Supreme Court Hears Argument on Burden of Proof for DJ Plaintiff

The Supreme Court on November 5, 2013, heard oral argument on whether the burden of proof in an action for a declaratory judgment of non-infringement falls on the plaintiff licensee or on the defendant patentee. Medtronic Inc. v. Boston Scientific Corp., U.S., No. 12-1128, oral argument 11/5/2013.

The debate centered around whether a patentee/defendant sued for a declaratory judgment of non-infringement is required to prove a case of infringement that was neither alleged nor arguably possible where the DJ plaintiff is a licensee. The Petitioner argued that the burden that would be on the patentee as infringement plaintiff does not change when it is a DJ defendant. The Respondent argued that, because the patentee cannot assert an infringement counterclaim against its licensee in good standing, the normal default rule places the burden on the party that initiates the action.

Petitioner’s Argument

Patent law places the burden of proving infringement on the patentee, and the procedural device provided by the Declaratory Judgment Act does not shift that burden, according to Seth Waxman of WilmerHale, arguing for Petitioner Medtronic. The Federal Circuit erred in changing the rule where the DJ plaintiff is a licensee.

Justice Alito wondered why this burden issue really matters if the defendant/patentee would have to refute the plaintiff’s non-infringement allegations with evidence of infringement. Waxman answered that where the burden rests is often outcome-determinative. He also said that the Declaratory Judgment Act was meant as a mechanism to determine how “the equivalent coercive action” would be resolved. However, under Medimmune, Chief Justice Roberts noted, the DJ plaintiff/licensee has the ability to suddenly run to court with a patent challenge even though the patentee has agreed to the license. Shouldn’t the burden apply to the party who seeks to disturb the status quo, he asked. Waxman replied that it should not because that would result in a change which the Declaratory Judgment Act was not intended to create.

Justice Kennedy pointed out that the patentee gave notice of potential infringement, and asked if the notice was sufficient to create the controversy required for the DJ action. Waxman answered that it was, citing the license requirement that Medtronic report new products to allow the patentee to decide whether to assert infringement. Does it matter that the statute lists non-infringement as an affirmative defense, Justice Ginsburg asked. Waxman explained that non-infringement asserted here is not an affirmative defense, but rather is a general defense, as opposed to such affirmative non-infringement defenses as prosecution history estoppel or experimental use.

But what if Medtronic entered a patent agreement one day, concerning products whose use would infringe absence a license, Justice Kagan commented. Could Medtronic, after entering the agreement, later come to court under the Declaratory Judgment Act after deciding that those products don’t infringe after all, and who would bear the burden there? Assuming a threat of enforcement, the action could be brought and the patentee would bear the burden, Waxman answered. He added that a patentee could minimize this risk by requiring a paid-up-royalty, or requiring payments-per-unit whether there is infringement or not.

[AIPLA]

 

Government’s Argument

Appearing for the government as amicus curiae, Assistant Solicitor General Curtis Gannon said the government agrees that the burden of proof in this case applies just as it would in the hypothetical case that is the mirror image of the DJ action, i.e., upon a patentee suing for infringement. He noted that this is not a case where products would infringe but for the license because the products at issue did not even exist at the time the license was executed. Even if there were a concern about a licensee challenging an agreement it had previously made, such actions would be estopped by the agreement.

Gannon also said Medtronic’s action is not an attempt to change the status quo because there had been no meeting of the minds as to the products in question, and because the agreement expressly preserved the parties’ ability to challenge validity and enforceability. A DJ action is simply the mirror image of a hypothetical coercive action that could have been brought against Medtronic, he explained. But Chief Justice Roberts objected, noting the patentee’s argument that this is the mirror image of an action that could not have been brought because Medtronic is paying the royalties as a licensee in good standing. In that respect, this case is no different from Medimmune, Gannon replied.

Justice Ginsburg asked whether this is a patent case or instead a contract case with a patent issue. This case involves a claim arising under the patent laws, Gannon answered, explaining that the well-pleaded complaint is found in the hypothetical coercive action that would be brought against Medtronic.

Respondent’s Argument

Arthur Neustadt, of Oblan Spivak and appearing for Respondent Mirowski Family Ventures, LLC (MFV), said two stipulated facts support the Federal Circuit’s decision: (1) letters written to Medtronic were not notices of infringement, and (2) Medtronic, as a licensee, cannot be an infringer. Moreover, there was no “shifting” of a burden in this case because the burden imposed on the DJ plaintiff followed the “normal default rule.” That rule says a party that files a complaint and seeks relief has the responsibility of proving it is entitled to that relief, according to Neustadt.

Justice Scalia said that argument could be made in every DJ action to shift the burden of proof, and Supreme Court cases have said over and over that the burden does not shift. The difference here, according to Neustadt, is that there is no infringement because Medtronic is a licensee. Justice Kagan insisted that Medtronic could be an infringer if it stopped paying royalties and continued to make the products under the agreement, and that’s the world Medimmuneimagines.

That is not what happened in Medimmune, Neustadt insisted. That case was simply about a licensee that needed a DJ action to challenge the patent but could not afford to breach the license in order to create a dispute that would satisfy the jurisdictional requirement, he explained. Once this court said that a dispute short of breaching the license was sufficient, the case was remanded and would have reached the same burden question here, but it settled.

Justice Sotomayor asked how Neustadt could claim there is no infringement if the royalties under the license are not getting to his client, but are going to escrow instead. He answered that his client consented to the escrow payments under the agreement. And the agreement requires the patentee to resolve the dispute with proof of infringement, Justice Sotomayor persisted. No, the dispute addressed in the license is not infringement, but rather claim coverage, Neustadt answered, adding that the patentee has no counterclaim for infringement against a licensee.

Justice Scalia pointed out that a defendant in a DJ action has no counterclaim, explaining that the whole purpose of the Declaratory Judgment Act is to permit a party to sue before the other party has a cause of action against him. He said the Act addresses “potential coercion,” not “actual coercion.”  Neustadt answered that the burden of proof question is determined by the normal default rule, not the Declaratory Judgment Act, where the only party seeking relief is the party that initiated the action.

Justice Breyer picked up on Neustadt’s contention that the license dispute is “claim coverage,” and asked if that isn’t simply an issue of whether the product infringes the patent. Justice Kagan also suggested that a question of claim coverage is simply part of an infringement analysis. Neustadt suggested that the dispute over claim coverage contemplated in the agreement would not support a counterclaim for infringement against a licensee.

Justice Breyer asked about the practical problems identified by Medtronic and the government of placing the burden on the DJ plaintiff to anticipate and rebut an infringement theory for hundreds of patent claims. Neustadt said their arguments are “absolutely not true.” He first pointed out that using these considerations to turn away from the normal default rule would create a special rule for patents, which the eBay decision said was inappropriate. He next said that the answer to coverage rule in a typical patent case is provided by the very first interrogatory in the case, and that the all elements rule only requires the licensee to rebut one of whatever number of elements are at issue.

Finally, he said any argument cautioning about hundreds of patent claims “is ridiculous” because a district court would require the parties to reduce the case to perhaps five claims out of a concern for its docket. “That’s a good point,” Justice Breyer replied.