INVENTIVE STEP

Yesterday, the Supreme Court agreed to hear the appeal of the declaratory judgment plaintiff in Medtronic Inc. v. Boston Scientific Corp.  The question presented in the case is as follows:

In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is “not required … to break or terminate its … license agreement before seeking a declaratory judgment in federal court that the underlying patent is … not infringed.”

The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.

Federal Circuit Decision

Medtronic licensed patented technology related to cardiac resynchronization therapy (CST) from Mirowski Family Ventures (MFV).  Nearly from the start of the relationship, the parties disagreed as to which products were covered by the patents and whether the patents were valid.  In 2003, Medtronic challenged the validity of a licensed patent while paying royalties into an escrow account.  The parties ultimately settled the case.  The settlement agreement indicated that MFV would inform Medtronic as to which products were covered by the patents.  If Medtronic disagreed, it could retain the license while bringing a declaratory judgment action to have the court decide the issue.

In late 2007, Medtronic filed just such a declaratory judgment action of non-infringement and invalidity of the patents.  Because it continued in the license agreement, MFV could not counterclaim for infringement.  The parties disputed whether the burden to prove infringement rested on MFV, as is typically the case for the patent owner, or if, given the stature of the case, Medtronic bore the burden to prove non-infringement.  The district court sided with Medtronic and found the MFV did not meet its burden of proving infringement of the Medtronic products.

On appeal, the Federal Circuit recognized that the case is not the typical patent infringement situation where the patent owner files the initial complaint, nor is it the typical declaratory judgment case where the patent owner files the compulsory infringement counterclaim.  In those situations, the patent owner quite clearly bears the burden of proving infringement.

Now that the Supreme Court has indicated that counterclaims can be filed in the absence of ceasing royalty payments, patent owners cannot always file infringement counterclaims in the face of a declaratory judgment action.  Does the patent owner still bear the burden of proving infringement or has it shifted to the declaratory judgment plaintiff?

The Federal Circuit reversed the district court and allocated the burden of proof to the declaratory judgment plaintiff.  The court clearly struggled with how to handle the burden in light of MedImmune.  The court ultimately reasoned that MedImmune would become not simply a shield to keep licensees from large damage awards from non-payment of the license, but also a sword to haul the patent owner into court where the patent owner must prove infringement.  It is the licensee and not the patent owner who seeks relief from the court and a change in the status quo.  If neither party presented evidence, the court should not upset the status quo of the license agreement.  Thus, fairness requires them to bear the burden of proof.

The Supreme Court has now agreed to resolve this dilemma of its own making during its October 2013 term.

The Supreme Court has again granted certiorari in the Myriad gene patent case.  Specifically, the Court agreed to decide the following question presented:

Are human genes patentable?

The Court declined to address the method claims or the standing issue in the case.

The ACLU and other plaintiffs sued Myriad and the USPTO in 2009 claiming that Myriad’s patents to isolated genes are invalid as directed to non-statutory subject matter and in violation of the First Amendment to the Constitution.  In early 2010, the district court agreed that the gene patent claims were invalid under § 101 of the Patent Act, but not under the First Amendment.

In 2011, the Federal Circuit reversed, holding that isolated DNA have a markedly different chemical identity and nature from DNA found in the human body.  After the Supreme Court issued its decision in Prometheus where it confused obviousness with patentable subject matter, the Court sent the Myriad case back to the Federal Circuit for reconsideration in light of that decision.  After reviewing the case again, the Federal Circuit reached the same conclusion that the isolated DNA claims are patentable.

The Supreme Court has now agreed to consider this case again.  Given its propensity for confusing patentability with patentable subject matter, the outcome is completely uncertain.

The case will be briefed in the coming months and should be argued before the Court in March or April.  A decision is expected by the end of the Court’s current term in June.

In the US, once a patented product has been lawfully sold, the patent rights are “exhausted.” This means that subsequent purchasers can obtain the product free of patent rights. The theory behind exhaustion is that a patent owner should be able to recover or obtain royalties only once for a given product.

A product covered by a US patent that is lawfully sold outside the US (by virtue of not being patented in the country of sale or by permission of the patent owner in the country of sale) and then imported into the US may still be liable for infringement. A foreign sale would not exhaust US patent rights. Other countries may take a different approach to this issue.

Kirtsaeng v. John Wiley & Sons

The Supreme Court recently heard arguments in a copyright exhaustion case from the Second Circuit.  Although the case involves copyrighted works, it will have implications for patent law.

Kirtsaeng lawfully acquired copyrighted textbooks in Thailand.  He imported them into the US and resold them.  The publisher sued him for copyright infringement.  He argued that the first sale or exhaustion defense shielded him from liability.  The Second Circuit held that the defense does not apply to works that were acquired outside the US.

Professor Kristen Osenga of the University of Richmond Law School (my wife) provided a podcast for the Federalist Society about the argument of the case at the Supreme Court.  http://www.fed-soc.org/publications/detail/kirtsaeng-v-john-wiley-and-sons-post-argument-scotuscast.

