Federal Circuit Fractured Over Finality in Fresenius

22 November 2013 PharmaPatents Blog

When the Federal Circuit denied Baxter’s petition for panel rehearing and rehearing en banc in Fresenius USC, Inc. v. Baxter International, Inc., Judge Dyk wrote an opinion concurring in the denial that was joined by Judge Prost, Judge O’Malley wrote an opinion dissenting from the denial that was joined by Chief Judge Rader and Judge Wallach, and Judge Newman wrote a separate opinion dissenting from the denial. The judges’ different views of the case appear to stem primarily from different views of what it means for a case to be “final.” 

The Underlying Litigation

In its 2009 decision in Fresenius v. Baxter, the Federal Circuit affirmed the district court’s judgment that “Fresenius failed to prove that claims 26-31 of the ‘434 patent are invalid.” The jury had awarded Baxter $14.266 million in damages, but, according to Judge O’Malley’s dissenting opinion here, a remand was required to address “(1) the continuing propriety and scope of any permanent injunction; and (2) the proper measure of any royalty to be paid on post-verdict sales pending the effective date of that injunction.”

While the appeal in that case was pending, the claims were invalidated in an ex parte reexamination proceeding. The Federal Circuit upheld the USPTO decision on appeal, in In re Baxter.

The Federal Circuit previously faced the inconsistencies in its decisions when it denied the petition for panel rehearing and rehearing en banc in In re Baxter. As Judge O’Malley explained in her concurrence in that denial, the court could uphold the USPTO’s decision invalidating the claims after having already affirmed a judgment upholding them because of the different burden of proof and different claim construction in the reexamination proceeding.

The question in Fresenius v. Baxter then became whether Baxter could collect damages for infringement of a patent that has been held invalid. The Federal Circuit held that it could not, which led to the latest petition for panel rehearing and rehearing en banc.

The three opinions issued with the order denying the petition reflect different views of when a judgement is “final” such that it is not impacted by a decision in a separate proceeding invalidating the patent at issue.

Judge Dyk: It Ain’t Over ’Til it’s Over

Judge Dyk’s opinion starts with the premise that “[a] patentee’s right to damages for infringement is ‘founded on the validity of his patent.’” Judge Dyk also reiterates the views expressed in the panel majority opinion (which he authored) that “the language and legislative history of the reexamination statute show that Congress expected . . . that cancellation of claims during reexamination would be binding in concurrent infringement litigation.” Thus, the only question for Judge Dyk was whether the decision in Fresenius v. Baxter, was sufficiently final to shield it from the USPTO reexamination decision invalidating the claims.

Judge Dyk cites Supreme Court and Federal Circuit decisions for the proposition that litigation is not final until “all issues” have been resolved.

Judge Dyk cites the 1922 Supreme Court decision in Simmons Co. v. Grier Bros. Co. as an example where “the Supreme Court held that an intervening decision on validity was binding on a pending case where liability had been resolved but a final decree had not yet been entered.” As summarized by Judge Dyk, “even though the questions of infringement and validity had been resolved, the judgment was not immune to the effect of the subsequent decision by the Supreme Court because it had not ended litigation on all issues.”

Judge Dyk cites the 1994 Federal Circuit decision in Mendenhall v. Barber–Greene Co. as an example of where the court held “that a final judgment of infringement and no invalidity had to be overturned in light of a subsequent ruling of invalidity because the case as a whole was not final.” In that case, the judgment of infringement and no invalidity had been affirmed and the case had been remanded “for determination of damages and other issues” when “the asserted claims were held invalid in a separate appeal.” Judge Dyk reads that case as “explain[ing] that for a judgment to be immune to a subsequent determination of invalidity ‘the litigation must be entirely concluded so that [the patentee’s] cause of action against [the infringer] was merged into a final judgment.’”

Responding to Judge O’Malley’s arguments, Judge Dyk notes:

In both Simmons and Mendenhall the courts had rendered final decisions on infringement liability potentially sufficient to create collateral estoppel; yet the decisions were held not sufficiently final to bar the preclusive effect of a final judgment in another case.

Judge O’Malley: It’s Over When The Fat Lady Sings

In her dissenting opinion, Judge O’Malley emphasizes that the issues relevant to liability had been finally resolved by the courts:

In this case: (1) the district court resolved all issues of validity, infringement, past damages, and the right to post-verdict relief; (2) our court affirmed the resolution of these issues on appeal; and (3) the United States Supreme Court denied Fresenius’ petition for a writ of certiorari. Following the denial of cert, neither the district court, nor this court, could disturb Baxter’s entitlement to damages for infringement.


