New case law has drawn into sharp focus the role of Patent and Trademark Office (“PTO”) patent challenges that run parallel with proceedings in District Court. This past July, the Federal Circuit addressed “whether the cancellation of the asserted claims of [a patent] by the PTO, pursuant to the agency’s statutory reexamination authority, must be given effect in this pending infringement litigation.” In an opinion issued by Judge Dyk, the Court determined that the reexamination of a patent by the USPTO must be given authority over a district court’s judgment in pending infringement litigation.
The short answer is: yes. In Fresenius v. Baxter, Baxter had a valid patent and damages in district court; however, Baxter’s ‘434 patent was still invalidated upon reexamination by the USPTO.
Case Background: Since 2003, Fresenius v. Baxter has been a heavily litigated case with parallel proceedings in both the federal courts and in the USPTO. Baxter owns the ‘434 patent, which relates to hemodialysis machines that feature a touch screen interface. In 2003, Fresenius, a manufacturer of hemodialysis machines, sued Baxter in District court, seeking invalidity and non-infringement of Baxter’s patents. Baxter counterclaimed for infringement and a jury found for Fresenius and determined the claims in the patents to be invalid.
The following timing of procedural events is crucial to the outcome of the decision. In February 2007, the district court determined that Fresenius presented insufficient evidence to support the jury’s verdict and granted Baxter’s motion for judgment as a matter of law. A few months later, in October of 2007, a jury found that Fresenius infringed Baxter’s patents and awarded damages to Baxter. The Federal Circuit, in September of 2009, reversed-in-part, holding two of Baxter’s patents invalid, and affirmed-in-part, that Fresenius did not present sufficient evidence to support invalidity of the ‘434 patent, and remanded the case back to the district court to reconsider the awards. On remand, the Court entered a final judgment and awarded Baxter just over $23 million in damages. However, in May of 2012, the district court granted Fresenius’ motion to stay execution of the new judgment pending appeal to the Federal Circuit because of the USPTO’s concurrent reexamination of the ‘434 patent.
Turning to the parallel proceeding in the USPTO, in 2005, Fresenius filed for a request of reexamination of the ‘434 patent. Upon reexamination, in December of 2007, the USPTO invalidated Baxter’s ‘434 patent. The Board of Patent Appeals and Interferences affirmed the USPTO’s invalidation in March 2010. Finally, in May 2012, the Federal Circuit affirmed the Board of Patent Appeals and Interferences’ decision.
So, the Baxter patent was invalidated, despite all the underlying district court proceedings. The question for litigators becomes whether there is a point in proceedings where the PTO’s reexamination does not influence a district court’s proceeding—and how it might be used in future litigation. Specifically, it is important to ask at what point a district court’s judgment is sufficiently final so that judgment in the PTO proceedings does not apply. In this case, the majority believed the judgment was not sufficiently final because the litigation was not entirely concluded on the issue of damages. The Court supported its position with the fact that post judgment damages were remanded to the district court and that “[a]n order that establishes liability but leaves open the question for damages or other remedies . . . is not final for purposes of preclusion under traditional analysis.” Fresenius v. Baxter, 721 F.3d 1330,1342 (Fed. Cir. 2013) (quoting 18A Charles A. Wright, Arthur R. Miller, & Edward H. Cooper, Federal Practice and Procedure § 4432, (2d ed. 2002)).
How exactly an executive agency decision emanating from the PTO can trump the decision of a federal court presents other interesting questions concerning basic separation of power theory. Touching on these issues, Judge Newman dissented to the majority’s decision and stated his ruling that the holding violates the power vested in the courts by the constitution and the rules of finality. The dissent argued that “the validity of Baxters ‘434 patent was conclusively adjudicated in the district court and the Federal Circuit, in proceedings in which Fresenius fully participated . . . .” Id. at 1354. The clash of opposing determinations in parallel proceedings and the PTO’s prevailing decision over the district court’s ruling presents a potential issue about the separation of powers (executive agencies versus federal courts charged with interpreting laws of congress), which may need to be addressed in the future.
For now, Fresenius appears to offer another route for almost a de facto appeal in the form of a PTO proceeding/reexamination apart from the district court ruling. The practical implications of Fresenius provide that if a decision is not made “final,” meaning that there is “nothing for the court to do but execute the judgment,” the PTO’s determination of a claim upon reexamination trumps the district court’s ruling on validity. Thus, now more than ever, filing for a reexamination (or other post-grant proceeding) during ongoing litigation may serve as a useful tool for the defense to persuasively argue for a stay of proceedings and can allow a party to stay the execution of a judgment pending an appeal to the Federal Circuit. Litigants might credibly ask the Court why they should not stay proceedings pending the outcome of a PTO proceeding if the PTO proceeding will carry so much weight and potentially trump all the work of a district court in a patent enforcement.
The patent attorneys of Buche & Associates, P.C. are based in San Diego, California and are experienced patent litigators. Do not hesitate to contact our firm if you have a question of patent infringement.
Article by Byron Ma and John Buche, Esq. San Diego, California.
© 2013. Buche & Associates, P.C.