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USPTO Reexamination Trumps Federal Court Opinions of Patent Validity

August 21, 2013

By: David E. Brook

Hamilton Brook Smith Reynolds Alert

  • A party accused of infringing a patent can fail to invalidate the patent in the courts but still win based on a decision of invalidity in a reexamination proceeding at the United States Patent and Trademark Office (PTO).
  • A concurrent request for reexamination at the PTO can be an effective strategy for a defendant accused of patent infringement.

The Holding
A divided panel of the Court of Appeals for the Federal Circuit (Federal Circuit) held, in Fresenius USA, Inc. (Fresenius) v. Baxter International, Inc. (Baxter), that a decision in favor of Baxter on the issue of validity of its patent was nullified by a concurrent Patent Office conclusion of invalidity of the patent in a reexamination proceeding.  Accordingly, the Federal Circuit vacated the district court's decision of patent validity and infringement, and remanded the case with instructions to dismiss the case.
The Facts
In a dispute starting in 2003, Fresenius, a manufacturer of hemodialysis machines, filed suit in the United States District Court for the Northern District for the District of California (District Court) seeking declaratory judgments of invalidity and non-infringement with respect to a patent assigned to Baxter.  Following claim construction, Fresenius stipulated to infringement of the Baxter patent, but asserted that the claims were invalid.  The court held the patent valid and awarded $14.266 million to Baxter for patent infringement.

On appeal, the Federal Circuit held that Fresenius had failed to present sufficient evidence to invalidate the Baxter patent, affirming the District Court's decision on patent validity.  The Federal Circuit also vacated the District Court's royalty award and remanded the case to the District Court to consider the royalty award.  Fresenius petitioned the Supreme Court for a writ of certiorari, which was denied.  Therefore, the validity of the patent was affirmed to the full extent available in the courts.

While the District Court litigation was pending, Fresenius requested reexamination of the Baxter patent, which was granted by the Patent Office.  The reexamination proceeded in parallel with the remanded District Court case.  The Patent Office declared the Baxter patent to be invalid.  The Federal Circuit affirmed the Patent Office's determination, explaining that this decision was not inconsistent with the Federal Circuit's holding in the infringement litigation because, unlike the District Court in the infringement litigation, the PTO based its decision on prior art references that were not squarely at issue during the Court trial on the invalidity issues.

The Opinion
The Federal Circuit explained that ex parte reexamination is a curative proceeding that is meant to correct or eliminate erroneously granted patents.  As such, the reexamination statute restricts a patentee's ability to enforce the patent's original claims to those that survive reexamination in "identical" form.  Although cancellation of patent claims during reexamination cannot be used as a basis to re-open an earlier final judgment, in this case there was no such final judgment because damages remained to be determined by the district court at the time the PTO held the patent to be invalid.  Therefore, according to the Federal Circuit, the patent is invalid by virtue of the decision by the PTO during reexamination, and Baxter no longer had a cause of action to be decided by the district court.

The Federal Circuit also found no basis for distinguishing between the effects on a pending litigation of a final, affirmed court decision determining invalidity and a final, affirmed PTO decision determining invalidity, given the statutory reexamination authority of the PTO to cancel rejected claims, with cancellation extinguishing the underlying basis for suits based on the patent.

The Dissent
In a vigorous dissent, Judge Newman argued that the court's decision on validity was final and conclusive upon the rights of the parties, and was therefore not subject to being overturned by a later decision by the PTO.  She also argued that a decision of a federal court cannot be overturned by an agency of the executive branch, because that would violate the Constitutional separation of powers between the executive, legislative, and judicial branches of government. 
Implications and Conclusions
A party in patent litigation can decide to present evidence of invalidity, particularly evidence of a highly technical nature, to the Patent Office in a reexamination proceeding instead of or in addition to presenting it to a court.  If successful in invalidating the claim in reexamination, the accused infringer can extinguish the cause of action of the patentee, provided that the PTO's decision is final and affirmed prior to the judgment of the court becoming final and conclusive upon the rights of the parties.
Baxter has requested reconsideration by all judges on the Federal Circuit, as opposed to the original panel of three judges.  In response, the court invited additional briefing from interested parties to be filed by August 20, 2013.  As of August 20, a number of groups filed briefs.  A petition by one of the parties for Supreme Court  review should also be expected.

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