The U.S. Supreme Court is reviewing a Federal Circuit decision that could redefine how certain patent infringement cases are litigated.
The case at the center of the dispute is Medtronic v. Boston Scientific, and it concerns which party bears the burden of proof when a patent licensee brings a declaratory judgment action against the patent holder, claiming its product no longer infringes on the patent it's paying to use.
Typically, it's been up to the patent holder to prove the patents in question still cover products used by the licensee, but in Medtronic, the U.S. Court of Appeals for the Federal Circuit flipped the burden to the licensee to prove its products do not infringe.
The case was brought to the U.S. Supreme Court, which heard oral arguments from both sides last month. The high court is expected to issue a ruling before next June.
"I think shifting the burden of proving non-infringement is problematic," said Palo Alto attorney Ken Kuwayti, co-chair of Morrison & Foerster's commercial litigation group. "It has practical problems in litigation."
San Diego attorney David Zubkoff, a shareholder with Seltzer Caplan McMahon Vitek, agreed.
"The concern among many in the patent bar is that the Federal Circuit ruling creates this impractical situation where a licensee could actually lose its lawsuit, seeking to prove there's no infringement, and then simply continue to infringe, forcing the patent holder to sue them and re-litigate the case all over again," he said.
San Diego intellectual property litigator Boris Zelkind, a partner with Knobbe Martens Olson & Bear, was surprised when the Federal Circuit ruling came out.
"We think the patent holder has the burden to prove patent infringement, and the accursed infringer has the burden to prove invalidity," he said.
Kuwayti said if the licensee has the burden of proving non-infringement, they're effectively forced to prove a negative. And since the party that has the burden of proof on an issue goes first, the patent holder would only have to rebut the arguments of a licensee.
"If [the Federal Circuit decision] is upheld, that means you'll be litigating those types of patent cases in a different way than all other patent cases are litigated," Kuwayti said.
The roots of the case date back to a 2007 dispute between biotech companies MedImmune and Genentech.
MedImmune wanted to get out of part of a license agreement it had signed with Genentech, but the company continued to pay royalties while filing a declaratory judgment action.
Genentech claimed since MedImmune continued paying royalties, the company was not under any threat of facing an infringement action, so no controversy existed, which is necessary when filing a declaratory judgment action.
The U.S. Supreme Court ruled that the licensee's desire to stop paying royalties satisfied the controversy requirement and allowed MedImmune's case to proceed.
The decision paved the way for licensees to file declaratory judgment actions while still paying royalties.
But Boston Scientific (NYSE: BSX) didn't think this was fair. It claimed that since Medtronic (NYSE: MDT) – the licensee – initiated the legal action, they should bear the burden of proof. The Federal Circuit agreed.
"The federal circuit said if you're bringing the challenge as a licensee, you should have the burden of proof," Kuwayti said. "You're the one disturbing the status quo. You should have to prove non-infringement."
If the decision is upheld, it could create a disincentive for licensees to file declaratory judgments while still paying royalties.
"That would mean the licensee would have to think twice before filing a declaratory judgment," Kuwayti said. " 'Do I want to do that, because if I do, I now have this burden of proof that I wouldn’t normally have in a patent case.' It would discourage people from taking a MedImmune-type action."
While surprised, Zelkind understands what the Federal Circuit is trying to accomplish with its ruling.
"The Federal Circuit is approaching it from a fairness standpoint," he said. "It's not fair. If the patent holder can't countersue, they should not have the burden of proof (if they're not) bringing the cause of action."
Based on how the oral arguments went, and the tenor of the questioning by the justices, most legal analysts feel the high court will overturn the federal circuit decision.
"The Supreme Court is not buying that fairness consideration," Zelkind said. "They're saying it's a more traditional declaratory judgment. There is a controversy, and we don't flip burdens in a declaratory judgment."
Zubkoff has the same feeling. "It's hard to say for sure, but there's a history of the Supreme Court having reversed the federal circuit," he said.