Re-exam result dooms Baxter

From the beginning of FRESENIUS v. Baxter

While the litigation was pending on remand, the United States Patent and Trademark Office (“PTO”) completed a reexamination of the ’434 patent and determined that all asserted claims were invalid. We affirmed the PTO’s determination in the reexamination proceeding, and our mandate issued. Meanwhile the district court entered judgment against Fresenius in the pending infringement proceedings. Both parties appealed. In light of the cancellation of the asserted claims of the ’434 patent, and the fact that the infringement suit remains pending before this court, Fresenius argues that Baxter no longer has a cause of action. We agree. We accordingly vacate the district court’s judgment and remand with instructions to dismiss.

The legal issue before the CAFC:

The issue in this case is whether the cancellation of the asserted claims of the ’434 patent by the PTO, pursuant to the agency’s statutory reexamination authority, must be given effect in this pending infringement litigation.

Part of the long history involved JMOL:

However, in February of 2007 the district court granted Baxter’s motion for judgment as a matter of law (“JMOL”), finding that Fresenius had presented insufficient evidence to support the jury’s invalidity verdict, and that Fresenius had therefore not proven that the claims of the patents were invalid. Id. at *2, *8–13. In October of 2007, the district court proceeded to a jury trial on damages. The jury awarded $14.266 million to Baxter for infringement of the three asserted patents. In April of 2008, the district court entered a permanent injunction, which it stayed, and awarded Baxter ongoing post-verdict royalties on infringing machines and related disposables sold by Fresenius. Both parties appealed to this court.

Of note:

In January of 2006, the PTO agreed that a substantial new question of patentability had been raised in light of new prior art, and granted the request for reexamination. The reexamination proceeded in parallel with the district court litigation. In December 2006, less than a year before the damages trial, the PTO examiner reached an initial determination that the claims would have been obvious. In December of 2007, the PTO examiner reached a final determination rejecting claims 26–31 of the ’434 patent. The examiner concluded, inter alia, that all structures required by claim 26, including the “means for delivering the dialysate,” were present in the prior art, and that the claim would have been obvious. See Ex parte Baxter Int’l, Inc., No. 2009-006493, 2010 WL 1048980, at *5–6, *8–9, *14 (B.P.A.I. Mar. 18, 2010). The examiner reached this conclusion by relying in part on Lichtenstein, a reference that was not before the PTO during the initial examination.3 The examiner also determined that claim 30 would have been obvious over a combination of refer- ences including Lichtenstein and Thompson. Like Lich- tenstein, Thompson was not before the PTO during the initial examination. Ex parte Baxter, 2010 WL 1048980, at *15, *17. Thus, as we stated in In re Baxter, “in this case, the patent examiner relied on new prior art that had not been raised [in the initial examination or] in the prior district court proceeding.” 678 F.3d at 1365.4

In March of 2010, the Board of Patent Appeals and Interferences affirmed the examiner’s determination that the relevant claims would have been obvious in light of prior art overlooked in the initial examination, including Lichtenstein and Thompson. See Ex parte Baxter, 2010 WL 1048980. Baxter challenged the examiner’s analysis of the prior art, but as the Board noted, Baxter never argued in the reexamination proceeding that Lichtenstein failed to teach the “means for delivering the dialysate” required by claim 26, id. at *14, nor that Thompson failed to teach claim 30’s “means for delivering an anticoagu- lant,” id. at *15, even though those were the very elements of the claims that Baxter had successfully argued were missing from the prior art in the district court infringement litigation.

Baxter's point

Baxter wisely agrees that in general, when a claim is cancelled, the patentee loses any cause of action based on that claim, and any pending litigation in which the claims are asserted becomes moot. However, Baxter argues that the cancellation of the asserted claims cannot be given effect at this point in the present litigation, because the validity of the ’434 patent and Fresenius’ liability for infringement of that patent were conclusively decided in 2007. Baxter argues that the district court’s 2007 judgment is “final” and “binding” on the parties in this case, and therefore has res judicata effect within the pending litigation: “the liability determination and Past Damages Award are now final and Fresenius is precluded from relitigating those issues.” Appellee’s Br. 19.

