed the Federal Circuit’s underlying opinion. The Court disagreed that the Federal Circuit’s reliance on the Supreme Court’s 2005 decision in Schaffer v. Weast (containing language that the “ordinary default rule” is that “plaintiffs” have the “risk of failing to prove their claims”) was applicable as Schaffer was not a declaratory judgment case and that decision also described exceptions to the general rule. The Court held that a case such as this one is an exception to the Schaffer general rule. Next, the Court discounted the Federal Circuit’s description of its own holding as a "limited" one, explaining that “the fact that a rule’s scope is limited cannot, by itself, show that the rule is legally justified.”
Finally, the Court discussed a concern raised in an amicus brief that the Court’s holding would burden patent owners by permitting a licensee to force a patentee into patent infringement litigation. The Court dismissed this concern as, citing MedImmune, “litigation can occur only in the presence of a genuine dispute, of sufficient immediacy and reality, about the patent’s validity or its application” (internal quotations omitted).
The Court concluded by noting that “[t]he 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.’ 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.’ And ‘[l]icensees may often be the only individuals with enough economic incentive’ to litigate questions of a patent’s scope. 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.” (internal citations omitted).