Who bears the burden of proof in declaratory judgments of non-infringement? The patentee, answers the US Supreme Court

On Wednesday, the US Supreme Court published its decision in the case of Medtronic Inc. v Mirowski Family Ventures LLC, ruling that, when a licensee brings an action for declaratory judgment of non-infringement of a licensed patent, the patentee bears the burden of persuasion on the issue of infringement. The Supreme Court unanimously reversed the judgment of the Federal Circuit, as suggested by the briefs submitted by the Solicitor General (here), and by a number of law professors (here).

In 1991, Medtronic and Mirowski concluded a licensing agreement, which allowed the former to implement, in its products, patented technologies held by the latter, in exchange for royalty payments (the facts of the case are described in detail here). A supplementary agreement (Litigation Tolling Agreement), signed in 2006, established that, if Mirowski believed that one of the products manufactured by Medtronic infringed one of its patents, the licensee could either (i) pay the additional royalties due, or (ii) seek a declaratory judgment of non-infringement, continuing to pay royalties into an escrow account (upon conclusion of the declaratory judgment action, these royalties were to be assigned to the prevailing party). These provisions essentially prevented the licensor from filing a counterclaim for infringement, as, even in case of alleged infringement, the agreement would remain in force.

In 2007, Mirowski gave Medtronic notice of infringement, in relation to two patents allegedly violated by several Medtronic products. As established under the agreement, the licensee filed a declaratory judgment action of non-infringement, paying all the relevant royalties into an escrow account. The District Court found that the patentee had failed to prove infringement, noting that the burden of proof of infringement fell upon Mirowski, even if it was the defendant in the action. The Court of Appeals for the Federal Circuit disagreed, acknowledging that the patentee normally bears the burden of proving infringement, but carving an exception for cases in which the patentee (i) is a defendant in a declaratory judgment action, and (ii) cannot file a counterclaim for infringement due to the continued existence of a license. The Federal Circuit essentially considered that, in such exceptional cases, the patentee is merely assuming a passive position, as the licensee is the only party seeking to disturb the status quo ante:

The contract at issue here required MFV to identify products it believed were covered by the contract. After MFV identified those products, Medtronic was required to either pay royalties on them, or sue for declaratory judgment that the products were not covered. Medtronic is unquestionably the party now requesting relief from the court: it already has a license; it cannot be sued for infringement; it is paying money into escrow; and it wants to stop. In contrast [...] MFV seeks nothing more than to be discharged from the suit and be permitted to continue the quiet enjoyment of its contract. In other words, it is Medtronic and not MFV that is asking the court to disturb the status quo ante and to relieve it from a royalty obligation it believes it does not bear. Consistent with the above, for the court to disturb the status quo ante, Medtronic must present evidence showing that it is entitled to such relief. 

The Supreme Court reversed the Federal Circuit's decision (for a discussion of the first part of the court's decision, which dealt with issues of jurisdiction, see here). The court observed that, according to settled case law, the Declaratory Judgment Act has merely limited procedural purpose (Skelly Oil Co. v. Phillips Petroleum Co.), and leaves substantive rights unchanged (Beacon Theatres Inc. v Westover). Therefore, as the burden of proof is a substantive aspect of a claim (Raleigh v Illionois Department of Revenue), the Declaratory Judgment Act cannot alter the general rule valid in patent infringement actions, under which the burden of proving infringement rests upon the patentee (Under Sea Industries Inc. v Dacor Corp.).

The judges noted that 'shift[ing] the burden depending upon the form of the action could create postlitigation uncertainty about the scope of the patent', highlighting that the Restatement (Second) of Judgments expressly acknowledges the possibility of relitigating an issue in a subsequent suit, when the burden of persuasion has shifted. The infringement issue could thus potentially remain unresolved, if the alleged infringer loses the declaratory judgment action, and the patentee similarly loses a subsequent infringement action brought against the former:

Suppose the evidence is inconclusive, and an alleged infringer loses his declaratory judgment action because he failed to prove noninfringement. The alleged infringer, or others, might continue to engage in the same allegedly infringing behavior, leaving it to the patentee to bring an infringement action. If the burden shifts, the patentee might lose that action because, the evidence being inconclusive, he failed to prove infringement. So, both sides might lose as to infringement, leaving the infringement question undecided, creating uncertainty among the parties and others who seek to know just what products and processes they are free to use.