A 1922 case was invoked:


Nor does the existence of an interim appellate deci- sion on invalidity change the basic rule. 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 as- serted patent’s validity, even if the court of appeals al- ready decided the validity issue the other way. There, the Third Circuit reversed a district court finding of infringe- ment. Id. at 84. The Third Circuit held that the patent- ee’s claim was invalid because it had been improperly broadened on reissue. Id. The appellate mandate in- structed the district court to modify its decree in accord- ance with the decision on appeal, and to award costs to the infringer. Id. The suit remained pending in the district court for an accounting of damages for unfair competition. While the case was pending, the Supreme Court held in another case involving the same patent, “in direct opposition to the decision of the [Third] Circuit,” that the reissued claim was not invalid, because it had not been broadened on reissue. Id. at 85. In light of this intervening decision, the district court vacated the inva- lidity judgment it had entered based on the Third Cir- cuit’s decision and awarded the patentee damages and an injunction. Id. at 86. But the Third Circuit reversed, holding that the intervening Supreme Court decision did not affect the patentee’s rights. Id. at 87. The Supreme Court reversed the Third Circuit, holding that the Third Circuit had no basis for refusing to give effect to its inter-
vening decision on the claim’s validity, because the appel- late mandate had not ended the case. Id. at 91. The Supreme Court explained,

[t]he decree entered pursuant to the decision of the appellate court . . . evidenced a quasi- definitive decision adverse to plaintiffs, which, if nothing occurred to prevent, would in due course be carried into the final decree. But . . . there was nothing to take the case out of the ordinary rule that there can be but one final decree in a suit in equity.

Id. at 89. “[A] final decree [is] one that finally adjudicates upon the entire merits, leaving nothing further to be done except the execution of it.” Id. at 88. Because “[t]he suit was still pending . . . [i]t was eminently proper that the decree in the present suit should be made to conform to [the intervening Supreme Court] decision.” Id. at 91; see also Marconi Wireless Tel. Co. v. United States, 320 U.S. 1, 47–48 (1943) (“Although the interlocutory decision of [the trial court] on the question of validity and infringe- ment was appealable, . . . the decision was not final until the conclusion of the accounting. Hence the court did not lack power at any time prior to entry of its final judgment at the close of the accounting to reconsider any portion of its decision and reopen any part of the case.” (internal citations omitted)). Thus, in Simmons, even though there had been an appellate decision entirely resolving the patent infringement claims, because there had not yet been a final judgment on the unfair competition claims, the Supreme Court’s intervening decision was binding as to the infringement claims.



Another argument by Baxter:


Baxter next argues that under Plaut v. Spendthrift Farm, Inc., 514 U.S. 211 (1995), allowing a PTO determination to control the outcome of pending litigation is unconstitutional, because it offends the separation of powers. But Plaut lends no support to such an assertion where, as here, the suit is not over and there has been no final judgment.
(...)
Plaut thus recognized “[t]he general rule . . . that an appellate court must apply the law in effect at the time it renders its decision,” Thorpe v. Hous. Auth. of the City of Durham, 393 U.S. 268, 281 (1969), which is the principle that controls here.
(...)
Our decisions giving effect to the PTO’s cancellation of claims asserted in pending suits are fully consistent with our duty to “apply the law in effect at the time [we] render[ a] decision.” Bradley, 416 U.S. at 711.



Of Judge Newman's dissent:

In closing, it is appropriate to say a few words about the dissent, which reiterates a view, expressed by Judge Newman in various other cases, that PTO reexamination cannot affect pending infringement suits. The dissent candidly acknowledges that this position has been consistently rejected.

The outcome of the CAFC:



In light of the cancellation of Baxter’s remaining claims, Baxter no longer has a viable cause of action against Fresenius. Therefore, the pending litigation is moot. We vacate the district court’s judgment and remand with instructions to dismiss.

Judge Newman's dissent begins:

The court today authorizes the Patent and Trademark Office, an administrative agency within the Department of Commerce, to override and void the final judgment of a federal Article III Court of Appeals. The panel majority holds that the entirety of these judicial proceedings can be ignored and superseded by an executive agency’s later ruling.

Judge Newman later observes:

The loser in this tactical game of commercial advantage and expensive harassment is the innovator and the public, for it is now notorious that any invention of commercial value is ripe for not only protracted litigation but consecutive reexamination until the patent falls, or the patent or the patentee expires.

The last words of the dissent:


The court’s ruling that PTO reexamination overrides the prior adjudication of patent validity is contrary to the legislative purposes of reexamination, offensive to princi- ples of litigation finality and repose, and violative of the Constitution. The judicial decision of patent validity is not available for review, revision, or annulment by the PTO. When the issue of patent validity has been litigated and finally decided in the courts, this binds not only other courts, the parties, and the public; it binds the other branches of government. From the court’s contrary decision, I respectfully dissent.