Wednesday, November 6, 2013

U.S. Supreme Court Hears Oral Argument in Declaratory Judgment Case

I blogged about this case, Medtronic Inc. v. Boston Scientific Corp., back in May when the Court granted cert. and in August when I signed an amicus brief arguing for reversal.  As I wrote in August, the issue is "whether, under U.S. law, a licensee in good standing who wants to initiate a declaratory judgment action for noninfringement should bear the burden of proof on this issue (as the Federal Circuit held in Medtronic Inc. v. Boston Scientific Corp., 695 F.3d 1266 (Fed. Cir. 2012), cert. granted, 133 S. Ct. 2393 (May 20, 2013) (No. 12-1128)), or whether the burden of proving infringement should rest with the declaratory judgment defendant/patent owner."  

Arguing for the petitioner, Seth Waxman asserted at the opening that "Allocation of the burden of proof inheres in the governing substantive law while the Declaratory Judgment Act is procedural only and does not change substantive rights. The burden of proof in MedImmune actions, like all other declaratory actions, remains where it would have rested in the equivalent coercive suit brought by that patentee."  Further, Mr. Waxman stated:
. . . the Court has also said repeatedly that the declaratory judgment action is procedural only and doesn't change substantive rights.  But I think if you go to a--to the policy question, Justice Alito, reversing the burden in a declaratory action would impair the purpose and utility of the Declaratory Judgment Act, which was enacted to provide a mechanism for determining how the equivalent coercive action would be resolved without the--without requiring the declaratory judgment plaintiff to subject itself to retrospective liability. And, indeed, shifting the burden would threaten the issue preclusive effect of the declaratory judgment . . . .
In response to Chief Justice Roberts's question "Why shouldn't you have the burden as the party who seeks to disturb the status quo?", Mr. Waxman responded that "the burden of proof is substantive, and a declaratory judgment action under the Act is not--is aimed not to change any substantive rights."

Curtis Gannon of the Solicitor General's Office, also arguing for a reversal, argued further that "we don't think that Medtronic is seeking to change the status quo here, for a couple different reasons. One of them is, as I was just saying, that the agreement here didn't actually reach--the license agreement here didn't --it didn't include a meeting of the minds about whether these particular future products would be covered by these patents, including one of the patents was reissued after the time of the license.  And also, this license agreement expressly preserved the parties' ability, including Medtronic's ability, to challenge both the validity and the enforceability of the patent. . . . [W]e think that the best way to think of a declaratory judgment action like this is that it is the mirror image of the underlying coercive hypothetical action that could have been brought against Medtronic."

