Patent Office Invalidity Ruling Trumps Court’s Validity Finding

by Orrick, Herrington & Sutcliffe LLP

A recent Federal Circuit ruling will likely increase the chances of obtaining a stay of a patent litigation if there is a concurrent proceeding in the Patent Office. On July 2, 2013, the Federal Circuit in Fresenius USA, Inc. v. Baxter International, Inc. held that a court must give effect to a Patent Office finding that a patent is invalid even though the court had already found the patent to be valid. The Federal Circuit ruled that Baxter’s patent infringement action could not continue after the Patent Office cancelled the asserted patent claims. The court vacated the judgment and Baxter’s multi-million-dollar infringement award, and remanded the case with instructions to dismiss.

The Fresenius case is likely to influence district courts’ decisions on motions to stay litigation pending a Patent Office decision on a challenge to a patent’s validity. After Fresenius, there is a risk that any pending litigation could be mooted if the Patent Office decides that the asserted patent claims are invalid. A district court may be more inclined to stay a case rather than potentially waste the time, effort, and expense of continuing a patent litigation that could be wiped out at any point prior to the exhaustion of all appeals. This result is even more likely under new processes available for review of issued patents — post grant review and inter partes review — as they operate on a much faster schedule than ex parte reexamination proceedings. Decisions in post grant reviews and inter partes reviews must be made within 18 months. Because the delay is not as long, a district court may be more inclined to stay an infringement action to wait for the result.

Although the procedural background of Fresenius is complex, it is helpful to review as it sheds more light on the impact of the decision. The case started in 2003 when Fresenius filed a declaratory judgment action seeking a declaration that Baxter’s U.S. Patent No. 5,247,434 was invalid. Fresenius later stipulated to infringement of the patent but continued to assert that the asserted claims were invalid. In 2007, the district court found the claims valid and entered judgment in Baxter’s favor. On appeal, the Federal Circuit affirmed the validity ruling but remanded issues relating to damages.

While the litigation continued in the district court on remand, Fresenius filed an ex parte reexamination request for the asserted claims. The Patent Office examiner found the claims invalid, and the Patent Office’s Board of Patent Appeals and Interferences affirmed the decision. Baxter appealed the invalidity determination to the Federal Circuit.

In March 2012, the district court entered final judgment in Baxter’s favor in the infringement action. Both parties appealed that judgment in part. While the infringement case was on appeal, the Federal Circuit affirmed the Patent Office’s invalidity ruling arising out of the reexamination proceeding.

Fresenius then argued in the infringement appeal that the infringement action should be dismissed, and the Federal Circuit agreed. Despite the prior district court and Federal Circuit rulings that the patent was valid, the Federal Circuit held that the Patent Office’s decision controlled. Baxter argued that the district court’s 2007 validity ruling was “final” and “binding.” But after discussing finality concepts at length, the Federal Circuit disagreed and held that because the infringement action was still on appeal, the district court’s validity decision was not final even though it had been previously affirmed. In view of the Patent Office’s determination of invalidity, the court concluded that the prior non-final validity decision had to be vacated, and the infringement case dismissed.

Patentees and defendants alike should be aware of the Fresenius decision because it means that a Patent Office’s invalidity determination can extinguish a patentee’s right to assert patent claims at any point in a litigation before entry of a final, non-appealable judgment. The case is likely to affect litigants’ strategies on whether and when to seek reexaminations and stays, and court decisions on such issues. The Federal Circuit’s opinion is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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