Argument analysis: Justices worry that Federal Circuit has thumb on the scale for patent-holders
on Nov 8, 2013 at 10:27 am
The argument this week in Medtronic v. Boston Scientific Corp. presented one of those surrealistic moments – when the correct answer to a problem seems so obvious to the Justices that it is difficult to imagine how it came out differently at the court below. The issue here is who bears the burden of persuasion when a user of technology files suit against a patent-holder, seeking a declaratory judgment that its actions do not infringe a particular patent.
The case follows directly from the Court’s 2007 reversal of the Federal Circuit in MedImmune, Inc. v. Genentech. The licensee in that case sought a declaratory judgment that the patent was invalid (so that it would have no further obligation to pay royalties). The Federal Circuit thought the dispute too hypothetical for a federal court; the Supreme Court reversed eight to one.
Now that the Federal Circuit is hearing MedImmune declaratory judgment actions, the natural question is who bears the burden of persuasion. Ordinarily, of course, when a patent-holder sues for infringement, it bears the burden of persuasion. In declaratory judgment actions, though, the plaintiff normally does not bear the burden of persuasion. Rather, the burden is placed on the party that would have been the plaintiff in the hypothetical coercive action about which a declaration is sought. In this case, that would have meant that patent-holder Boston Scientific bore the burden of demonstrating that Medtronic’s devices infringed Boston Scientific patents. But the Federal Circuit adopted a special rule for MedImmune declaratory judgments, holding that the alleged infringer bears the burden of proof even though the patent-holder would bear the burden if it had sued directly for infringement.
The top-side arguments from former Solicitor General Seth Waxman and Assistant to the Solicitor General Curtis Gannon were largely uneventful. Although the Justices debated a few hypotheticals, the Justices largely allowed the lawyers to summarize the basic criticisms of the Federal Circuit made in their briefs; both sat down without using all of their time.
But it was not nearly so easy for Arthur Neustadt, trying to defend the Federal Circuit. Neustadt’s strategy was to use the phrase “normal default rule” as a mantra, trying to ward off all attacks by reiterating his central point – that the normal default rule is that the plaintiff bears the burden of persuasion. In the brief, he acknowledged the Court’s cases holding that the burden of persuasion should be the same in the declaratory action as in the coercive action. He suggested, however, that those cases don’t apply here, because his client did not interpose a counterclaim.
The first time Neustadt offered that distinction in the argument, Justice Scalia (the author of MedImmune) leaped into the fray, cutting straight to the weakness of the argument:
[I]t 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 . . . brings a suit . . . 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 . . . why should the fact that the other side doesn’t have a counterclaim change anything?
When Neustadt again retreated to his argument that there’s no exception for declaratory judgments from the “normal default rule,” Justice Breyer weighed in with some blistering points about what he perceived as the impracticality of the Federal Circuit rule:
[T]here are a lot of good reasons . . . that they put in their brief why [the patentee should bear the burden of proof]. It’s easiest for the patentee to know in what respect [the licensee] violates the claim. Normally, a patent, being a monopoly, should not have too many advantages beyond the scope of the monopoly. * * * * 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?
At that point, Justice Scalia lifted a different page from Waxman’s brief: the lack of finality under the Federal Circuit rule. Displaying his characteristic assiduity, Justice Scalia eventually forced Neustadt to concede that under the Federal Circuit rule, a patentee that prevailed in a MedImmune declaratory judgment action would have to “relitigate the whole thing” if the licensee simply ignored the decision and immediately started infringement. Because the burden of proof in the declaratory judgment action would be on the licensee, a loss in the declaratory judgment would not preclude the licensee from presenting exactly the same argument in a subsequent coercive action by the patent-holder (where the patent-holder would bear the burden of proof).
The argument settled down for the most part after that, with Justices occasionally interjecting their direct disagreement with Neustadt’s presentation, but little more ongoing engagement. The apparent strength of the Justices’ attacks was most evident when Waxman declined to use the time he had saved for rebuttal.
As I suggested in the preview, the basic problem Neustadt faced here was the likelihood that the Court would view this case as a recalcitrant effort by the Federal Circuit to limit MedImmune. The argument did nothing to suggest the Justices see anything else here. So I would mark this case down as about as clearly decided at oral argument as you can imagine. Indeed, it is the rare case in which it is pretty easy to predict the opinion assignment – Justice Scalia was both the author of MedImmune and the most vocal critic of the Federal Circuit in the argument. The main question that seems to remain is whether the decision will be unanimous.
