By Andrew Williams —

On
May 20, 2013, the Supreme Court granted certiorari
in the Medtronic Inc. v. Boston
Scientific Corp. case (Supreme Court docket number 12-1128).  The sole issue on appeal is encapsulated by
the question presented:

QUESTION PRESENTED:

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.

As
suggested, this wrinkle is the inevitable consequence of the Court's previous MedImmune decision, which allowed a
patent licensee to challenge the validity (and non-infringement) of a patent in
a DJ action without repudiating the license.  In such a case, however, the patent holder could not have brought its
own patent infringement action (because of the license agreement), and more
importantly, the patent holder could not bring an infringement
counterclaim.  The Supreme Court did not
address in MedImmune whether the
patent holder would still have the burden of proving infringement in such a
case where the licensee was seeking to disturb the status quo ante.  This issue was answered in the negative by
the Federal Circuit in Medtronic Inc. v.
Boston Scientific Corp., 695 F.3d 1266 (Fed. Cir. 2012), as we reported at
the time.  In its petition for cert., Medtronic equated this with a "presumption of
infringement," and noted that proving the negative can be "a
formidable task."  In any event, it
can be assumed that the Supreme Court took up this case because it disagreed
with the Federal Circuit's decision, and therefore the burden will likely shift
back to the patentee to prove infringement in the MedImmune context.  Nevertheless, it may be useful to look at the factual differences
between the MedImmune and Medtronic cases, and identify what to do
if faced with a similar situation in the interim.

One
of the most significant differences between these two cases is that, despite the
lengths that Justice Scalia takes to categorize the suit in MedImmune as one for a determination of non-infringement,
that earlier case was really a case about validity.  MedImmune had entered into a license agreement
with Genentech for rights to an existing patent related to the production of
chimeric antibodies, and for the future rights to a then-pending patent
application related to the coexpression of immunoglobulin chains in a host
cell.  That pending application issued as
the "Cabilly II" patent, and Genentech informed MedImmune that its
manufacture of Synagis, a drug used to prevent respiratory tract disease in
infants and young children, was covered by this patent.  MedImmune's precise position on whether the
Cabilly II patent covered the manufacture of Synagis is unclear from the
description in the Court's opinion.  However, it appears that MedImmune believed that it did not "infringe
any valid claim," and did not believe that there would be no infringement regardless
of the validity of the claims.

The
situation in the current Medtronic
case is distinct.  Medtronic had entered
into a license agreement in 1991 with the predecessor-in-interest of the patents-in-suit,
which covered cardiac resynchronization therapy ("CRT") devices.  However, the products that were the subject
of this case were not marketed until 2004, and therefore (obviously) they were
not specifically identified in the license.  Nevertheless, the license contained a provision by which the licensor
could identify new Medtronic products that it believed were covered by its
patents.  If Medtronic believed that any
newly identified products were not covered by the agreement, they had the
option to initiate a declaratory judgment action to challenge the non-infringement
and/or validity of the asserted patents.  In other words, this agreement had a MedImmune
provision more than 15 years before the Supreme Court decided the case.  So, at its heart, the present case is a
non-infringement case (non-infringement of the licensed patents), not
necessarily a validity case (even though there were validity counts in the
lower court).

So,
why does this matter?  Well, it might
not.  But, a review of the reasoning used
by the Supreme Court in MedImmune shows
that the logic begins to unravel if it is applied to every factual
situation.  In MedImmune, the Court gave the impression that it is axiomatic that
a licensee can bring a declaratory judgment action without repudiating the
contract, but in so doing, it needed to overcome many logical hurdles to reach
that conclusion.  This is because the
existence of a license should remove any case-or-controversy as required by
Article III.  Nevertheless, as the Court
put it:  "[t]he rule that a plaintiff must destroy a large building, bet
the farm, or (as here) risk treble damages and the loss of 80 percent of its
business, before seeking a declaration of its actively contested legal rights
finds no support in Article III."  MedImmune Inc., 549 U.S. at 134.  Is this always the case, though?  It would not appear to be in situations where
the patent and the licensed product or method existed when the license
agreement was reached.  In such a case,
if the licensee had a reasonable belief that the patent was invalid (or not
infringed), such as an opinion of counsel, then it should not be at risk of
treble damages.  Instead, after MedImmune, such a licensee can negotiate
the best terms possible, and still be able to subsequently attack the patents
while hiding behind the license as a shield.  The MedImmune logic,
therefore, only appears to be applicable to after-arising patents or
products/methods.

In
fact, the MedImmune case had the ideal
fact situation for the logic presented.  MedImmune needed the license to the first patent to practice its method
of manufacture without fear of suit.  Therefore, it could not repudiate the agreement, even though it believed
that the claims of the issued Cabilly II were invalid (and, unfortunately, the
Court's opinion in silent as to why the Cabilly II application was included in
the first place).  This is the classic "bet-the-farm"
situation.  This is not necessarily the
case for the Medtronic fact scenario,
which encompasses after-arising products that were not part of the agreement.  Specifically in that case, it was the license
provision dealing with new products that required Medtronic to bring its
declaratory judgment action.  However, in
these cases, it all comes down to license drafting — what mechanism does the
agreement use to incorporate products or methods that do not exist at the time
of execution?  Correspondingly, the
response to the question presented of whether the licensor patent holder or the
licensee should have the burden of proving infringement/non-infringement should
also depend on the particular facts.

But,
in the end, this distinction will likely not matter, because the MedImmune decision was decided as a non-infringement
case (over the protests of Justice Thomas in dissent).  It is possible that Justice Scalia took such
pains to describe the case as such, because a DJ case directed solely to
validity of patents would have looked a lot more like an advisory opinion, and
therefore satisfaction of Article III's case-or-controversy requirement would
have been more suspect.  It can therefore
be presumed that a majority of the Court will still not view these cases as
factually distinct.  And, given that cert. was granted, it is likely that the Medtronic burden-of-proof issue will swing
back to the patentee.

What
actions should a licensor patent holder take if now faced with a MedImmune-style DJ action?  It would clearly seem advisable to put on the
best infringement case possible, in case the burden of proof does shift back.  Otherwise, it would seem critical to treat all
of these issues upfront when entering into a license agreement.  Careful attention should go into any
provision that would determine how any new patent or product/method would get
incorporated into the agreement, if such a provision is even included at
all.  It is not inconceivable that that
parties would need to renegotiate for any subsequent activity that might be
incorporated to the agreement.

Patent Docs
will continue to monitor this case and provide any updates as warranted.