PTO Reexamination Decision Can Eliminate Cause of Action in Concurrent Litigation

Fresenius USA, Inc. v. Baxter International, Inc. By Simon Heimowitz ­– Edited by Jennifer Wong Fresenius USA, Inc. v. Baxter International, Inc., Nos. 2012- 1334, -1335 (Fed. Cir. July 2, 2013) Slip Opinion [caption id="attachment_3506" align="alignleft" width="150"]Photo By: Kazuhisa OTSUBO - CC BY 2.0 Photo By: Kazuhisa OTSUBO - CC BY 2.0[/caption] On July 2, the U.S. Court of Appeals for the Federal Circuit vacated and remanded with instructions to dismiss the judgment of the U.S. District Court for the Northern District of California, which had entered judgment against Fresenius in infringement proceedings brought by Baxter concerning a kidney hemodialysis machine. Fresenius USA, Inc. v. Baxter International, Inc., Nos. 2012- 1334, -1335, slip op. at 31 (Fed. Cir. July 2, 2013) In a 2-1 opinion, the Federal Circuit held that a U.S. Patent and Trademark Office (“PTO”) reexamination decision, which had invalidated a number of the patent claims in question, had to be given effect in the infringement litigation, effectively leaving Baxter without a cause of action. Id. Patently-O and PharmaPatents provide overviews of the court’s decision. In 2003, Fresenius, a manufacturer of hemodialysis machines, brought suit against Baxter, the owner of a patent directed toward the use of a dialysis machine with an integrated touch screen interface. Id. at 3. Fresenius sought declaratory judgments of invalidity and non-infringement concerning three Baxter patents, and Baxter counter-claimed for infringement. Id. In early 2007, a jury awarded Baxter $14.3 million in damages, and the district court subsequently entered a permanent injunction against Fresenius and awarded Baxter ongoing post-verdict royalties for infringement. Id. at 4. On appeal, the Federal Circuit affirmed-in-part, vacated-in-part, and remanded. Id.  On remand in 2012, the district court entered final judgment for Baxter in the amount of $14.3 million plus incidental damages but reduced the royalty rate of Baxter’s post-verdict damages. Id. at 6. Both Fresenius and Baxter appealed. Id. In a parallel proceeding, Fresenius requested an ex parte reexamination of several of Baxter’s claims by the PTO.  Id. At the conclusion of its reexamination proceedings in late 2007, the PTO found Baxter’s claims invalid. Id. at 7. The claims’ invalidity was affirmed by the Board of Patent Appeals and Interferences in 2010, and the Federal Circuit affirmed the PTO’s rejection of the claims in 2012. Id. at 8. The instant case was then brought to the Federal Circuit, where the court held that because the PTO’s invalidity finding came before the district court had issued a final judgment, Baxter no longer had a viable cause of action. Id. at 31. In holding as it did, the Federal Circuit reasoned that res judicata from the district court did not preclude the PTO from ruling on the validity of the claim because the earlier court decision did not conclude the case in its totality. Id. at 20. Since the case was on remand, there was a lack of finality that allowed the PTO to provide a legal determination in the interim. Id. at 22. The court also reasoned that no separation of powers issue was created even though the final determination of invalidity came from the PTO, an executive-branch agency, as opposed to a court as a part of the judicial branch. Id. at 26­­. Because there was an aspect of the case still pending in the lower court, the PTO’s cancellation of the claims had to be given effect. Id. at 26­­­–27. Judge Newman dissented. She would have held that the PTO was not “authorize[d] . . . to override and void the final judgment of a federal Article III Court of Appeals,” because that “violates the constitutional plan . . . .” Id. at 1 (Newman, J., dissenting).  The dissent also argued that because the Federal Circuit gave a final judgment concerning the issues on appeal, res judicata should take effect, and the PTO should no longer have the authority to make a ruling on the patent claims. Id. at 15. The dissent reasoned that since on remand the court was only to determine post-judgment royalties, there was finality to the validity judgment, which the PTO had no authority to re-decide. Id. This decision highlights the issues that arise when PTO proceedings regarding a patent run in parallel with judicial proceedings regarding the same patent. InsideCounsel comments that under the ruling, alleged patent infringers will be able to “challenge a patent’s validity in both court and PTO proceedings. [The decision] also allows a challenger to prevail even after a court has issued a final determination.”