IP Update June 2013
This is to inform you that the US Supreme Court has recently granted certiorari in the case of Medtronic v. Boston Scientific Corp. This means that the Supreme Court has agreed to hear an appeal in this case. The Supreme Court’s decision in this case should be rather impactful, as it ties directly into which party bears the burden of proof during a declaratory judgment action.
In this regard, the sole question being presented before the Supreme Court is:
In Medlmmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is "not required . . . to break or terminate its . . . license agreement before seeking a declaratory judgment in federal court that the underlying patent is . . . not infringed." The question presented is whether, in such a declaratory judgment action brought by a licensee under Medlmmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.
This is an indication the Supreme Court may be re-thinking its previous decision in the MedImmune v. Genentech case, or at the very least seeking to provide some clarification thereof. In this regard, the MedImmune decision allowed a patent licensee to challenge the validity (and non-infringement) of a patent in a declaratory judgment (DJ) action without repudiating the license. Accordingly, the MedImmune decision allegedly created a unique circumstance in a DJ action, in that the licensee has the burden to prove its products do not infringe the patent. In contrast, in all other patent litigation, including other DJ actions, the patentee bears the burden of proving infringement.
The present case, then, relates to one question not specifically addressed by the MedImmune Supreme Court, namely whether the patent holder would still have the burden of proving infringement where the licensee was seeking to disturb the status quo. In the decision giving rise to this appeal, the Court of Appeals for the Federal Circuit (CAFC) decided that the patent holder would NOT still have this burden. In its petition for certiorari, Medtronic equated this with a "presumption of infringement," and noted that proving the negative can be "a formidable task."
One of the most significant differences between these two cases is that the earlier MedImmune case was focused primarily on patent validity, rather than infringement. In that case, MedImmune had entered into a license agreement with Genentech for rights to an existing patent related to the production of chimeric antibodies, as well as for future rights in pending patent applications. Once one of the pending applications granted, this became the subject of the previous litigation, as MedImmune believed it did not "infringe any valid claim" of the new patent.
The situation in the current Medtronic case instead seems to focus more on infringement than validity. The products that are the subject of the Medtronic case were not marketed until 2004, about 13 years after the license agreement at issue was signed; as such, these products were not specifically identified in the agreement. However, the license contained a provision by which the licensor could identify new Medtronic products that it believed were covered by its patents. Under the terms of the agreement, if Medtronic believed that any newly identified products were not covered by the agreement, they had the option to initiate a DJ action to challenge the asserted patents. The basis of this litigation is Medtronic’s decision to challenge the licensed patents on the basis of non-infringement by the products newly identified by the patent owner.
One element that was critical to the CAFC’s decision was that the patent holder could not have brought its own patent infringement action (because of the license agreement). More importantly, the CAFC recognized the patent holder could not bring an infringement counterclaim since Medtronic remains a patent licensee.
In our opinion, it is most likely that the Supreme Court took up the present Medtronic case because it disagreed with the CAFCs decision. This could be an indication that, following the Supreme Court decision, the burden will shift back to the patentee to prove infringement. The aspect of this case we find particularly interesting is whether the Supreme Court will issue a second decision in the past several years broadly changing the requirements for licensee standing, or whether the Supreme Court will take a more narrow approach based on the facts of a specific contract entered into between the opposing parties. It remains to be seen what the Supreme Court will decide, and how this will impact licensees moving forward, particularly whether standing can or cannot be conveyed based on contractual agreement between the parties.
We remain available at your convenience to discuss how you may wish to revise or update your patent estate and/or future patent strategies based on these recent developments. If you have any questions, or if there is any way we might be of assistance, please do not hesitate to let us know.
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