JURIST Guest Columnist Steven Baicker-McKee of the Duquesne University School of Law notes that the Supreme Court unanimously overturned the US Court of Appeals for the Federal Circuit in ruling that a declaratory judgment action does not affect the court’s jurisdiction or shift the parties’ burden of proof …

In a simple patent infringement case, it is settled law that the federal courts have jurisdiction over the dispute, and that the patent holder/plaintiff has the burden of proving infringement. What happens, though, when the parties have a licensing agreement and the licensee, not the patent holder, brings an action seeking a declaratory judgment of non-infringement? May this action, governed at least in part by a common law contract, proceed in federal court? And who has the burden of proof?

The answers to these questions were so obvious&#8212at least to the Supreme Court, but apparently not to the court below&#8212that they resulted in a unanimous decision reversing the US Court of Appeals for the Federal Circuit in Medtronic, Inc. v. Mirowski Family Ventures, LLC on January 22, 2014.

First, the court clarified that parties may bring an action for a declaration regarding patent infringement in federal court, even if the parties’ rights are, to some degree, established in a licensing agreement. In other words, the underlying question of patent law authorizes federal subject matter jurisdiction even if the parties’ rights are governed by a contract which normally must be adjudicated in state court in the absence of diversity jurisdiction. Second, the court held that the patent holder will still have the burden of proof, even though not the plaintiff (who typically bears the burden of proof).

While the court’s answers are not controversial or surprising on the particular facts presented in Medtronic, however, the court did not provide much guidance as to how its rulings might apply in a more nuanced situation. In fact, it is more surprising that the court granted certiorari in Medtronic, as it was, on the surface and at virtually every layer, a patent infringement case through and through. Consequently, the court’s analysis in Medtronic does not shed much light on how a court is to analyze a case where the true nature of the case is not so easily discerned.

Mirowski Family Ventures, LLC had patents related to implantable heart stimulators. It licensed certain rights to Medtronic, Inc, which agreed to pay royalties for products that it sold that used Mirowski’s patents. Mirowski believed that Medtronic was selling products that infringed its patents without paying royalties, and provided notice to Medtronic under the license agreement. Pursuant to the terms of the license agreement, Medtronic then commenced a declaratory judgment action to determine the parties’ rights and obligations, contending that its products did not infringe Mirowski’s patents either because the products fell outside the scope of the patents or because the patents were invalid.

The US District Court for the District of Delaware held that, although the defendant in the action, Mirowski had the burden of proving patent infringement. Following a bench trial, the court ruled that Mirowski had not met its burden, and ruled in Medtronic’s favor. The Federal Circuit came to the opposite conclusion regarding the burden of proof, and held that Medtronic, as the plaintiff, held the burden of proof where, as here, the rights were governed by a license agreement. The Supreme Court granted certiorari, and reversed.

Federal Subject Matter Jurisdiction

Before reaching the burden of proof issue, the court considered whether the federal courts had subject matter jurisdiction over the action. The court started its analysis with the observation that the Declaratory Judgment Act does not extend the federal courts’ jurisdiction. In other words, if a federal court would not have jurisdiction over the underlying dispute, it cannot gain jurisdiction simply by virtue of the Declaratory Judgment Act.

In its complaint, Medtronic asserted jurisdiction under the provision giving jurisdiction over claims arising under federal laws and on the provision giving federal courts jurisdiction over “any civil action arising under any Act of Congress relating to patents, plant variety protection, copyrights and trademarks.” An amicus argued that the dispute here arose under the parties’ license agreement, not under the federal patent laws, and therefore that the federal courts did not have subject matter jurisdiction.

The court agreed with the amicus that subject matter jurisdiction in a declaratory judgment action is determined by the “character of the threatened action.” The federal courts will have jurisdiction if the action brought by the declaratory judgment defendant “would necessarily present a federal question.” Here, if Medtronic had, instead of commencing the declaratory judgment action, continued its allegedly infringing practices, Mirowski had the option of terminating the license agreement and bringing a patent infringement action. Therefore, the court concluded, the underlying “threatened action” was one for patent infringement over which the federal courts have jurisdiction, and therefore jurisdiction was proper over the related declaratory judgment action.

