Supreme Court trend toward IP optimization continues with Medtronic decision

The Court's decisions showed recognition of the need to protect incentives for innovation and of the countervailing concern that maximization cannot be the cornerstone policy objective for the IP system

The current U.S. Supreme Court term promises to have significant impact on intellectual property law and practice. The Court has already ruled on one IP case so far this term, Medtronic v. Mirowski Family Ventures, and is scheduled to rule on nine more. This is an increase from the six IP cases decided in the Court’s last term, demonstrating a continued broad interest in copyright, trademarks, and patents. In its last term, the Court took on “expert” doctrines — such as exhaustion and first sale — in both the patent and copyright contexts. Through these boundary doctrines, the Court made clear its interest in sculpting the edges and limits of intellectual property laws.

One macro-level trend evident from the last term's decisions was the Supreme Court’s commitment to optimizing IP. The Court’s recent decision in Medtronic represents a continuation of that trend, clarifying that neither maximization nor minimization is the goal.

In Medtronic, the Supreme Court put an end to procedural shifting of the evidentiary burden in certain patent cases. The Federal Circuit had held that in cases where a licensee sues for declaratory judgment that it is not infringing a licensed patent, the licensee carried the burden to prove non-infringement. In ordinary patent cases, the patentee (rather than the alleged infringer) carries the burden of proving infringement, regardless of who initiates the litigation. The Federal Circuit’s burden-shifting jurisprudence made it less likely that licensees would be cleared of infringing a licensor’s patent.

One policy justification underlying this burden-shifting requirement was to prevent opportunistic litigation by licensees. Under the ordinary burden structure, it was argued, licensees might use the threat of litigation to renegotiate terms of settled license agreements — or abrogate them entirely. Owing to the underlying license agreement, the patentee would be left without a counterclaim for infringement. It was argued that the burden shift would deter such abusive lawsuits by licensees and provide licensors with confidence in the stability of their license agreements.  

The Court in Medtronic overruled the Federal Circuit and restored the burden to the patentee to prove infringement. Thus, the evidentiary burden for licensees suing for declaratory judgment is no longer different than in any other patent infringement suit. This decision demonstrated the Supreme Court’s ongoing concern to maintain balance between protecting innovators’ exclusive rights to their inventions and ensuring public accessibility to technology that is not, or should not be, the subject of exclusive protection. Whereas those arguing over the burden-shifting framework focused on weighing the interests of licensors against those of licensees, the Supreme Court injected the broader public interest into the debate. The Court announced in pertinent part:

The public interest, of course, favors the maintenance of a well-functioning patent system. But the public also has a paramount interest in seeing that patent monopolies are kept within their legitimate scope. 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. And licensees may often be the only individuals with enough economic incentive to litigate questions of a patent’s scope. The general public interest considerations are, at most, in balance. They do not favor a change in the ordinary rule imposing the burden of proving infringement upon the patentee. Medtronic was the first of several cases in the Supreme Court’s current term that present occasions to pursue a strategy of optimizing IP via procedural mechanisms. In Lexmark v. Static Control Components and POM Wonderful v. Coca Cola, the Court will address issues of standing in false advertising claims under the Lanham Act. In Petrella v. Metro-Goldwyn-Mayer, the Court will address the extent to which laches bars remedies for new acts of civil copyright infringement when the statute of limitations has run on the putative infringer’s original infringing act.

Some fear the Court's decisions in these cases could drastically disadvantage rights holders or, conversely, drastically disadvantage users of IP. But such a dramatic swing in either direction would be inconsistent with the approach taken by the Court in Medtronic —as well as decisions of the previous term.

Similar to Medtronic, the Supreme Court’s decisions last term showed both recognition of the need to protect incentives for innovation and of the countervailing concern that maximization cannot be the cornerstone policy objective for the IP system. Optimization, not minimization or maximization, was and continues to be the apparent goal.

In Bowman v. Monsanto Co., the Court showed an unwillingness to dilute the patent system by supplanting it with concurrently available — but less potent — avenues of protection, demonstrating the Court’s disinclination to minimize IP. In Ass’n. for Molecular Pathology v. Myriad Genetics, the Court showed a corresponding aversion to maximization, noting that “groundbreaking, innovative, or even brilliant discovery does not by itself satisfy the [subject matter patentability] inquiry… extensive effort alone is insufficient to satisfy the demands of [patentability].” In the copyright case Kirtsaeng v. John Wiley & Sons, the Court effectively ended the practice of differential pricing worldwide by extending the first sale doctrine to encompass works legally published abroad. A limit was devised in an effort to improve balance between content owners and the public.

Certainly, the rights holders and implementers at the center of these 2012-2013 term cases invested considerable time and resources into their respective efforts. So too did the patentee in Medtronic make a significant investment in the pacemaker technology at the center of that dispute. But the Supreme Court made clear across the sum of these decisions that providing rewards to creators is not the only aim of the IP system, while by the same token transferring marketplace opportunity from innovations to implementers is also not the only aim.

With the nine remaining cases in this term, the Court has the opportunity to convey a similar sentiment. Intensifying the standing requirements for false advertising claims under the Lanham Act or curtailing the laches defense to civil copyright infringement — both of which are options on the table in the current term — would tend to greatly reward rights holders. The opposite announcements would reward implementers and users. But one should expect a more carefully calibrated approach by the Court, an approach that honors the incentive system without serving as a thumb on the scale in favor of either party.

 

Christopher Davis, corporate law clerk at Cravath, Swaine & Moore LLP, also contributed to this article.

Contributing Author

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David J. Kappos

David J. Kappos is a partner at Cravath, Swaine & Moore LLP. He is widely recognized as one of the world's foremost leaders in the...

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Christopher Davis

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