Declaratory judgment actions are common in patent litigation. Generally, these actions are filed after a patent owner accuses another party of infringing its patent. Sometimes these disputes arise when parties to an already existing license agreement disagree about whether the licensed patent claims cover a new product and the licensee needs to pay royalties. In such circumstances, the purported infringer does not need to wait until the patent owner decides to sue; it can strike first and file a declaratory judgment action to seek determination that either the product is non-infringing or the patent at issue is invalid.
It has long been settled that patent owners who sue or countersue for infringement bear the burden to prove infringement, but it has been less settled who bears that burden when the licensee files suit first for a declaratory judgment of non-infringement where the entity filing suit is a licensee of the patent-in-suit.
On January 22, 2014, in Metronic, Inc. v. Mirowski Family Ventures, LLC, Case No. 12-1138, the United States Supreme Court answered that question, unanimously holding that regardless of which party files the lawsuit, the patent owner always bears the burden of proof of infringement. In so holding, the Supreme Court reversed a Federal Circuit decision which had held that the burden lies with the licensee when the patent owner is the declaratory judgment defendant and is foreclosed from asserting an infringement counterclaim by the continued existence of a license.
The Court noted that (1) a patentee ordinarily bears the burden of proving infringement, (2) the operation of the Declaratory Judgment Act is only procedural, and (3) the burden of proof is a substantive aspect of the claim. The Court also considered the practical considerations of shifting the burden based on the form of the action, noting that it “could create postlitigation uncertainty about the scope of the patent” in the event that the declaratory judgment plaintiff failed to meet its burden to prove non-infringement.
The Court also considered the unnecessary complexity that could be caused by shifting the burden of persuasion. The licensee may find it difficult to understand the theory upon which the patentee’s infringement claim rests. The Court noted that a patentee is in a much better position than a licensee to argue why a licensee’s activities infringe a claim of the patent in question. Until the patentee makes those arguments, the licensee must try and negate every possible infringement theory.
In addition, the Court observed that shifting the burden of persuasion in a declaratory judgment action would be difficult to reconcile with the Declaratory Judgment Act. The purpose of the act is to prevent a challenger of a patent from facing the dilemma of choosing between abandoning the right to challenge the patent or risking suit by not making royalty payments. The Court found that the Federal Circuit’s rule would not deprive a challenger of the right to seek a declaratory judgment action but would create a significant obstacle to the success of such an action. The Court also addressed concerns that this ruling would force patentees into full-blown infringement litigation. The Court answered this concern by stating, “Litigation can occur only in the presence of a genuine dispute of sufficient immediacy and reality about the patent’s validity or its application.”
As always, whether you agree or disagree with the wisdom of this decision depends on where you stand. This decision may change the incentives for licensees who believe that next-generation products no longer meet the patent claims they licensed to pull the trigger and file a lawsuit, making licensors then prove infringement.