Burden of Proof

The court then turned to the burden of proof issue. As everyone acknowledged, in a patent infringement suit, the plaintiff patentee has the burden of proof (or persuasion) to demonstrate infringement. Furthermore, the Federal Circuit recognized that this burden does not shift simply because the infringement dispute is framed as a declaratory judgment action. These principles would suggest that Mirowski had the burden of proof. The wrinkle that exists in this case is that the parties’ rights were, at least to a certain extent, governed by a license&#8212a private agreement between the parties. The Federal Circuit had held that Medtronic had the burden of proof regarding Medtronic’s right to sell the products under the license.

The Supreme Court disagreed in terms that were somewhat dismissive of the Federal Circuit&#8212normally considered one of the most influential courts after the Supreme Court&#8212calling its contrary conclusion a matter of “simple legal logic.” It noted that the operation of the Declaratory Judgment Act is only procedural, but that the burden of proof is a substantive issue. Because the patentee always has the burden of proof in a patent infringement action, the fact that the issue is presented procedurally in a declaratory judgment action cannot shift the burden of proof.

Moreover, the court observed, the contrary rule would lead to problems. From a practical perspective, there are often numerous potential infringement arguments a patent holder might make. Placing the burden of proof on the non-patentee might require that party to disprove every possible theory of infringement in its case-in-chief, without knowing the basis for the alleged infringement. Furthermore, if the burden of proof differed in declaratory judgment actions, those actions would not preclude subsequent infringement actions, because the different proof standard would eliminate the preclusive effects of the ruling. Finally, the court noted that licensing agreements are quite common, such that a rule that shifted the burden of proof depending on who commenced the action would lead to uncertainty in the marketplace. Accordingly, the court reversed the Federal Circuit and unanimously ruled that Mirowski, the declaratory judgment defendant, had the burden of proving infringement.

Implications of Medtronic

The facts of Medtronic dictated the results. Although the parties had a license agreement, Medtronic framed its complaint almost exclusively in terms of the patent issues, arguing that its products fell outside the scope of the patents or that certain of the patents were invalid. The complaint did not seek a declaratory judgment regarding breach of the licensing agreement, the parties’ rights under the licensing agreement or any other aspect of the licensing agreement. Thus, the case was truly one arising out of patent law, and could not be resolved without adjudicating the patent issues. This led to the court’s two rulings.

The general rule is that the basis for federal jurisdiction must be present in the “well pleaded complaint,” and cannot be based on a likely affirmative defense or counterclaim. However, a court may exercise federal question jurisdiction over a state law claim if resolution of the claim necessarily depends on a substantial issue of federal law. Here, although the parties had entered into a license agreement (normally covered by state law), the claims in the complaint were exclusively dependent on patent issues, and thus appropriate for federal subject matter jurisdiction.

A similar analysis underlies the court’s burden of proof analysis. The well-settled law places the burden of proof for patent infringement on the patentee, Mirowski. The fact that the issues are presented in the form of a declaratory judgment does not change the burden of proof. Again, the license agreement is really peripheral to the dispute.

These issues might not be as readily resolved, however, if Medtronic had filed a complaint seeking a declaratory judgment about its rights under the licensing agreement, and Mirowski had alleged patent infringement as a defense or counterclaim. The court’s analysis provides scant guidance as to how a court should address subject matter jurisdiction or burden of proof under such circumstances. The ruling also raises questions about whether a thoughtful plaintiff could influence this analysis by the way it pleads its claims&#8212framing them in terms of the contract if it prefers state court or in terms of the patent issues if it prefers federal court. It will be interesting to see whether the court refines its analysis to address these issues in the future.

Steven Baicker-McKee is an assistant professor of law at Duquesne University School of Law. Prior to joining the faculty there, Steven practiced law for 23 years. He is the co-author of the Federal Civil Rules Handbook and A Student’s Guide to the Federal Rules of Civil Procedure.

Suggested Citation: Steven Baicker-McKee, Supreme Court’s Decision Clarifies Patent Infringement Jurisdiction, JURIST – Forum, Feb. 13, 2014, http://jurist.org/forum/2014/02/steven-baickermckee-medtronic-mirowski.php.