By Andrew Williams --
The Supreme Court will hear oral arguments in Medtronic Inc. v. Boston Scientific Corp. on Tuesday, November 5, 2013. The sole issue to be determined is whether the burden of proof shifts in a declaratory judgment action brought by a licensee under MedImmune, such that the licensee has the burden to prove that its products do not infringe the patent. The Federal Circuit had decided this issue in the positive, thereby requiring Medtronic as the licensee to establish non-infringement of the licensed patents. However, as we reported previously, this case was unique because it arose out of provision in the license that provided for a MedImmune-type resolution more than 15-years before the Supreme Court decided that case. As a reminder, the parties (or their predecessors-in-interest) had entered into a license agreement in 1991 covering cardiac resynchronization therapy ("CRT") devices. The products that were the subject of this case, however, were not marketed until 2004, and therefore (obviously) they were not specifically identified in the license. The provision at issue in this case allowed the patent holder to identify any new Medtronic products that it believed were covered by its patents. If Medtronic believed that theses identified products were not covered by the license, it had the option to initiate a declaratory judgment action to challenge the non-infringement and/or validity of the asserted patents.
Two amicus curiae briefs focused on the particular language of the license agreement, although in different ways. First, a collection of law professors submitted a brief on behalf of Medtronic, the licensee, noting in part that the burden on the patent holder was not "unfair" because the action was contemplated by the agreement. Then, Tessera Technologies Inc. ("Tessera") argued that the case should be vacated and remanded because the license agreement did not, in fact, give rise to federal jurisdiction in this case.
Legal Scholars Amicus Curiae Brief
A collection of law professors filed a brief in support of Medtronic, arguing that the "purposes and policy concerns specific to the Declaratory Judgment Act and Patent Act favor finding that the Federal Circuit's special rule for licensee declaratory judgment actions is unnecessary and inappropriate." The collection described itself as "scholars of administrative law, civil procedure, or intellectual property law who are interested in the efficient functioning of the United States patent system in the service of the public interest."
To argue that the Federal Circuit decision was contrary to public interest, the collection of scholars began by explaining the importance of the DJ actions in obtaining timely "rights" clearance. "A prime purpose of the federal Declaratory Judgment Act is to help eliminate uncertainty by enabling parties threatened with legal liability to obtain timely judicial determination of whether such liability applies." Therefore, imposing the burden on the licensee in these litigations breaks the symmetry of the "mirror-image" declaratory judgment versus enforcement actions. Importantly, this can lead to different outcomes. The burden-of-proof differential could cause the patent holder to "win" the DJ action, even if it would have lost the mirror-image equivalent enforcement action. Even though this probability might be very small, the scholarly collective pointed out that this relatively small discrepancy would sit uneasily with Supreme Court precedent. In fact, the parties' persistence in this case suggests that stakes are larger than they would appear. The ultimate impact could be that a licensee may instead choose to repudiate a license, because there would have a better chance (albeit slightly) of success without the shift of burdens.
The consortium of scholars also argued that the burden should not shift to the licensees because of the difficulty with proving the negative, especially in patent cases. However, is this necessarily true? For a patent holder to successfully allege infringement, it must establish that all claim elements are met by the accused product or method. However, an accused infringer can successfully defend such an allegation by demonstrating that a single element is missing. Moreover, the scholars point out that hundreds of claims could be at issue, and "[i]n principle, infringement of each such claim might be separately asserted." Whereas this is true, often many of these claims are dependent in nature, and therefore the number of independent claims at issue can be significantly less. And, if a licensee can find one element missing from an independent claim, it need not concern itself with any of the claims that depend therefrom. The scholars also highlighted that there can be multiple theories of infringement, which would somehow would prejudice licensees. But, if a licensee was able to establish an absence of literal infringement, would not the burden of proof shift to the patent holder to allege the doctrine of equivalents, or some other theory? While it is true that there may be "well-appreciated difficulty in proving a negative," this truism might not apply as readily to patent infringement cases.
The scholarly collective also pointed out the practical consideration that such a shift in the burden of proof would prove difficult with efficient and predictable case management. Patent litigations are apparently more time consuming than all federal cases except death penalty Habeas Corpus cases, environmental matters, and civil RICO cases. In fact, many district courts have developed local patent rules or standing orders, which do not contemplate the shift of burden in these cases. Until the lower courts can adjust, there will be "uncertainty, controversy, and waste" if the Federal Circuit opinion is not overturned.