 Once the Supreme Court denied Fresenius’ petition for certiorari following our decision in Fresenius I, Fresenius’ liability for infringement, its failure to prove invalidity, and its responsibility for past damages were firmly established and beyond challenge. The only live issues remaining in the case related to post-verdict relief. And, even the live issues regarding post-verdict relief did not concern the right to such relief—which was established; the remand only asked that the court reconsider the scope of and formula used for such relief. All other aspects of the case had been conclusively resolved.

Judge O’Malley explains that the remand related to “prospective relief,” and so did not make the judgment on the merits vulnerable to being mooted by the USPTO decision.

Judge O’Malley cites treatises and decisions from the Second Circuit (from which this case arose) for the proposition that “[w]ell-established law recognizes finality in situations like the one presented here—where the merits are conclusively decided—even though other issues may remain.”

Judge O’Malley distinguishes the cases cited by Judge Dyk as follows:

[U]nlike in Mendenhall and Simmons, a true “accounting” had occurred. …. The only remaining issues related to post-verdict relief. The district court, in fact, lacked the power to reopen the case to reassess Baxter’s entitlement to pre-verdict damages. …. Consequently, nothing in either Mendenhall or Simmons suggests that an administrative agency’s actions can undermine the conclusive resolution of rights by the courts.

Judge O’Malley also expresses concerns over the combined effect of the decisions in this case and In re Bosch, where the Federal Circuit held en banc that “liability determinations in patent cases are final for purposes of immediate appeal under 28 U.S.C. § 1292(c), even when a jury trial on both damages and willfulness remains.” Judge O’Malley believes that “Bosch created an incentive for district courts to bifurcate liability determinations from damages and willfulness trials,” in order “to limit the time and resources spent on patent cases by seeking an interlocutory review of their claim construction and liability determinations.” That could result in “piecemeal” litigation that extends over years, after which, under Fresenius, a USPTO decision could render the court proceedings “meaningless,” further disincentivizing courts from spending limited resources on patent cases.

Judge O’Malley concludes:

For these reasons, I believe that our remand to determine the scope of post-verdict relief does not undermine the finality of our determination affirming infringement, validity, past damages, and the right to post-verdict relief between Fresenius and Baxter in Fresenius I. Our mandate issued, and the Supreme Court denied the petition for certiorari in that case. Those issues are final. While our decision in In re Baxter eliminated any prospective rights Baxter may have against third parties, it does not extinguish Baxter’s vested rights in the final judgment on the merits of this case against Fresenius.

Judge Newman: If There’s an Article III Fork In it, it’s Done

Judge Newman’s dissenting opinion focuses on her disagreement with the premise that the USPTO can override a federal court decision, and on the uncertainty this places on patent holders. (Judge Newman dissented from the majority opinion in In re Baxter.)

Article III judgments are “final and conclusive upon the rights of the parties.” ….  A system of override by an administrative agency interferes with the power and obligation of the courts to “render dispositive judgments.” …. Instead of finality after full litigation, full trial in the district court, and full appeal in the Court of Appeals, now the question of patent validity remains open, vulnerable to contrary disposition, unconstrained by any form of estoppel or restraint flowing from the finality of adjudication.

Indeed, Judge Newman believes that leaving patents open to collateral attack undermines the entire patent system:

The panel decision destabilizes issued patents, by ignoring the rules of finality. No public purpose is served by a regime in which commercially valuable innovations can be tied up in a succession of judicial and administrative proceedings until, as here, the patent expires. …. I emphasize the gamesmanship and abuses that are now facilitated, with no balancing benefit to the public.


My concern is with the unconstrained free-for-all that this court has created, for PTO records show pervasive duplication of litigation and reexamination of the same patents. The ensuing instability replaces innovation incentive with litigation cost, along with adverse effect on the patent based incentive for technological advance. Such gaming of a system designed to provide investment incentive through property rights, warrants thoughtful remediation, not facilitation.

The Ex Parte Reexam Reset Button

As I wrote previously, parallel litigation and USPTO proceedings involving the same patent may become more rare now that the America Invents Act (AIA) has replaced inter partes reexamination with inter partes review and placed restrictions on parallel litigation proceedings. But, the issues in the case arose from an ex parte reexamination proceeding, which are not subject to the same restrictions. Although Judge O’Malley emphasized that the reexamination that invalidated Baxter’s patent had been “requested by a party litigant,” an ex parte reexamination requester plays a very limited role in the proceeding. Indeed, a third party can request ex parte examination anonymously. Thus, a patent always is subject to challenge in an ex parte reexamination proceeding, as long as someone can raise a “substantial new question of patentability.”

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