In what is becoming a noticeable trend, the Supreme Court last week once again reversed the Federal Circuit Court of Appeals on a patent issue when it involved the rules of civil procedure. In Medtronic, Inc. v. Mirowski Family Ventures, LLC, a unanimous Supreme Court held that “the burden of proving infringement remains with the patentee” even if that patent holder is the defendant in the case. This seems like something that should be obvious to a first year law student (and I’m not the only one who thinks so). But in the complex maze of patent litigation, the answer was not so clear and the Federal Circuit had decided otherwise (perhaps in an attempt to cling to some remnants of its discredited holdings regarding the rights of licensees to challenge a patent’s validity, discussed below).
In this case, plaintiff Medtronic had licensed patents from defendant Mirowski in exchange for defined royalty payments. The license provided that if Mirowski discovered later products that it thought infringed its patents, it could give notice to Medtronic. Medtronic would then have the choice of immediately paying Mirowski increased royalties, or challenging the assertion of infringement by filing a declaratory judgment action and paying royalties into an escrow account while the litigation proceeded. Predictably, when Mirowski notified Medtronic of additional possible infringements, Medtronic chose to file a declaratory judgment action, which sought both a declaration that the additional products did not infringe and a finding that the patents were invalid. The trial court properly placed the burden of proving infringement on the patent holder Mirowski, and after a bench trial, determined that Mirowski had not proven infringement.
On appeal, Mirowski argued that, because it was the defendant in the declaratory judgment action, and because it could not assert an infringement counterclaim due to the license between the parties, it should not bear the burden of proving infringement. The Federal Circuit agreed, and held that the party seeking a declaration of non-infringement—when it is a licensee—bears the burden of persuasion.
Justice Bryer’s opinion made short work of this conclusion, declaring that “simple legal logic, resting upon settled case law, strongly supports our conclusion” that the burden of proof always rests with the patent holder. Three fundamental principles led to that conclusion: (1) the burden of proving infringement rests on the patentee, (2) the Declaratory Judgment Act is procedural, and intended to leave substantive rights unchanged, and (3) the burden of proof is a substantive aspect of the claim. The Court was also guided by the practical reality that licensees may be the only entities with sufficient economic incentive to litigate a patent’s scope, and should not have to breach their contract, stop paying royalties and risk liability for treble damages and attorneys fees as well as injunctive relief just for the opportunity to test that scope.
Medtronic seems to be part of a trend by the Supreme Court to apply generalist principles (including general civil procedure principles) to the specialty area of patent law and litigation. In 2006, the Court held in the Ebay decision that patent holders were subject to the same standard as other litigants with respect to their rights to an injunction (which decision eliminated what had been an almost automatic right to an injunction once infringement was proven). In the 2007 Medimmune decision, the Supreme Court reversed the Federal Circuit’s holdings that required patent licensees to terminate or breach their licenses before they could challenge the validity of the underlying patent, which put patent licensees on the same footing as other parties to contracts.
And these cases may only be the start—there are still five more patent cases to be argued in the Supreme Court this year: Alice v. CLS Bank (which will go a long way to determining the validity of many software patents); Limelight v. Akamai (which will determine questions regarding induced infringement); the joined cases of Highmark v. Allcare and Octane Fitness v. Icon Health (which will determine the correct standard for concluding that a patent case is “exceptional” such that attorneys fees can be awarded); and what may be the sleeper of the term, Nautilus v. Biosig Instruments (which will determine how precise patent claims need to be in order not to render the patent void for indefiniteness). The Federal Circuit may be in for a rough ride this term.