Arguing for the petitioner, Arthur Neustadt stated "There was no shifting of the burden of proof. The well-settled law that I referred to is the normal default rule. The normal default rule is perhaps one of the most fundamental tenets of our jurisprudence.  It says that if a party files a complaint and seeks relief, it has the responsibility to prove that it is entitled to that relief."  In response, there was the following colloquy:
JUSTICE SCALIA: But --but you could say that about any declaratory judgment action. You can say the person bringing the declaratory judgment action is seeking the relief. And if --if we follow what you said, that then the burden shifts in every declaratory judgment action. And it clearly doesn't. I mean, we - we've said time and again that the burden of proof normally does not shift. What's different here?
MR. NEUSTADT: I'll tell you what's different here. The difference is that there is no infringement. Medtronic is a licensee. As a result, there can be no coercive counterclaim. As the Chief Justice noted, they're paying royalties. There is no infringement.
Further on, Mr. Neustadt reiterates this point:  "Justice Scalia's question, the big difference is that we cannot counterclaim for infringement." Justice Scalia, though, didn't seem persuaded:
JUSTICE SCALIA: It seems to me it is often the case in declaratory judgment actions that the defendant in the action cannot counterclaim. I mean, it typically occurs when somebody doesn't want to be in breach of contract and--and brings a suit to see, you know, claiming if I do this I won't be in breach. The other side can't counterclaim because the person hasn't been in breach. The whole purpose of the declaratory judgment statute is to enable you to sue before the other side has a cause of action against you. That's the whole purpose of it.  So --so why should the fact that the other side doesn't have a counterclaim change anything?"
Justice Breyer also didn't seem persuaded by the petitioners argument:
So their point is, call it what you wish, but where you have a claim which amounts to a claim that my product does not infringe his patent, the rule that should apply is the person who owns the patent should have to prove that the claims do cover the product.  And there are a lot of good reasons, et cetera, that they put in their brief why that should be so. It's easiest for the patentee to know in what respect it violates the claim. Normally, a patent, being a monopoly, should not have too many advantages beyond the scope of the monopoly. And we don't like false patents because that--you'd have different results in the same kind of patent with different people depending upon whether in some other instance your client brought a suit or whether this was --I mean, you've read the arguments.  So looking at those functional arguments, is there any answer that you have to their point other than cases in different subject matters where burdens of proof did shift?
MR. NEUSTADT: Well, the answer to your question is that the normal default rule is a fundamental tenet, that you can't go into court and say it's the responsibility of the defendant to disprove the allegations of my complaint.
There followed a spirited colloquy between Justice Scalia and Mr. Neustadt:
JUSTICE SCALIA: Then the Declaratory Judgment Act doesn't change it; that's your position?  What do you do about the res judicata problem? Let's assume that we put the burden of proof where you want it. Okay? So this declaratory judgment action is defeated. All right? Nonetheless, they say: Still and all, we are going to go ahead and not pay any royalties. And then you bring --you bring an infringement action, right?
JUSTICE SCALIA: Is --is the prior decision res judicata or are you going to have to relitigate the whole thing, but this time with the burden of proof on you?
MR. NEUSTADT: No, you're not going to have to litigate the whole thing.
JUSTICE SCALIA: Why not? You never --you never established that you're entitled to any--any  infringement damages.
MR. NEUSTADT: I agree. But you're not going to have to relitigate the whole thing. This issue is going to be decided on preponderance of the evidence. And we don't have the burden. They have the burden on that. Once that's decided --
JUSTICE SCALIA: No, you--you would normally have the burden as-as the person claiming infringement.
MR. NEUSTADT: Oh, of course.
MR. NEUSTADT: Of course.
JUSTICE SCALIA: Right? So you'll have to relitigate the whole thing because you--you never established that there was infringement. In the declaratory judgment action, all you've established is that they didn't prove non-infringement.
MR. NEUSTADT: Yeah. That's all true, and I'm not arguing with it.
JUSTICE SCALIA: So we have to relitigate the whole thing.
MR. NEUSTADT: No. First of all -
JUSTICE SCALIA: What's the alternative?
MR. NEUSTADT: Okay. I will give you two answers. The first answer is you are never going to get this situation because the last thing in the world Medtronic wants to do is give up its license. So it's not going to --it's not going to stop paying royalties.The second thing is -
JUSTICE SCALIA: It's my hypothetical, okay?
MR. NEUSTADT: Okay. Now, to follow your -- to follow --to follow your hypothetical, the court who, say, tries the issue with respect to whether or not there's claim coverage, and let's just say we prevail on that. When there's a subsequent infringement action, you're correct, we cannot say that they're estopped by res judicata or issue preclusion. But we can say, Your Honor, you've seen this entire case. Now, where it was a preponderance of the evidence before, it's now preponderance of the evidence on the other side. It may be the difference between 49.9 and 50.5. And we're going to bring a motion for summary judgment and JUSTICE SCALIA: So your answer is, Justice Scalia, you're right, but it doesn't matter very much. That's your answer, right?
MR. NEUSTADT: And I've got one further answer to that.
MR. NEUSTADT: And that is, there is no exception to--to 100 percent lack of finality with respect to the normal default rule. The normal default rule is more important than saying that if there is a little bit of chance of a lack of finality, we're going to throw out the entire normal default rule in--in favor of this rule and put the burden of proof on the party who is not even seeking any relief.  And there was no shifting in this case. Shifting involves starting with a position, shifting to another position. As soon as they filed the suit and you're the only party seeking relief, they would have the burden of proof. Now, if they are infringing, we can counterclaim. Then we're going to have the burden of proof because that's an issue where you have two parties seeking relief and that's a little more complicated.
Later in the argument, however, Justice Breyer said that Mr. Neustadt made a good point that the first thing that will happen in discovery in a case like this one is that the patentee will have to answer an interrogatory as to why the device at issue is covered by the license.  The DJ plaintiff is not going to have to prove noninfringement of every claim of every patent.

At the end of the day, I think that Dennis Crouch was right in predicting a reversal. 

Update:  I forgot to add a link to the transcript.  It can be downloaded from the Supreme Court's website, here.

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I should note that today is the six-month anniversary of the launching of this blog.  Over 100 posts and 16,000 pageviews later, I'm still enjoying this, and I hope my readers are too.

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