Supreme Court Rules that Patent Owners Bear the Burden of Proving Patent Infringement Even When Licensees File a Litigation Asking the Court to Declare that the Licensees Do Not Infringe the Patent

By D. Brian Kacedon, John C. Paul, and Andrew E. Renison

Patent owners ordinarily bear the burden of proving a claim of patent infringement in a lawsuit. This is true whether the patent owner initiated the lawsuit by suing for infringement or the accused infringer initiated the suit by seeking a declaratory judgment that it does not infringe the patent or that the patent is invalid or both. While the latter is the typical patent declaratory judgment action, in some instances an entity who is already licensed under the patents at issue will seek such a declaratory judgment of noninfringement or invalidity usually for the purpose of avoiding royalty obligations under the license. Because the accused entity in that situation is licensed and thus, cannot be sued for infringement, questions have arisen as to whether the patent owner should still bear the burden of proving infringement in such an action. In Medtronic, Inc. v. Mirowski Family Ventures, LLC,¹a unanimous Supreme Court determined that the burden on proving infringement does not change in these circumstances.

Background

In 1991, Mirowski Family Ventures LLC, which owns patents on implantable heart stimulators, entered into a license agreement with Eli Lilly & Co. As permitted under the agreement, Eli Lilly then sublicensed the patents to Medtronic, Inc., which designs, makes, and sells medical devices. The 1991 Agreement permitted Medtronic to practice certain Mirowski patents in exchange for royalty payments. If Mirowski provided notice to Medtronic that a new Medtronic device infringed a licensed patent, Medtronic could either (1) cure the nonpayment, (2) simultaneously pay royalties and challenge the validity or infringement of the patent through a declaratory-judgment action, or (3) simply ignore the agreement and not pay royalties, whereby Mirowski could terminate the license and bring an infringement action. In 2006, the parties modified the 1991 Agreement to provide that, if Medtronic brought a declaratory-judgment action challenging infringement, it must deposit any disputed royalties in an escrow account pending resolution of the action.

In 2007, Mirowski notified Medtronic that it believed certain new Medtronic devices infringed several claims of two licensed patents. Medtronic disagreed and brought a declaratory-judgment action in district court seeking a judgment that its products did not infringe the patents and that the patents were invalid. The district court determined that Mirowski—the party asserting infringement—bore the burden of proof, and that it had not met that burden. On appeal, the Federal Circuit determined that Medtronic—the licensee and declaratory-judgment plaintiff—bore the burden. The Federal Circuit—despite acknowledging that the patentee usually bears the burden of proof and that this burden normally does not shift even where the patentee is a counterclaiming defendant in a declaratory-judgment action—believed that the "continued existence of a license" dictated a different result.

The Supreme Court's Decision

In reviewing the Federal Circuit's ruling, a unanimous Supreme Court held that the burden of proving infringement remains with the patent owner when a licensee seeks a declaratory judgment against the patent owner. Before turning to the merits, the Court addressed a jurisdictional issue, finding that the Federal Circuit did not lack subject-matter jurisdiction over the dispute. According to an amicus, in the absence of a declaratory judgment, Mirowski—the declaratory-judgment defendant—would have brought an action for damages for breach of contract rather than a patent-infringement action. Under this argument, Mirowski's action would not be a "civil action arising under" an "Act of Congress relating to patents" as required by the statute conveying jurisdiction to federal courts. The Supreme Court disagreed. While the Court agreed that federal courts, when determining declaratory-judgment jurisdiction, often look to the "character of the threatened action," it disagreed with the characterization of the "threatened" action here. The Court explained that if Medtronic acted on its belief about noninfringement by not paying royalties and not bringing a declaratory-judgment action, Mirowski could terminate the license agreement and sue Medtronic for infringement. Thus, according to the Court, Medtronic's declaratory-judgment action, which avoided Mirowski's threatened patent action, "arose under" federal patent law.

Turning to the merits of the case, the Supreme Court identified three legal principles and related practical considerations supporting its conclusion that the burden remained with the patentee.

First, the Court highlighted established case law holding that the burden of proving infringement generally rests on the patentee. Second, the Court noted that the Declaratory Judgment Act's operation is solely procedural and does not change the parties' substantive rights. Third, the Court identified the burden of proof as a substantive aspect of a claim. Taken together, the Court explained, these three principles indicate that the patent owner carries the burden of proof in a licensee's declaratory-judgment action.

The Supreme Court supported its holding with several practical considerations. First, shifting the burden to the licensee could create postlitigation uncertainty about the scope of the patent. The Court illustrated the burden-shifting problem with an example. If an alleged infringer lost a declaratory judgment action because it failed to prove noninfringement because of inconclusive evidence, a patentee might then lose its subsequent action for infringement (where it would carry the burden) because of inconclusive evidence. Thus, both sides could lose on the issue of infringement, leaving the scope of the patent uncertain. The Court explained that, because issue preclusion would not apply in a later suit where the burden of persuasion had shifted, this scenario could occur, thereby frustrating the purpose of the Declaratory Judgment Act. Next, shifting the burden could create unnecessary complexity because the licensee could find it difficult to identify the patentee's theory. Because the patentee can more easily assert how and why a product or process allegedly infringes, the patentee should shoulder the burden. Finally, shifting the burden to the licensee conflicts with a basic purpose of the Declaratory Judgment Act in these situations—to ameliorate the dilemma faced by the licensee challenging the patent of choosing between either abandoning its right to challenge the scope of the licensed patent or ceasing royalty payments and risking an infringement suit.

The Supreme Court then dismissed several arguments contrary to its decision. First, the Court distinguished one of the primary decisions relied on by the Federal Circuit because that decision did not involve a declaratory-judgment action. Second, the Court noted that merely because the Federal Circuit emphasized that its holding narrowly applied only where a continuous license existed, this did not, by itself, justify the rule. In fact, the Court explained, this situation is often present when a licensee disputes a claim of infringement. Third, the Court addressed concerns that its holding would give licensees sole discretion on whether to institute an infringement action. Citing MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007), the Court explained that a genuine dispute "of sufficient immediacy and reality" about the patent's validity or application must exist before litigation can occur. Further, the Court noted, Mirowski—not the licensee—initiated the dispute by accusing Medtronic of infringement.

Finally, the Supreme Court considered the public interest in maintaining a stable patent system. Noting the public's interest in challenging patent rights, the Court explained that licensees are often the only individuals with enough economic incentive to make such challenges. Thus, the Court found, considerations of the general public interest balanced with the ordinary rule imposing the burden of proving infringement on the patent owner regardless of whether the patent owner or the licensee initiated the litigation.

Endnotes
¹The opinion can be found at http://www.supremecourt.gov/opinions/13pdf/12-1128_h315.pdf.

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