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DJ Plaintiff Licensee Bears Burden of Proving Noninfringement Where DJ Defendant Licensor Cannot File DJ Counterclaim Under the License

September 18, 2012

Decision icon Decision

Last Month at the Federal Circuit - October 2012

Judges: Lourie, Linn (author), Prost

[Appealed from: D. Del., Judge Robinson]

In Medtronic Inc. v. Boston Scientific Corp., Nos. 11-1313, -1372 (Fed. Cir. Sept. 18, 2012), the Federal Circuit vacated the district court’s judgment of noninfringement and determination that Mirowski Family Ventures, LLC’s (“MFV”) U.S. Reissue Patent Nos. RE38,119 (“the RE’119 patent”) and RE39,897 (“the RE’897 patent”) (collectively “the patents-in-suit”) were valid because the district court relied on a legally incorrect allocation of the burden of proof in its findings and incorrectly construed the claim terms in question.

The patents-in-suit cover a cardiac resynchronization therapy (“CRT”) device used for treating heart conditions, such as congestive heart failure. Medtronic, Inc. (“Medtronic”) entered into a sublicense agreement covering the RE’119 patent. The sublicense provided Medtronic the right to challenge the RE’119 patent’s validity, enforceability, and scope via a DJ action. A Litigation Tolling Agreement (“LTA”) was subsequently executed that obligated MFV to inform Medtronic of which Medtronic products MFV believed to be covered by the RE’119 patent (or patents claiming priority from the RE’119 patent (e.g., the RE’897 patent)), and were subject to royalty payments. Under the LTA, if Medtronic disagreed, Medtronic maintained the right to retain its license but was obligated to seek a DJ of noninfringement.
MFV identified several Medtronic products that MFV thought practiced its patents. Pursuant to the LTA, Medtronic then filed the complaint for the instant DJ action.

At the trial court, the parties disagreed over whether MFV, the patentee, bore the burden of proving infringement, or whether Medtronic, the DJ plaintiff, bore the burden of proving noninfringement. The district court concluded that the burden is always on the patentee to show infringement, and, thus, MFV bore the burden of proof by a preponderance of the evidence. The district court found that MFV failed to prove infringement (both literal and under the DOE) based on deficiencies in MFV’s expert report. The district court also construed certain preamble terms in the patents-in-suit as being limited specifically to the treatment of congestive heart failure, relying on portions of the specification.

On appeal, the Court first considered which party bore the burden of proving infringement. MFV argued that because Medtronic was the DJ plaintiff, Medtronic bore the burden of proving noninfringement. MFV further argued that the terms of the LTA precluded it from counterclaiming for infringement and the district court erred because MFV did not technically assert infringement. In agreeing with MFV, the Court recognized that, under MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 134 (2007), a licensee making royalty payments pursuant to a license should not be forced to cease payments and risk infringement liability before the licensee can challenge the extent of coverage of the license. Thus, MedImmune shielded licensees from economic consequences “while enabling those licensees to file declaratory judgment suits to clarify the rights and obligations of the parties under their license agreements.” Slip op. at 8. The Court recognized that in customary DJ actions, a DJ defendant must assert a counterclaim for infringement, as such a counterclaim is compulsory, and that the burden is on the counterclaiming defendant to show infringement.

Here, however, the Court found that the continued existence of the license, as sanctioned by MedImmune, precluded MFV from asserting an infringement counterclaim, distinguishing from customary DJ actions. The Court noted that Medtronic sought relief relating directly to its contractual obligations under the license, while MFV sought nothing more than to be permitted to continue the quiet enjoyment of its contract. The Court found that because Medtronic was the party seeking disturbance of “the status quo ante” in seeking relief from liability under the license and the only party seeking aid from the courts, Medtronic had the burden to present evidence that it was entitled to such relief. Id. at 11. Accordingly, the Court reversed the district court’s decision, holding that in “the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion.” Id. at 12. Thus, the Court held that MFV did not have the burden of proof and the district court’s holding that the defendants failed to prove infringement could not stand.

The Court then addressed the district court’s claim construction. The Court agreed with Medtronic and found that the district court erred by restricting the claimed invention to the treatment of congestive heart failure. The Court noted that the specification discloses the use of the invention to treat other diseases besides congestive heart failure, and the district court’s claim construction was improper. The Court therefore vacated the district court’s determination of no invalidity predicated on the improper claim construction.

Accordingly, the Court remanded the case for additional proceedings consistent with the Court’s opinion.

Summary authored by Victoria S. Lee, Esq.