Back in September 2012, we posted a Patent Alert on the Federal Circuit’s decision in Medtronic v. Boston Scientific. In that case, the court held that in an action where a licensee in good standing seeks a declaratory judgment of non-infringement (so any counterclaim for infringement would be foreclosed by the existence of the license), the plaintiff licensee bears the burden of persuasion to show non-infringement. This marked an exception to the general rule that a patent owner bears the burden of showing infringement. Medtronic subsequently asked the Federal Circuit to rehear the case (both by the panel and en banc), but those requests were denied. In March, Medtronic filed a petition for a writ of certiorari with the U.S. Supreme Court.
Earlier this week, the Supreme Court granted the writ, agreeing to hear the case. Essentially, the question presented to the Court is as follows:
[W]hether, in such a declaratory judgment action [alleging non-infringement] brought by a licensee under MedImmune [i.e., where the licensee is in good standing], 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.
Medtronic’s petition points out how the outcome of this case may affect the world of standard-essential patents. Many standard-setting organizations allow (or even require) patent holders participating in the development of the standard to disclose whether certain of their patents are essential to industry standards. And it’s not uncommon for patent holders to enter into license agreements where the licensed patents are defined by the standards to which they are essential — e.g., “all patents essential to practice the IEEE 802.11 family of standards.”
Medtronic argues that under the burden allocation scheme in the Federal Circuit’s decision, a licensee that seeks to reduce or eliminate its royalty payments under such a license agreement (e.g., if it believes the licensor has “over-declared” its patents) would improperly bear the burden of proving non-infringement / non-essentiality.
Consider, for example, the situation where a licensor has declared 5 patents as essential to a standard, and its licensee is paying 10 cents per licensed patent in order to practice the standard. But the licensee now believes 3 of those patents are in fact not essential, and believes it should only owe a royalty of 20 cents per standard-compliant product. Under the Federal Circuit’s ruling, if the licensee wants to file a declaratory judgment action seeking non-infringement of those 3 patents, unless it first ceases paying royalties on those patents (exposing the licensee to breach of contract and infringement claims), the licensee will bear the burden of showing that the licensor improperly declared those 3 patents as standard-essential.
This case is certainly worth keeping an eye on. As we’ve noted in other recent posts, the issue of burden-shifting — specifically the issue of whether the patent owner or an accused infringer needs to prove “essentiality” — is coming up more and more in standard-essential patent litigation. While Medtronic v. Boston Scientific is not a standard-essential patent case, the Supreme Court’s decision certainly has the capability to affect the SEP world going forward.