U.S. Supreme Court to Review Burden of Proof to Apply in Patent Licensee Challenges

In 2007, the United States Supreme Court ruled that patent licensees could challenge their obligation to pay patent license royalties under a license agreement without first breaching the license agreement by halting royalty payments. MedImmune Inc. v. Genentech Inc., 549 U.S. 118. Following MedImmune, the Federal Circuit held that the challenging licensee had the burden to prove that, absent the license, the patents would not be infringed and, thus, no license royalty owed, in Medtronic Inc. v. Boston Scientific Corp. (U.S., No. 12-1128, review granted 5/20/13). Normally, the patent holder has the burden to prove infringement.

On May 20, the United States Supreme Court granted a writ of certiorari in the Federal Circuit’s holding in Medtronic. The Supreme Court is scheduled to hear this case next term, and its ruling could have a significant impact on the balance of power between patent licensors and licensees.

The Medtronic action traces its roots to 1991, when Medtronic entered into a sublicensing agreement for two patents owned by Mirowski Family Ventures, LLC (“MFV”). In 2006, MFV and Medtronic entered into a Litigation Tolling Agreement (“LTA”), which required MFV to inform Medtronic of any Medtronic products MFV deemed were covered by these patents or any subsequent reissue patents. If Medtronic disagreed, the LTA gave Medtronic the right to retain its license and obligated Medtronic to seek a declaratory judgment of noninfringement. Pursuant to this agreement, MFV identified several products and, in 2007, Medtronic filled a complaint asking for a declaratory judgment on the question of whether these products would, absent the license, infringe MFV patents. Because Medtronic remained MFV’s licensee, MFV could not counterclaim for infringement of either patent.

A key question in the case was who – Medtronic, as the plaintiff and licensee, or MVF, as the defendant and patent holder – had the burden of proof. The district court relied on Under Sea Industries, Inc. v. Dacor Corp., 833 F.2d 1551, 1557 (Fed. Cir. 1987), for the proposition that “the burden always is on the patentee to show infringement,” and held that MFV had the burden of showing infringement of its patents. In this instance, MFV failed to do so, and the district court entered a judgment of noninfringement in favor of Medtronic and a judgment of validity and enforceability in favor of MFV.

Both parties appealed. On the issue of who bears the burden of proof, the Federal Circuit acknowledged the general rule that the patent owner cannot prevail without providing all the elements of infringement, but the court also noted that, generally, the party seeking relief must prove the allegations in their complaint. Furthermore, the court was concerned about requiring the patent owner to bear the burden of proof given the position of the parties and the Supreme Court’s holding in MedImmune. If the burden rested on the patent owner, the Federal Circuit reasoned, licensees – who were protected from an infringement claim by MedImmune’s holding that allows licensees to bring a declaratory judgment suit without breaching their license – could challenge underlying licensed patents with few penalties.

Instead, in a situation like the one before it in Medtronic, where the licensee was free to challenge the patent under MedImmune but the patent holder was barred from a counterclaim of infringement, the Federal Circuit held that the burden of proof should fall on the party seeking relief – the licensee. Here, this was Medtronic, which was “asking the court to disturb the status quo ante and to relieve it from a royalty obligation it believes it does not bear.” Shifting the burden to the licensee led the Federal Circuit to reverse the district court and hold that “in the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion.”

Medtronic sought further review in the Supreme Court and, on May 20, 2013, the Supreme Court granted a writ of certiorari for its next term on the question of “whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.”

The Supreme Court’s review sets the stage for a potential shift in power between patent licensors and licensees. To discuss these potential consequences, and other concerns that may arise under your patent license agreements, please contact your regular Ropes & Gray contact.