On Nov. 5, 2013, the Supreme Court heard oral argument in Medtronic, Inc. v. Boston Scientific Corporation. At issue is whether in a declaratory judgment action brought by a licensee under MedImmune, Inc. v. Genentech, Inc., the licensee has the burden to prove that its products do not infringe the patent, or whether the patentee must prove infringement. Based on the Court’s questioning at oral argument, the Court appears poised yet again to reverse the Federal Circuit in a patent case and hold that the patentee bears the burden of proof in such actions.
In MedImmune, the Court held that a licensee who believes its products do not infringe the licensed patent and therefore are not subject to royalty payments is not required to terminate its license agreement before filing a declaratory judgment action that the underlying patent is not infringed. But in MedImmune, the Court did not address which party bears the burden of proof on the issue of infringement/non-infringement. Although the general rule is that the patentee bears this burden, in the underlying appeal, the Federal Circuit carved out a “post-MedImmune” exception to this general rule for cases involving patent licensees. In particular, the Federal Circuit held that because the declaratory judgment plaintiff is the only party seeking the aid of the court in MedImmune-like circumstances, that party must bear the burden of proving non-infringement.
On behalf of Medtronic, Seth Waxman, a partner at Wilmer Hale and former Solicitor General, argued that the Federal Circuit erred by creating a different rule in declaratory judgment suits brought under MedImmune. His central premise was that burdens of proof are substantive, whereas a declaratory judgment action is procedural only and does not change substantive rights. He concluded his argument by emphasizing that neither the Federal Circuit nor the respondents had identified the source of the rule shifting the burden in a declaratory judgment action.
Curtis Gannon, representing the United States as amicus, started his argument in support of Medtronic by describing a declaratory judgment action such as the one in the present case as the “mirror image” of the underlying “hypothetical coercive action” that could have been brought against Medtronic. When he reiterated these words, Chief Justice John Roberts pointed out that “the argument is that it’s the mirror image of an action that could not have been brought because Medtronic is paying royalties.” Mr. Gannon explained that the same thing was true in MedImmune, and that the Court noted that declaratory judgment actions were intended to help a licensee escape the dilemma it would otherwise be in by: either paying royalties it did not believe it owed or exposing itself to the risks of breaching the license, which could include treble damages and attorneys’ fees.
During questioning of Mr. Gannon, Justice Ruth Bader Ginsburg addressed an issue raised by Tessera Technologies in an amicus brief — namely that the dispute is a contract case and therefore there is no federal question jurisdiction. Mr. Gannon disagreed with Tessera’s position. Instead, he argued that the case does involve a claim arising under the patent laws because a licensee in breach of a license agreement would face liability for patent infringement.
On behalf of respondents, Arthur Neustadt began by stating simply that the Federal Circuit “got it right in this case.” After Mr. Neustadt expressed that the normal default rule places the burden of proof on a party filing a complaint, Justice Antonin Scalia pounced in response by pointing out that the burden of proof normally does not shift in declaratory judgment actions and asked, “What’s different here?” Mr. Neustadt distinguished the situation on the basis that there was no infringement, and thus the patentee could not sue Medtronic for infringement. Justice Scalia did not appear persuaded and explained that a declaratory judgment action does not follow the normal default rule, even when the other side cannot counterclaim. Mr. Neustadt relied on Schaffer v. Weast to support his burden-of-proof argument, but Justice Ginsburg noted that the case involved neither patent infringement nor a declaratory judgment action.
Justice Scalia also raised a concern about a res judicata problem — if the declaratory judgment action is defeated and then the patentee brings suit for infringement, is the prior decision res judicata or does the patentee have to re-litigate (now bearing the burden of proof)? Although Mr. Neustadt initially responded that there would be no need to re-litigate the whole thing, he struggled to explain convincingly why. Mr. Neustadt believed that such a situation was unlikely because the licensee would not want to give up its license and stop paying royalties, but, even if it did, the patentee could say to the court that it had already seen the entire case. Neither of these points directly addressed the res judicata issue.
Mr. Neustadt viewed the case as a contract action rather than a patent action on the basis that the purpose of having a license is to avoid having an infringer. Justice Elena Kagan seemed unconvinced with this distinction. She noted that a licensee who broke the license agreement would face a potential infringement suit, not merely a suit for breach of contract.
Finally, Mr. Neustadt explained that the rule for which he was advocating was that the declaratory judgment plaintiff should bear the burden of proof in any declaratory judgment action where only one party is seeking relief. He was not limiting his rule to patent cases.
While the Court may surprise us with its ruling, based on the oral argument, Medtronic will likely be another patent case where the Supreme Court will reverse the Federal Circuit. In light of the breadth of respondents’ rule — that the declaratory judgment plaintiff should bear the burden of proof in any declaratory judgment action where only one party is seeking relief — any other result appears unlikely.