• Patent Reexamination Produces Extra-Innings Win in Seesaw Infringement Battle
  • October 30, 2013
  • Law Firm: Sunstein Kann Murphy & Timbers LLP - Boston Office
  • This past July, the Federal Circuit delivered a ruling that has defendants in patent infringement lawsuits, business executives and attorneys exploring new ways to wield patent reexaminations as a weapon in hotly contested patent fights.

    Baxter and Fresenius have been engaged in years of tough competition and a long, tortuous litigation concerning hemodialysis machines. Their lawsuit came to a surprising close when the Federal Circuit determined that a late-in-the-game invalidation of Baxter’s patent claims in the PTO stripped Baxter of a string of wins in the litigation.

    While reexamination itself has long been an arrow in the quiver of a company accused of patent infringement in district court, it was previously thought that a reexamination proceeding would affect an ongoing lawsuit only if the trial judge stayed the matter pending the PTO’s determination or if the reexamination was completed before rulings issued on infringement and validity.

    In Fresenius v. Baxter, both the district court and the Federal Circuit had already ruled that Fresenius infringed Baxter’s valid patent, but the question of a proper damages award was still the subject of ongoing appeals. For that reason, the Federal Circuit held that the matter had not been finally decided. It thus took into consideration the PTO’s belated invalidation of the patent claims and dismissed the lawsuit.

    For Baxter and Fresenius, the devil was in the details. The lawsuit was filed in 2003. In 2007, the district court determined that certain Baxter patents were valid and infringed by Fresenius. The case went up on appeal. In 2009, the Federal Circuit affirmed the district court’s ruling on validity of one patent, but reversed on two others. The Federal Circuit then remanded the case to the district court to reconsider remedies in light of the changed ruling on the patents actually infringed.

    In March 2012, the district court awarded Baxter a reduced royalty, which became the subject of an appeal to the Federal Circuit. In May 2012, the district court stayed the execution of judgment pending the appeal.

    Fresenius did more than fight Baxter in court. In 2005, it sought ex parte patent reexamination. In December 2007, the PTO issued a final determination rejecting the claims that Baxter had asserted in the litigation. This determination was affirmed by the Board of Patent Appeals and Interferences in March 2010. Baxter appealed that decision to the Federal Circuit, which affirmed it in Fresenius’s favor in May 2012, just two months after the district court had entered judgment for Baxter. Baxter did not petition for the matter to be considered by the United States Supreme Court.

    Fresenius then took the position that in light of the PTO’s cancellation of the patent claims, Baxter lacked a cause of action. The Federal Circuit agreed, vacated the district court’s judgment and remanded the case with instructions for the district court to dismiss.

    By law, federal courts and the PTO- each from a different branch of the government- are equally empowered to rule on a patent’s validity. Fresenius resolves the question of what happens when the two reach conflicting conclusions as to validity: The PTO’s decision trumps the court’s decisions so long as the court has not entered final judgement.

    The Federal Circuit’s ruling does not merely conclude a bitter contest. It has complicated the already vexing issue of what constitutes a final judgment. As the dissent noted, it raises questions about the proper role of executive agencies’ determinations in the context of litigation as well as whether reexaminations are actually being used properly, that is, to remedy errors made during patent prosecution.

    As a practical matter for patent owners and accused infringers, however, it means that a patent reexamination may be more powerful than ever before. The outcome of a reexamination may be felt much further along in the litigation lifecycle. The threat of a reexamination’s upending validity and infringement findings may encourage patent owners to try to move their cases along more quickly, file more cases in courts with “rocket dockets,” or opt for settlement.

    For their part, accused infringers may be more likely to initiate reexaminations. District courts may be less confident that it is worth investing time in trying patent suits when a reexamination is pending at the same time and they may grant more motions to stay litigation pending reexamination as a way to conserve scarce judicial resources.