MVA Litigation

For nearly 150 years, it has been established that a patent holder (“patentee”) ordinarily bears the burden of proving infringement.  The U.S. Supreme Court’s recent decision in Medtronic v. Mirowski Family Ventures, LLC, 571 U.S. ____ (Jan. 22, 2014) reversed the Federal Circuit Court of Appeals’ attempt to shift the burden of proof to a licensee seeking a declaratory judgment that its products do not infringe the patentee’s patents.  The unanimous Supreme Court found little support for upsetting the balance of our “well-functioning patent system” or undermining the purposes of the Declaratory Judgment Act by changing the default rules.   The Supreme Court cited to precedent dating back to 1869, including Agawam Co. v. Jordan, 7 Wall. 583, 609 (1869), which established that the patentee usually bears the burden of proof in an infringement action.  That burden does not normally shift even when a patentee is a counterclaiming defendant in a declaratory judgment action.  In this declaratory judgment action, however, the Federal Circuit reasoned that the burden of persuasion should shift to the plaintiff licensee because the defendant patentee was foreclosed from filing an infringement counterclaim due to the ongoing license agreement.  The Supreme Court made it clear that a patentee cannot accuse a licensee of infringement and shift the burden of proving a negative (that the licensee is not infringing the patent) onto the licensee.  The High Court grounded its reasoning in established legal principles, as well as practical considerations, which are highlighted below.

The License Agreement & Declaratory Judgment Action   

Medtronic designs, produces, and sells medical devices.  Medtronic entered into an agreement with Mirowski under which Medtronic would pay royalties to Mirowksi for the right to practice some of Mirowski’s patents.  The agreement provided that if Mirowski notified Medtronic that a Medtronic product infringed a Mirowski patent, Medtronic could either (1) cure the nonpayment of royalties, or (2) pay the royalties into an escrow account and challenge the infringement assertion in a declaratory judgment action.  If Medtronic failed to pay the royalties, Mirowski could terminate the license and bring an infringement action.  After a notice from Mirowski alleging infringement, pursuant to the license agreement, Medtronic paid royalties into an escrow account and filed this declaratory judgment action seeking to establish that its products are non-infringing and that it does not owe royalties to Mirowski.  The District Court held that the defendant Mirowski, “as the part[y] asserting infringement,” had the burden of proving infringement.  The Federal Circuit ruled to the contrary, because Mirowski was unable to file an infringement counterclaim due to the ongoing license with plaintiff Medtronic.

The Burden Will Not Shift 

Contrary to the Federal Circuit, the Supreme Court unanimously held that “the burden of per­suasion is with the patentee, just as it would be had the patentee brought an infringement suit,” based on “simple legal logic, resting upon settled case law” and “practical considerations.”  The three legal principles the Supreme Court relied upon, citing cases ranging from the 1800s and early 1900s to present day:

• The burden of proving infringement generally rests on the patentee.
• The Court has considered “the operation of the Declaratory Judgment Act” to be only “procedural,” and it leaves “sub­stantive rights unchanged.”
• The burden of proof is a sub­stantive component of a claim.

The Court reasoned that “[t]aken together these three legal propositions indicate that, in a licensee’s declaratory judgment action, the burden of proving infringement should remain with the patentee.”  The Court also noted several practical considerations that support its position, including:

• confusion and lack of finality that may be caused due to re-litigation of the infringement issue in an action where the burden shifts back to the patentee,
• complications presented by a licensee having to prove non-infringement without knowing the patentee’s theories of infringement, and
• shifting the burden makes a declaratory judgment action disadvantageous to the licensee and defeats the purpose of the Declaratory Judgment Act, which 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.”

The Supreme Court was unambiguous in its declaration that patentees will not find solace in forcing licensees into filing declaratory judgments actions to ward off assertions of infringement.  Despite the arguments raised by the Federal Circuit, the Supreme Court declared: “Indeed, it was Mirowski that set the present dispute in motion by accusing Medtronic of in­fringement. And in such an instance, we see no convinc­ing reason why burden of proof law should favor the patentee.”  The status quo will remain.