By Kevin E. Noonan --
In a case that raises important issues of perhaps Constitutional dimensions (at least in Circuit Court Judge Newman's view), the Biotechnology Industry Organization (BIO) urged the Federal Circuit to rehear the panel decision en banc in Fresenius v. Baxter Int'l. According to the Federal Circuit, the question the panel addressed was "Whether under the reexam statute, the cancellation of claims by the Patent and Trademark Office is binding in pending district court infringement litigation." But BIO, as well as others, have posed the question differently: when is a district court decision "final" for purposes of later PTO determination of invalidity?
To recap the facts and circumstances of the decision, the suit arose from a declaratory judgment action by Fresenius against Baxter over U.S. Patent Nos. 5,247,434 (and two others no longer at issue). After a protracted procedural history, the District Court granted judgment in favor of Baxter, finding that Fresenius had not established invalidity of the '434 claims by clear and convincing evidence, and the Federal Circuit affirmed (but, importantly for the issue at bar, vacated an injunction and royalty award an remanded to the District Court for reconsideration). The District Court on remand awarded Baxter post verdict damages at a reduced royalty rate and entered final judgment. Fresenius USA, Inc. v. Baxter Int'l, Inc., No. 03-CV-1431, 2012 WL 761712 (N.D. Cal. Mar. 8, 2012).
Meanwhile, however, Fresenius had filed a parallel ex partes reexamination in the PTO (filed two years after the lawsuit). In this action, the very same claims at issue before the District Court were found invalid, a decision affirmed by the Board of Patent Appeals and Interferences (now, the Patent Trial and Appeal Board) in Ex parte Baxter, Int'l, Inc., No. 2009-006493, 2010 WL 1048980 (B.P.A.I. Mar. 18, 2010) and the Federal Circuit in In re Baxter Int'l, Inc., 678 F.3d 1357 (Fed. Cir. 2012). In this action, the Federal Circuit majority held that, because there was not "final judgment" in the district court action, the Court was bound by the PTO determination and reversed the District Court decision in Baxter's favor and remanded with instruction to dismiss (equivalent to entering judgment in favor of Fresenius).
Like Judge Newman in dissent, BIO's amicus brief focuses on the importance of finality and issue preclusion in the circumstances in this case. BIO's brief makes three points:
• The Court should revisit the panel majority's "final judgment" requirement.
• En banc reconsideration is necessary to "resolve ambiguity" in the Court's precedent.
• Equitable factors and their role should be considered on remand.
The panel's "final judgment" requirement was the principle basis for the majority decision, i.e., that in order for the later determination of invalidity to not govern the district court decision needed to be "final" under Mendenhall v. Barber-Greene Co., 26 F.3d. 1573 (Fed. Cir. 1994). Because, in the majority view the decision was not final under well-settled precedent, the PTO determination mooted the district court action. BIO cites Judge Newman's dissent with regard to the question of issue preclusion, wherein courts generally do not revisit a ruling on an issue "that was fairly litigated and conclusively decided." The question here, and for the en banc court, is whether the majority or Judge Newman was correct regarding whether the District Court decision on invalidity was "final" under the circumstances in this case.
BIO's brief also notes that Federal Circuit precedent is inconsistent on the question. The brief notes that prior precedent require concurrent PTO decisions in reexamination to be plead as an affirmative defense and not "be given automatic effect." The brief cited In re Swanson, 540 F.3d 1368, 1379 n.5 (Fed. Cir. 2008), and In re Baxter, 698 F.3d 1349 (Fed. Cir. 2012), to the effect that "final" court decisions are not subject to reconsideration of "prior binding judgment" by courts, citing "well-established principles of res judicata." These principles include "a careful consideration of the relationship of the parties, their claims for relief against each other, [and] the transaction or occurrence that gave rise to the litigation," among others. BIO's brief characterizes the panel majority decision as establishing a "bright line rule" that a PTO determination "automatically, without regard to choices made by the parties during years of litigation" (choices BIO argues should be binding on the parties) gives effect to the PTO invalidity determination.
In this regard BIO raises the specter of increased post-grant procedures under the America Invents Act that will likely increase the frequency with which courts are faced with contrary decisions by the PTO on invalidity questions (if only because the presumptions, standards of claim construction and burden of proof are so significantly different in the PTO compared with patent infringement litigation). BIO cites PTO statistics to the effect that 66% of reexamination and reissue proceedings initiated since November 1999 involved concurrent litigation, and that the number of inter partes reexamination/review proceedings have gone up while the time for these proceedings in the Office is slated to be reduced to 18 months. All of these factors, BIO argues, suggest that the full court should clearly establish whether the panel majority properly decided that judgment was not sufficiently "final" to immunize that judgment from administrative overthrow.
BIO's final argument is that judges may, and perhaps should, take equitable considerations into account. Such considerations include delay, inadvertence, fraud, or whether a party has requested a stay. BIO analogizes the equitable factors that could be considered with motions from relief from final judgment under Fed. R. Civ. Pro. 60(b) as illustrated by the Court's decision in Flexiteek v. Plasteak, 2012 U.S. Dist. LEXIS 156086 (S.D. Fla. Sept, 12, 2012) (granting the motion based on prevailing party misconduct), and Amado v. Microsoft, 517 F.3d 1353 (Fed Cir. 2008) (denying the motion because the defendant had not timely requested PTO review).
BIO argues that using such a "flexible standard" would not interfere with the PTO or "change the impact of [an adverse] PTO decision going forward." The only parties affected will be those who have had "an ample opportunity to litigate their position on patent validity" which presumably should be enough. And the absence of access to equitable considerations can be expected to provide incentives for defendants to file parallel post-grant review actions in the PTO, and moreover "to wait as long as possible to file the reexamination request to get a 'second bite at the apple'" to immunize against an adverse district court decision. This behavior could even include filing multiple, successive post-grant review actions that would delay settlement and provide opportunities to "game" the system due to the possibility that any "successful challenge at the PTO would trump any prior federal court ruling" provided that no final judgment on "each and every issue" had been entered. This would be inconsistent with Congressional intent, according to BIO, because these post-grant review provisions were enacted to provide an alternative and reduce the burden on parties and the courts in resolving issues of patent invalidity and infringement, not encourage "war on two fronts" for patentees.
There are several reasons why the Supreme Court should remand for en banc consideration any panel decision for which it is inclined to grant certiorari. First, insofar as the Court continues to believe that the Federal Circuit brings any form of particular expertise to questions of patent law, en banc consideration would give the Court the benefit of that expertise. Second, remand would provide the Federal Circuit with the opportunity to expand on its opinion in ways that might inform the Court as to the bases for its decisions, both as matters of law and policy, that are not readily provided by the parties and amici, if for no other reason than that no party can be expected to have the perspective of the appellate court that will need to implement whatever decision the Court hands down (see, e.g., CLS Bank). Such a remand would also signal the Federal Circuit that the Court perceives some deficiency in the panel reasoning or believes the panel erred, and would give the full court the opportunity to correct the error or explain its reasoning more fully. Indeed, upon further review, the en banc court might arrive at a decision that does not need review on certiorari, sparing the Court the burden of considering the issues (and sparing the rest of us from having to decipher the Court's meaning). Until such time as the Supreme Court recognizes these and other advantages of remanding panel decisions to the Federal Circuit so it can have the full court's views, prudence suggests that in cases such as this one the Federal Circuit avail itself of the opportunity to reconsider, if only to avoid another instance of the Supreme Court undermining its institutional authority in matters of patent law.