The court also argued that the patentee is 'in a better position than an alleged infringer to know, and to be able to point out, just where, how, and why a product (or process) infringes a claim of that patent'; shifting the burden of persuasion would force the licensee to negate 'every conceivable infringement theory'. Reciting MedImmune Inc. v Genentech Inc., the Supreme Court further noted that imposing the burden on the licensee would create a significant obstacle to the use of declaratory judgments actions in similar cases:

In [MedImmune], we wrote that the "very purpose" of that Act is to "ameliorate" the "dilemma" posed by "putting" one who challenges a patent’s scope "to the choice between abandoning his rights or risking" suit. [...]. In the absence of the declaratory judgment procedure, Medtronic would face the precise dilemma that MedImmune describes. Either Medtronic would have to abandon its right to challenge the scope of Mirowski’s patents, or it would have to stop paying royalties, risk losing an ordinary patent infringement lawsuit, and thereby risk liability for treble damages and attorney’s fees as well as injunctive relief. [...] As in MedImmune, the declaratory judgment action rescues Medtronic from this dilemma.

These reasons were deemed sufficient to justify an exception to the basic rule described in Schaffer v Weast, where the court had ruled that plaintiffs normally bear 'the risk of failing to prove their claims'. The judges also explained that the public interest favors the maintenance of a well-functioning patent system, but requires, at the same time, that 'patent monopolies [be] kept within their legitimate scope' (Precision Instrument Manufacturing Co. v Automotive Maintenance Machinery Co.). The latter objective would be hindered, if the rules on the burden of proof effectively discouraged licensees from filing declaratory judgment actions. Thus, '[t]he general public interest considerations are, at most, in balance', and suggest retaining the general rule imposing the burden of proving infringement upon the patentee.

In reversing the Federal Circuit's decision, the Supreme Court rightfully took into consideration a series of theoretical (e.g. the nature of the declaratory judgment action and its objectives) and practical issues (e.g. the difficulty, for the licensee, to prove non-infringement under any conceivable infringement theory, and the risk of an unresolved dispute in case of relitigation), which undoubtedly support its conclusion. The court did not discuss other controversial aspects of the case, for example the risk of an abusive use of non-infringement declaratory judgment actions by licensees (the judges merely commented that 'litigation can occur only in the presence of a genuine dispute, "of sufficient immediacy and reality", about the patent's validity or its application'), or the possibility, for the patentee, to bring a counterclaim seeking a declaratory judgment of future infringement under T. Lang et al. v Pacific Marine and Supply Co. (in which the Federal Circuit taught that '[i]f the controversy requirement is met by a sufficient allegation of immediacy and reality, we see no reason why a patentee should be unable to seek a declaratory judgment of infringement against a future infringer when a future infringer is able to maintain a declaratory judgment action for noninfringement under the same circumstances').

It is interesting to note, as observed by Professor Cotter here, that the path taken by the Supreme Court mirrors the approach employed by German courts ('the patentee always has the burden of proof with regard to the infringement issue, even in negative declaratory actions' - for a similar principle applied by Italian courts, see this case), but differs from the ruling of the Court of Appeal for England and Wales in the recent case of Generics [UK] Ltd v Yeda Research and Development Co Ltd & Anor ('the burden of establishing non-infringement fell on [the plaintiff that brought the declaratory judgment action'). The latter case, however, should probably be read in conjunction with Baxter Healthcare Corporation et al. v Abbott Laboratories, where the patentee was required to plead its case, even if the burden of proof remained on the plaintiff (see IPKat post here). From this point of view, even jurisdictions which provide for a shifting of the burden of proof are likely to introduce additional requirements, in order to identify the perimeter of the underlying infringement dispute that prompted the licensee to file the declaratory judgment action.