By
Kevin E. Noonan —

Five
years ago, the Supreme Court abrogated (in a footnote) the Federal Circuit's "reasonable apprehension of suit" standard governing when a plaintiff could bring a
declaratory judgment suit against a patentee, typically for non-infringement
and/or invalidity or unenforceability.  The policy reason for the decision was reasonable, particularly for a
Court caught up in the zeitgeist that
patents harm innovation; like the Court in the 1940's, this Court is more
concerned with keeping the patent genie in the innovation bottle than
recognizing the importance of patents in promoting disclosure (and consequently
promoting innovation).  The policy
consideration motivating the Court followed the rationale in Lear v. Adkins two generations before:  that a licensee is the party most motivated to invalidate an invalid patent.  The decision eliminated the Hobson's
choice created for licensees under the Federal Circuit's standard, of either
continuing to pay royalties on an invalid patent or one they did not infringe,
or refusing to pay and run the risk of being liable for treble damages,
attorney's fees, and an injunction.

But
no matter how reasonable the Court's rationale, it has created consequences
that fall, in the first instance, to the Federal Circuit to consider and sort
out.  That process continues in Medtronic Inc. v. Boston Scientific Corp.  The case involved a declaratory judgment
action relating to devices for cardiac resynchronization therapy, a treatment
that addressed conditions like congestive heart failure that cannot be treated
using conventional implanted defibrillators or pacemakers.  The devices are protected by Reissue Patent
Nos. RE38,119 and RE39,897.  Medtronic
sublicensed the '119 reissue patent from Eli Lilly & Co., a
predecessor-in-interest as licensee of this patent from the assignee, Morowski
Family Ventures, Inc. (MFV, a declaratory judgment defendant here).  The sublicense (which predated the MedImmune decision) permitted Medtronic
to challenge the '119 reissue patent (and any related patents such as the '897
reissue patent) while depositing royalty payments into escrow.  This arrangement was superseded by a
Litigation Tolling Agreement that required MFV to identify Medtronic products
that were purportedly "covered" by the reissue patents.  MFV exercised this right and Medtronic
dutifully instituted a declaratory judgment action.  Another aspect of the Agreement important to
the outcome of this case is that MFV was precluded from filing a patent
infringement counterclaim because Medtronic remained a licensee in good
standing (i.e., these actions did not constitute a breach of the Agreement).

The District Court decided that the patents were neither invalid nor unenforceable
and not infringed.  An issue in the
lawsuit was which party bore the burden of proving infringement.  This issue was relevant because it affected
the impact of the evidence; specifically, the District Court's decision was based on the
failure of MFV's expert to "consider 'each
limitation of each asserted claim in comparison to each accused product before
rendering his infringement opinions,' and that defendants 'failed to prove
literal infringement by a preponderance of the evidence,'" because
according to the lower court the burden of proving infringement always rests on the
patentee.  That decision provided MFV's
basis for appeal to the Federal Circuit.

The Federal Circuit reversed, in an
opinion by Judge Linn joined by Judges Lourie and Prost.  The panel recognized the conundrum created by
the application of the Supreme Court's MedImmune
decision to the situation.  The opinion
begins with a recognition that this situation is different from the "conventional"
declaratory judgment action, where a patentee would be able to file a patent
infringement counterclaim.  This is
relevant to the case before the Court because the typical situation also
constitutes the fact pattern in the prior precedent, making that precedent
inapposite for the District Court (or the panel) to rely upon for its decision
(this is precisely the precedent the District Court did rely upon, of course).  In addition, the Agreement required Medtronic
to file a declaratory judgment action, and accordingly the panel held that the
burden should fall on Medtronic to "prove that at least one limitation of each
claim of MFV's patents is not met by Medtronic's products."

The panel found unavailing not only
the prior precedent noted above but also Medtronics' argument that MFV should be
required to establish infringement as a consequence of its identification of
Medtronics' products that purportedly infringed the reissue
patents-in-suit.  In the "post-MedImmune world," according to the
Court, the conventional apportionment of burdens fails under these
circumstances.  The better analysis is to
require the "burdens of pleading and proof" to be "assigned to
the plaintiff who generally seeks to change present state of affairs and who
therefore naturally should be expected to bear the risk of failure of proof or
persuasion," citing Schaffer ex rel. Schaffer v. Weast, 546 U.S.
49, 56-57 (2005) (quoting 2 J. Strong, McCormick on Evidence § 337, p.
412 (5th ed. 1999)).  While this burden
would not shift in a conventional patent infringement counterclaim (and,
indeed, that claim would be waived if not pled), cases mandating this result "only
stand for the rote proposition that when there is a direct claim for
infringement, in a complaint or by way of counterclaim, the patentee cannot
prevail without proving all the elements of infringement under 35 U.S.C. § 271"
(and were decided prior to the Supreme Court's MedImmune decision).  Here,
Medtronic is seeking relief, according to the panel, and patentee MFV is
precluded by the license from asserting a patent infringement counterclaim,
while also requiring MFV to identify allegedly infringing Medtronic
products.  In contrast to Medtronic,
which "already has a license; [] cannot be sued for infringement; [] is
paying money into escrow; and [] wants to stop," MFV "seeks nothing
more than to be discharged from the suit and be permitted to continue the quiet
enjoyment of its contract."  Under
these circumstances, "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" and thus Medtronic that should be required to "present
evidence showing that it is entitled to such relief."  And here, where neither
party introduced any evidence regarding infringement or noninfringement there
is no principled reason why Medtronic should receive the declaration of
noninfringement it seeks."

The opinion also addressed the equities
of this burden allocation:

[T]he one claim for
relief sought in this case is the claim Medtronic asserts to be relieved from
liability under the license by having a court declare the products in question
to be noninfringing.  Medtronic is the party seeking this relief and Medtronic
must bear the burden of proving it is entitled to such relief.  A contrary
result would allow licensees to use MedImmune's shield as a sword — haling
licensors into court and forcing them to assert and prove what had already been
resolved by license.  Because the declaratory judgment plaintiff is the only
party seeking the aid of the court in the circumstances presented here, that
party must bear the burden of persuasion.  Therefore, this court holds that in
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.

On this basis the Federal Circuit
remanded back to the District Court.  In
addition, the opinion reversed certain claim construction decisions by the District Court that were the basis for the finding that the claims were not
invalid and remanded for further proceedings based on the panel's construction
of the claim.

While it is likely that this case
presents a unique situation between the parties, licensees under MedImmune should often (if not
frequently) be in a position where the patentee is foreclosed from asserting a
patent infringement counterclaim (because, inter
alia, the licensee continues to pay royalties in escrow).  Unless a licensee/declaratory judgment
plaintiff brings suit solely on the questions of invalidity or
unenforceability, under the precedent enunciated in this case licensees will
bear the burden of establishing non-infringement.

Medtronic
Inc. v. Boston Scientific Corp. (Fed. Cir. 2012)
Panel:
Circuit Judges Lourie, Linn, and Prost
Opinion
by Circuit Judge Linn