Finally, this confederation of scholars looked to the particular license at issue in this case. This is not the "typical" MedImmune-type declaratory judgment action, where without that previous Supreme Court case, the licensee needed to "bet the farm" to bring the DJ action. Instead, in this case, the parties' agreement explicitly provided for the bringing of such an action by the licensee. Therefore, the "fairness" concerns for the patent holder expressed at the Federal Circuit are muted, because there was no surprise. In fact, the patent holder can be argued to have disturbed the status quo, the argument goes, because they provided notice to the licensee, Medtronic. Of course, this logic can be extended further, because it was not the patent holder in this case that introduced a new product that was covered by the license (allegedly). In any event, the scholars point out that neither party was disturbing the status quo, because they were both merely acting "in accordance with their agreed regime for dispute resolution."
Tessera Technologies Inc. Amicus Curiae Brief
Tessera described itself as "a leading provider of miniaturization technologies for the electronics industry," and that as a frequent licensor, it has an obvious interest in the burden of persuasion question at issue. In its amicus curiae brief, Tessera began by looking at the license itself, noting that the lower courts should not have had subject-matter jurisdiction over this case in the first place. Because the license included a "comprehensive contractual royalty dispute resolution procedure," whereby the licensee was permitted to file a "nested" DJ action, there was no chance that the licensee was going to abandon the contract, and as such, a coercive patent infringement action by the licensor cannot have been reasonably anticipated. Therefore, following the logic of the Gunn v. Minton Supreme Court case of last year, the Federal Circuit's judgment should be vacated. Alternatively, Tessera argued that the case should be remanded to determine if the question at issue was better determined as a matter of state law.
According to precedent, as articulated in Gunn v. Minton, there are two ways in which federal question jurisdiction can be invoked. The first is where "'federal law creates the cause of action asserted.'" The second is where jurisdiction still lies, even though the claim originated in state rather than federal law. These are a "'special and small category of cases." Importantly, it is the character of the threatened action, not the defense, the gives rise to jurisdiction. In the present case, Tessera asserted that it was imperative to look to the license, which gives rise to an action that is unlike any other patent litigation -- the licensee is allowed to escrow its contested royalties with the goal of obtaining a complete refund upon prevailing in the action; the licensee is not subject to any damages (other than the royalty obligations), treble damages, or injunctive relief; and the contract has claim preclusive effect, because if the patent holder does not follow the specified procedures, no royalty will be owed even if the patent is never litigated. Therefore, according to Tessera, what is really being requested in this action is whether Medtronic's products fall within the scope of the license agreement.
Tessera then pointed out why the first type of federal question jurisdiction was lacking. In reviewing the cases on the issue, Tessera came to the conclusion "that identification of the anticipated or threatened coercive claims in declaratory judgment actions brought by patent licensees under an existing license turns on the 'totality of the circumstances.'" Because the only "threatened" action was contractual (assertion that the accused device fell within the scope of the license), there was no chance that Medtronic was going to repudiate the license. Instead, it was able to resolve the patent issue within the context of the contract procedure -- by filing the present action. As such, Medtronic's complaint was phrased in the past and present continuous sense, with no mention of any fear of future termination or patent infringement litigation. Consequently, no anticipated, impending, or threatened actions could have given rise to the first type of federal question jurisdiction at the time.
Gunn v. Minton provided the reasoning as to why the second type of jurisdiction was also lacking. In that case, the Court explained that "'federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.'" And, as in Gunn, the third and fourth factors are missing here. There would be no substantial impact on federal system as a whole. Instead, the preclusive effect would be limited to parties and patents. In fact, there is a similar "case-within-a-case" sub-issue here that is also backward looking, because the patents in this case have already expired. The fourth factor is also not met, because state court have had the authority to hear patent license disputes, and undoing this prerogative would certainly disrupt the balance between the two. Because the District Court lacked jurisdiction, so did the Federal Circuit, and therefore this case should be remanded with instructions to transfer to the Third Circuit to see if any other federal subject-matter jurisdiction can be found.
Alternatively, Tessera argued that the case should be vacated because the burden of persuasion as to scope of a patent license is normally a state law matter. As a result, the case should be remanded to determine if the parties contracted out this default rule. If they did not, the lower court should determine on remand what burden state law provides in such a case.
This is an interesting and compelling argument as to why the case should be vacated and remanded. However, to reach this conclusion, Tessera had to make several assumptions about Supreme Court precedent, and how it would apply to the present facts. It will be interesting to hear any questions to counsel directed at this jurisdictional issue. Unfortunately, the Court denied Tessera's request to participate in the argument, but the tenor of the questions for the counsel present should be telling.