Many patents are involved in parallel proceedings — post-grant proceedings before the United States Patent and Trademark Office (“PTO”) and infringement litigation in the courts. What happens when the courts and the PTO do not reach the same conclusion concerning a patent’s validity? There is little guidance when there is a conflict in the judgments. However, on July 2, 2013, the United States Court of Appeals for the Federal Circuit addressed the impact of a USPTO post-grant determination of patent invalidity on a damages award by a district court. In Fresenius USA, Inc. v. Baxter Int’l., Inc., the Federal Circuit clarified what happens when the PTO cancels a claim in a reexamination even after there has been a court judgment.
In Fresenius, the Federal Circuit vacated the district court’s decision and remanded with instructions to dismiss the findings of validity and infringement. While the litigation was ongoing, the patent in suit was being reexamined by the United States Patent and Trademark Office (“PTO”). The district court held that the patent claims were valid and infringed. However, the PTO later issued its reexamination ruling, finding that the asserted claims were invalid. On appeal, the Federal Circuit noted that cancellation of asserted claims in a reexamination proceeding should be given effect in pending infringement litigation.
Baxter International, Inc. and Baxter Healthcare Corporation ("Baxter") own U.S. Patent No. 5,247,434 ("the '434 patent"), which covers kidney dialysis machines with a touchscreen. In 2003, Fresenius USA, Inc. and Fresenius Medical Care Holdings, Inc. ("Fresenius") filed a declaratory judgment action against Baxter, seeking a ruling that the '434 patent was invalid and not infringed. Baxter counterclaimed for infringement. In February 2007, the district court ruled in favor of Baxter, finding the patent valid and infringed. In September 2009, the Federal Circuit affirmed the decision that the '434 patent was valid, but remanded to the district court to reconsider damages.
While the district court litigation was pending, Fresenius sought ex parte reexamination of the '434 patent by the PTO. In December 2007, the PTO examiner determined that the patent claims were invalid, and in March 2010, the Patent Trial and Appeals Board affirmed the examiner's decision. In May 2012, the Federal Circuit affirmed. But a couple of months earlier, in March 2012, the district court had entered final judgment against Fresenius. Both parties appealed, disputing the effect of the PTO's cancellation of the patent claims on the infringement litigation, as well as issues related to damages. The primary question on appeal was whether the PTO’s cancellation of claims was binding on pending district court infringement litigation. The Federal Circuit majority answered as follows:
"[T]he language and legislative history of the reexamination statute show that Congress expected reexamination to take place concurrent with litigation, and that cancellation of claims during reexamination would be binding in concurrent infringement litigation." Slip op. at 16.
The Federal Circuit cited a 1922 Supreme Court case to support its finding: “The Supreme Court’s decision in Simmons Co. v. Grier Bros. Co., 258 U.S. 82 (1922), demonstrates that the district court must apply intervening legal developments affecting the asserted patent’s validity, even if the court of appeals already decided the validity issue the other way.” Id. at 21. The panel noted that "under either the reissue or reexamination statute, if the PTO confirms the original claim in identical form, a suit based on that claim may continue, but if the original claim is cancelled or amended to cure invalidity, the patentee's cause of action is extinguished and the suit fails." Id. at 17.
Because the asserted claims had been cancelled by the PTO during reexamination, the Federal Circuit vacated and remanded with instructions to dismiss the district court's judgment of validity and infringement. One member of the panel, Judge Newman, dissented on multiple grounds.
The potential impact of this decision is significant. The courts, litigants and their counsel must understand the potential impact of PTO decisions on concurrent litigation, and take into consideration the timing and strategy of any request for reexamination. Also, knowing that only completely closed cases are immune from the effects of a concurrent PTO proceeding should encourage district courts to stay any copending infringement action, especially when the PTO proceeding could render all pending issues moot. As a practical matter, had Baxter been able to delay the PTO’s invalidity determination until after the district court’s judgment was final, the outcome may have been very different.