Today, the U.S. Supreme Court issued its opinion in Medtronic, Inv. v. Mirowski Family Ventures, LLC, unanimously reversing the Federal Circuit’s decision below and resolving two issues that are commonly disputed in the lower courts.  First, the Court held that the Federal Circuit had subject-matter jurisdiction over an appeal of an action for a declaratory judgment for non-infringement.  Second, the court held that contrary to the Federal Circuit’s holding, the patentee bears the burden of persuasion on the issue of infringement when a licensee seeks a declaratory judgment against a patentee that its products do not infringe the licensed patent.

BackgroundMirowski and Medtronic have a license agreement that permits Medtronic to practice the technology covered by certain of Mirowski’s patents relating to implantable heart stimulators.  The license agreement contains procedures that permit Mirowski to identify products that it believes infringe the licensed patents, thereby subjecting Medtronic to royalty obligations for those products.  Pursuant to those procedures, Mirowski notified Medtronic of its belief that several Medtronic products infringed the licensed patents.

In response, Medtronic filed a lawsuit against Mirowski seeking a declaratory judgment that the products identified by Mirowski do not infringe the licensed patents.   The District Court concluded that Mirowski, as the party asserting infringement, had the burden of proving infringement and that Mirowski had not met that burden.

The Federal Circuit disagreed. It acknowledged that a patentee normally bears the burden of proof, but concluded that where the patentee is a declaratory judgment defendant and, like Mirowski, is foreclosed from asserting an infringement counterclaim by the continued existence of a licensing agreement, the party seeking the declaratory judgment, namely Medtronic, bears the burden of persuasion.  The Supreme Court granted certiorari and reversed.

Subject-Matter Jurisdiction.  The Court first rules that the Federal Circuit did not lack subject-matter jurisdiction over the appeal.  “Title 28 U. S. C. §1338(a) gives federal district courts exclusive jurisdiction over ‘any civil action arising under any Act of Congress relating to patents,’ and §1295(a)(1) gives the Federal Circuit appellate jurisdiction over any case where jurisdiction in the district court ‘was based, in whole or in part, on section 1338.’”  “The Declaratory Judgment Act does not ‘extend’ the federal courts’ ‘jurisdiction,’ . . . and federal courts determining declaratory judgment jurisdiction often look to the ‘character’ of the declaratory judgment defendant’s ‘threatened action,’ . . . whether the defendant’s hypothetical ‘coercive action’ ‘would necessarily present a federal question.'”

In this case, “if Medtronic had acted consistent with the understanding of its rights that it seeks to establish through the declaratory judgment suit (by ceasing to pay royalties), Mirowski could terminate the license and bring a suit for infringement.”  “That suit would arise under federal patent law because ‘patent law creates the cause of action.’”  “Thus, this declaratory judgment action, which avoids that hypothetical threatened action, also ‘arises under’ federal patent law.”

Burden to Show InfringementThe Court also holds that “[w]hen a licensee seeks a declaratory judgment against a patentee that its products do not infringe the licensed patent, the patentee bears the burden of persuasion on the issue of infringement.”  “This conclusion is strongly supported by three settled legal propositions.”  First,” a patentee ordinarily bears the burden of proving infringement.”  Second, “the ‘operation of the Declaratory Judgment Act’ is only ‘procedural,’ . . . leaving ‘substantive rights unchanged.’”  Third, “‘the burden of proof’ is a ‘substantive’ aspect of a claim.”

The Court also held that “[p]ractical considerations lead to the same conclusion.” “Shifting the burden based on the form of the action could create post-litigation uncertainty about a patent’s scope.”  “It may also create unnecessary complexity by compelling a licensee to prove a negative.”  “Finally, burden shifting is difficult to reconcile with the Declaratory Judgment Act’s purpose of ameliorating the ‘dilemma’ posed by ‘putting’ one challenging a patent’s scope ‘to the choice between abandoning his rights or risking’ suit.”  “To the extent that the Federal Circuit’s burden shifting rule makes the declaratory judgment procedure disadvantageous, that rule recreates the dilemma that the Declaratory Judgment Act sought to avoid.”