January 23, 2014
On January 22, 2014, the Supreme Court decided Medtronic, Inc. v. Mirowski Family Ventures, LLC, 571 U.S. ___ (2014), ruling unanimously that a patentee defendant bears the burden of proving infringement in a declaratory judgment action.
Medtronic arose out of two patents assigned to Mirowski Family Ventures, which Mirowski licensed to Medtronic in 1991. In 2007, Mirowski asserted that seven Medtronic products violated Mirowski’s patents. Medtronic disagreed, and, pursuant to the terms of the parties’ licensing agreement, deposited royalties for those products in an escrow account, and filed a declaratory judgment action in federal court in Delaware alleging that its products did not infringe Mirowski’s patents. In the district court, the parties disputed who bore the burden of proving infringement, and after a five-day bench trial, the district court concluded that Mirowski, although the defendant in the action, bore the burden "[a]s the part[y] asserting infringement." The district court further found that Mirowski had failed to meet its burden, and entered a declaratory judgment in Medtronic’s favor.
The Federal Circuit reversed on the allocation of the burden of proof. The court acknowledged that normally a patentee, not the accused infringer, bears the burden of proving infringement and that the burden normally will not "shift" even when the patentee is "a counterclaiming defendant in a declaratory judgment action." Nonetheless, the Federal Circuit determined that a different rule applies where that patentee-defendant is "foreclosed" from asserting an "infringement counterclaim" by the "continued existence of the license."
The Supreme Court reversed in a unanimous opinion by Justice Breyer. The Court held that it is "well established that the burden of proving infringement generally rests upon the patentee." The Court reiterated its long-established rule that the Declaratory Judgment Act is "only procedural," and leaves "substantive rights unchanged." And because "the burden of proof is a substantive aspect of the claim," the Court held that "in a licensee’s declaratory judgment action, the burden of proving infringement should remain with the patentee."
Several practical considerations also supported the Court’s reasoning.
First, the Court noted that shifting the burden "depending upon the form of the action" could create "postlitigation uncertainty." A licensee that fails to carry its burden in its declaratory judgment action might nonetheless continue to infringe under the theory that in an infringement action (where the patentee bore the burden) it might still prevail. Such a result, in which both parties fail to prove infringement, would "leave the infringement question undecided, creating uncertainty among the parties and others who seek to know just what products and processes they are free to use."
Second, the Court reasoned that placing the burden of proof on a licensee can create "unnecessary complexity by making it difficult for the licensee to understand upon just what theory the patentee’s infringement claim rests." Such a rule would oblige a licensee to "work in the dark" and seek to "negate every conceivable infringement theory." By contrast, the patent holder is in a better position to know "and to be able to point out just where, how, and why a product (or process) infringes a claim of that patent."
Finally, the Court reasoned that the burden-shifting framework adopted by the Federal Circuit was at odds with "the basic purpose of the Declaratory Judgment Act," which was designed to "ameliorate the dilemma posed by putting one who challenges a patent’s scope to the choice between abandoning his rights or risking suit." Although the burden-shifting rule does not deprive Medtronic of the right to seek a declaratory judgment action, it does, the Court explained, "create a significant obstacle to use of that action," because shifting the burden would make the "declaratory judgment procedure–compared to, say, just refusing to pay royalties–disadvantageous." Thus, "[t]o that extent it recreates the dilemma the Declaratory Judgment Act sought to avoid."
Medtronic allows a licensee to pretermit potential infringement actions without risking large damages awards for willful infringement. In appropriate circumstances, this will allow parties to license agreements to clarify their respective rights, in keeping with the broader public purposes that both the Declaratory Judgment Act and the Patent Act were enacted to promote.
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