The Supreme Court has agreed to hear appeals in two patent cases during the October 2012 term.

Bowman v. Monsanto Co.

This case concerns the doctrine of patent exhaustion where a patent owner is only entitled to compensation from the first sale of a patented invention and not from subsequent authorized sales. 

Monsanto has engineered genetically modified seeds that are resistant to herbicides.  When purchasing the seeds, Monsanto requires farmers to agree that they won’t use the seeds for the next year’s planting.  In this way, Monsanto seeks to ensure that farmers must buy the patented seeds from them each year.

Bowman purchased Monsanto’s patented seeds for the purpose of growing new plants and harvesting the seeds from those plants to use in the following year’s planting.  He argues that the original sale exhausted Monsanto’s patent rights.  Monsanto has rights in the first generation of seeds and not in subsequent generations. 

The Federal Circuit agreed with Monsanto that Bowman had created a newly infringing article.  The opinion seemed to rely in part on the conditional sale doctrine that allows patent owners to continue to assert rights in patented articles even after a sale.  Some argue that this is contrary to the Supreme Court’s 2008 decision in Quanta v. LG Electronics.

The Supreme Court often decides to hear cases based on a split between the lower courts of appeals on particular issues.  Given that all patent appeals are heard by the Federal Circuit, there aren’t really such splits.  Instead, the Court sometimes requests the views of the Administration on whether to hear a particular patent case.  Interestingly, the Court agreed to review this case against the advise of the Administration.

Question presented:

Patent exhaustion delimits rights of patent holders by eliminating the right to control or prohibit use of the invention after an authorized sale. In this case, the

Federal Circuit refused to find exhaustion where a farmer used seeds purchased in an authorized sale for their natural and foreseeable purpose-namely, for planting.

The question presented is:

Whether the Federal Circuit erred by (1) refusing to find patent exhaustion in patented seeds even after an authorized sale and by (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies?

Gunn v. Minton

The issue in this case is whether patent malpractice claims should be heard exclusively by Federal Courts and the Federal Circuit or whether they can be decided by state courts.

Attorneys are licensed on a state-by-state basis and malpractice cases against attorneys are generally filed in state court.  The Federal Circuit has held that patent law is an exception to this rule because the issues in such cases involve substantial questions related to patent law.  In particular, the court must decide whether the complainant would have won his infringement case or would have acquired a patent if not for the complained malpractice.

In this case, Minton sued his patent litigation counsel in Texas state court.  The trial court and court of appeals ruled for the attorneys based on lack of proof of the claims.  The Texas supreme court, however, dismissed the case because it lacked subject matter jurisdiction.  The court agreed with the Federal Circuit that the case should have been filed in Federal court.  The attorneys appealed to the Supreme Court.

In recent Federal Circuit cases on this issue, Judge O’Malley has been dissenting from the standard Federal Circuit view.  She has managed to get Judges Wallach and Mayer to join her.

The Supreme Court has finally agreed to determine this issue.  Question presented:

Did the Federal Circuit depart from the standard this Court articulated in Grable & Sons Metal Products, Inc. u. Darue Eng’g & Mfg., 545 U.S. 308 (2005 ), for “arising under” jurisdiction of the federal courts under 28 U.S.C. § 1338, when it held that state law legal malpractice claims against trial lawyers for their handling of underlying patent matters come within the exclusive jurisdiction of the federal courts? Because the Federal Circuit has exclusive jurisdiction over appeals involving patents, are state courts and federal courts strictly following the Federal Circuit’s mistaken standard, thereby magnifying its jurisdictional error and sweeping broad swaths of state law claims – which involve no actual patents and have no impact on actual patent rights – into the federal courts?

These cases will be briefed and argued in the coming months.  Decisions for each are expected by June.

The ACLU filed another cert. petition where it asks the Supreme Court to overturn the Federal Circuit’s opinion that isolated human genes are patentable.  The questions presented in the petition include:

1. Are human genes patentable?

2. Did the court of appeals err in upholding a method claim by Myriad that is irreconcilable with this Court’s ruling in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)?

3. Did the court of appeals err in adopting a new and inflexible rule, contrary to normal standing rules and this Court’s decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), that petitioners who have been indisputably deterred by Myriad’s “active enforcement” of its patent rights nonetheless lack standing to challenge those patents absent evidence that they have been personally threatened with an infringement action?

The first and third questions are the same ones that it presented in its December 2011 petition to the Supreme Court.  Question 3 is difficult to understand because the plaintiffs continue to win on this question despite not really have a single person or entity that does have standing.  Why continue to raise the question that it won but shouldn’t have?

The second question is new to this petition.  The Supreme Court issued a GVR order on this case in light of its Prometheus opinion and asked the Federal Circuit to reconsider the issues in light of Prometheus.  The Federal Circuit did so, but reached the same conclusion that the claims to isolated genes are patentable, claims to methods of screening cancer patients are patentable, and claims to methods of comparing and analyzing gene sequences to be ineligible.

We now await Myriad’s response.  The consensus seems to be that the Supreme Court will take this case again.  After Prometheus, it is completely unknown what the Court will do.