[author: Courtenay C. Brinckerhoff]
When the Federal Circuit denied the Request for Panel Rehearing and Rehearing en banc in In re Baxter, the court let stand its two decisions that affirmed conflicting rulings on the validity of the same patent. In Fresenius USA, Inc. v. Baxter Int’l, Inc., 582 F.3d 1288 (Fed. Cir. 2009), the court affirmed the district court decision that upheld the validity of claims 26-31 of U.S. Patent 5,247,434, while in its May 17, 2012 decision in In re Baxter, the court affirmed the USPTO Board decision that the claims were invalid as obvious. Parallel litigation and USPTO proceedings involving the same patent may become more rare now that the America Invents Act (AIA) has replaced inter partes reexamination with inter partes review and placed restrictions on parallel litigation proceedings, but still could arise from pending inter partes reexamination proceedings or from ex parte reexamination proceedings, which are not subject to the same restrictions.
Are the Decisions Really Inconsistent?
Judge O’Malley wrote an opinion concurring with the denial of rehearing, which was joined by Chief Judge Rader and Judge Linn. Judge O’Malley explains that the district court and USPTO Board decisions are not as conflicting as they first may appear. The district court did not find that the claims were valid per se, only that Fresenius had not carried its burden of establishing invalidity. Indeed, the Federal Circuit’s decision in Fresenius v. Baxter is carefully worded:
[W]e affirm the district court’s judgment that Fresenius failed to prove that claims 26-31 of the ‘434 patent are invalid.
Further, Judge Dyk wrote a concurring opinion in which he stated:
I join the majority opinion on the understanding that it does not foreclose the district court in its discretion from staying further proceedings pending the outcome of the reexamination before the U.S. Patent and Trademark Office. While Fresenius did not establish the invalidity of claims 26–31 of the ’434 patent in the district court proceeding, those claims on their face are of dubious validity in light of our holding that claims 1–3 and 13–16 of the ’131 patent and claim 11 of the ’027 patent are invalid. It is entirely possible that the U.S. Patent and Trademark Office will finally conclude that claims 26–31 of the ’434 patent are also invalid.
On the other hand, the Federal Circuit decided in In re Baxter that the USPTO Board decision of invalidity (rendered in an appeal in an ex parte reexamination proceeding) was supported by substantial evidence.
In order to prevail in the district court proceeding, Fresenius would have had to establish invalidity by clear and convincing evidence. In contrast, in the reexamination proceeding, invalidity could be established by a preponderance of evidence, and was based on the “broadest reasonable interpretation” of the claims, which is generally broader than the claim construction that would attach in a district court proceeding. Thus, it is not surprising that that these different proceedings could lead to different results.
What About Res Judicata?
Judge O’Malley states that she is “reassured” by the understanding that the USPTO Board decision does not “alter the binding effect of a prior judgment in a judicial proceeding.” She cites the USPTO’s brief for the proposition that:
If a federal court awards relief to a patent holder against an infringer, a subsequent reexamination decision that the patent is invalid does not disturb the judgment of the court or alter its binding effect on the parties.
Thus, according to Judge O’Malley, “principles of res judicata will govern the continuing relationship between the parties to any court proceeding and will dictate whether the PTO’s reexamination ruling will have any impact on them going forward.”
No Rest for the Successful?
Judge Newman wrote an opinion dissenting from the denial of rehearing, in which she expresses her concerns for the patent holder of a successful invention. She notes:
Since only valuable patents on successful inventions are litigated, the court has created an additional burden and disincentive to inventors, for reexamination after a patent has been sustained in court is a multiplier of cost, delay, and uncertainty, in direct negation of the principles of res judicata.
She also seems troubled by the timing of the proceedings — Fresenius did not file its request for reexamination until after the Federal Circuit had affirmed the district court decision.
Judge Newman argues that the constitutional separation of powers does not permit Congress to delegate to a non-Article III tribunal (e.g., the USPTO Board) the authority to overturn a final judicial decision, which is how she views the result of the reexamination proceeding. She also disagrees that the different burdens of proof justify the different results, stating
[P]atent validity is a question of law; law is not subject to deferential determination.
The Balance Struck by Congress
Congress may have addressed some of Judge Newman’s concerns when it eliminated inter partes reexamination proceedings and replaced them with inter partes review proceedings. These new proceedings are subject to strict limitations on parallel litigation proceedings. For example, a party who has brought a declaratory judgment action challenging a patent cannot subsequently challenge the patent in an inter partes review proceeding. Moreover, once a party has been served with an infringement complaint, that party only has one year to challenge the patent in an inter partes review proceeding. The new restrictions do not apply to ex parte reexamination proceedings, however. Thus, a party unsuccessful in invalidating a patent in a district court might still might be able to do so in a USPTO proceeding—just as Fresenius did here. Perhaps Congress decided that the patent holder’s interest in “repose” is outweighed by the public interest in having invalid patents invalidated.