Good-Standing Licensee Must Prove Non-Infringement in DJ Action

By Dennis Crouch

In patent litigation, the patent holder ordinarily bears the burden of proving infringement. This case creates a limited exception for licensees in good standing who file declaratory judgment actions. In those cases, the burden shifts to the licensee to prove non-infringement.

Medtronic, Inc. v. Boston Scientific Corp. (Fed. Cir. 2012)(Linn, J.)

Standing: In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), the Supreme Court rejected the Federal Circuit’s “reasonable apprehension” test for declaratory judgment jurisdiction in patent cases. MedImmune has been seen as opening the door to declaratory judgment actions even when the patentee could not have actually sued the DJ plaintiff. The most common situation involves a patent licensee who identifies evidence of invalidity. Sever contractual consequences could flow from a licensee simply ceasing royalty payemnts. Under MedImmune, the current licensee can file for a declaratory judgment of invalidity while continuing to pay the license. Under the old rule, that the court would of rejected DJ jurisdiction in that case under a reciprocal-right analysis since the patentee could not have sued the current licensee for infringement. In Lear v. Adkins, 395 U.S. 653 (1969) the Supreme Court announced its general policy of encouraging licensees to challenge patent rights.

Still, even under the expanded DJ jurisdiction of MedImmune, there must be an actual case or controversy between the parties that can be resolved by the court. Courts see the case and controversy language of the U.S. Constitution as creating a dividing line between its domain of resolving disputes and the no-no land of issuing “advisory opinions.” The primary justification given for this distinction was given in a letter by Chief Justice John Jay in response to a request from then president George Washington. The Chief Justice suggested that the court’s refusal to provide advisory opinions is an important element of maintaining the U.S. governmental structure of separation of powers. After MedImmune, however, the threshold for having an actual case became a bit fuzzy- at least in the patent law arena.

In Medtronic, the dispute is over a patent covering an implantable cardioverter defibrillator (ICD). In 1991, Medtronic sub-licensed the patent and has become the largest seller of ICD’s in the country. The license agreement allowed Medtronic to challenge the patent while continuing to pay royalties into an escrow account. Because Medtronic’s activities fell within the license, it cannot be considered an infringer and thus, the patentee had no standing to sue the company for infringement. Still, under MedImmune, the DJ action is clearly has standing.

Proving Non-Infringement in a Declaratory Judgment Action: In ordinary patent infringement litigation, the patentee bears the burden of proving – with a preponderance of the evidence – that the accused products infringe the asserted patent claims. In declaratory judgment patent cases where the patentee has a compulsory counterclaim of patent infringement, the courts essentially treat the case as an infringement action and, as such, require that the patentee prove infringement in order to win the case. In Medtronic, the situation is different because the patentee could not file an infringement counterclaim and therefore asked the court to place the burden of proving non-infringement onto the DJ plaintiff. Considering this issue, the Federal Circuit agreed – holding that the licensee had the burden of proving non-infringement in this situation:

This case requires us to determine the proper allocation of the burden of persuasion in the post-MedImmune world, under circumstances in which a declaratory judgment plaintiff licensee seeks a judicial decree absolving it of its responsibilities under its license while at the same time the declaratory judgment defendant is foreclosed from counterclaiming for infringement by the continued existence of that license. . . . [I]n 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. . . .

In the litigation, the patentee did not assert any infringement contentions or attempt to prove infringement. Based upon that failure, the district court held the patent not-infringed. Now, on remand, the district court will need to begin with a presumption of infringement and then consider whether the licensee can prove otherwise.