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Attorneys

Patent Owners have Burden of Proof in Declaratory Judgment Actions

February 11 2014

By Audrey A. Millemann

On January 22, 2014, the United States Supreme Court decided that a patent owner has the burden of proving infringement in an action filed by a licensee for a declaratory judgment of noninfringement. This case, Medtronic, Inc. v. Mirowski Family Ventures, LLC, 2014 U.S. LEXIS 788 (2014), reversed a Federal Circuit Court of Appeals decision holding that in such a case, the burden of proof shifts to the licensee to prove it did not infringe.

In 1991, Medtronic and Mirowski entered into a license. Medtronic made medical devices, including cardiac devices, and Mirowski owned patents covering heart simulator implants. The license provided that if Mirowski believed that a new product of Medtronic was covered by the patents, Mirowski would give notice to Medtronic. Medtronic could then choose one of three options: agree to pay royalties for the new product, pay royalties and also challenge Mirowski’s finding of infringement, or not pay royalties, when which would allow Mirowski to terminate the license and sue Medtronic for patent infringement. The parties later modified the license to allow Medtronic to pay royalties into an escrow account if it decided to challenge Mirowski’s finding of infringement, with the winner receiving those royalties.

In 2007, Mirowski notified Medtronic that several new Medtronic products infringed Mirowski’s patents. Medtronic disagreed and sued Mirowski in the district court in Delaware for a declaratory judgment of noninfringement and invalidity. Pursuant to the license, Medtronic paid royalties for these products into an escrow.

The district court tried the case and ruled in favor of Medtronic. The court found that the burden of proving infringement fell on Mirowski and that it had not met that burden.

Mirowski appealed to the Federal Circuit Court of Appeals. The court concluded that Medtronic had the burden of proof, reversing and remanding the case. The court held that the patent owner normally bears the burden of proving infringement and that the burden remained on the patent owner even in a declaratory judgment action where the patent owner is a defendant asserting a counterclaim for infringement. The court held, however, that the burden shifts to the declaratory judgment plaintiff when the plaintiff is a licensee paying royalties and the patent owner is precluded from suing for infringement because the license is being performed. In such a case, the court said, the licensee has the burden of showing noninfringement.

Medtronic filed a petition for writ of certiorari to the Supreme Court and the Court granted the petition.

MedImmune. Under the Federal Circuit’s rule, if a licensee wants to challenge a patent (such that the burden of proof of infringement is on the patent owner), it must repudiate the license and force the patent owner to sue for infringement, risking treble damages and attorneys’ fees if it loses. As Medtronic explained, this is exactly the problem the Supreme Court had intended to solve in MedImmune.

The Court addressed the question of who bears the burden of proving infringement (or noninfringement) when a patent licensee continues to pay royalties but sues for a declaratory judgment of noninfringement. The Court held that the burden remains on the patent owner. 2014 LEXIS 788 at *13.

The Court first analyzed the issue as a matter of “simple legal logic.” Id. at *13-15. The Court explained that the burden of proof typically falls on the patent owner; the Declaratory Judgment Act is procedural; and the burden of proof is a substantive issue -therefore, the burden of proof remains on the patent owner. Id. at *15.

The Court noted that Federal Circuit’s burden-shifting rule would result in uncertainty in the marketplace and the possibility of inconsistent results. The declaratory judgment action might not result in a clear determination of the rights of the parties. Id. at *16.

According to the Court, the patent owner is in the best position to prove whether a product infringes the patent. The licensee should not have to figure out the patent owner’s theory of infringement.

The Court held that the Federal Circuit’s burden shifting exception conflicts with the Declaratory Judgment Act. The court explained that in its MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) decision, it had specifically intended to eliminate the problem faced by a licensee who wanted to challenge infringement without having to repudiate the license and force the patent owner to sue for infringement. MedImmune permitted licensees to continue to pay royalties and challenge infringement at the same time. Absent the procedure set forth in MedImmune, Medtronic would either have to give up its right to challenge infringement or stop paying royalties to sue for declaratory judgment, risking being sued for infringement and held liable for willful infringement (with treble damages and attorneys’ fees) if it was found to infringe. The Court said that the Federal Circuit’s decision “create[s] a significant obstacle” to the use of the MedImmune process, and that “we are unaware of any strong reason for creating that obstacle.” Id. at *17.

The Court did not think much of an argument propounded on behalf of Mirowski that unless the Court affirmed the Federal Circuit’s rule, licensees could force patent owners into litigation over infringement at any time. According to the Court, there must be a genuine dispute for a declaratory judgment action to be brought, and, in this case, Mirowski’s claim of infringement triggered the dispute. Id. at *20. The Court found “no convincing reason why the burden of proof law should favor the patentee.” Id. at *21.

The Court further explained that its rationale was supported by public policy in ensuring that “‘patent monopolies…are kept within their legitimate scope.’ [Citation omitted.]” Id. at *21. “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.’” Id., quoting Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 349-50 (1971).

This decision means that it is now irrelevant which party files the lawsuit and is the plaintiff. The patent owner, not the accused infringer, bears the burden of proof no matter whether it is the plaintiff or the defendant.