Senju Pharmaceutical Co. v. Apotex Inc. (Fed. Cir. 2014)

By Kevin E. Noonan --

Applying the doctrine of claim preclusion (previously termed res judicata), a fractured majority of the Federal Circuit held that prior ANDA litigation to final judgment precluded reassertion of amended claims in the same patents against the same products after reexamination that narrowed the scope of the claims to avoid an obviousness determination.

The case involved patentee Senju Pharmaceutical's (joined by Kyorin Pharmaceutical Co. and Allergan, Inc.) suit against Apotex in response to a Paragraph IV certification against Senju's patented ocular antimicrobial agent containing the drug Gatifloxacin as claimed in U.S. Patent No. 6,333,045.  The patent claimed an ophthalmic formulation of the drug containing disodium edetate (EDTA) that improved delivery of the drug across the cornea of the eye.

In the first round of litigation, the District Court found that Apotex's formulation infringed but that the asserted claims were invalid for obviousness.  Post-trial motions took more than a year to resolve, and more that 18 months elapsed from the Court's original determination and entry of final judgment.  During that time, the patentee submitted a request for ex parte reexamination which resulted in cancellation of all but one of the claims asserted against Apotex and a reexamination certificate in which the claims contained additional limitations that overcame the grounds of obviousness found by the District Court (and was issued by the U.S. Patent and Trademark office prior to entry of final judgment).

Senju and co-plaintiffs filed the lawsuit that is the subject of this appeal within a month of the PTO issuing the reexamination certificate and almost a month before entry of final judgment in the initial action.  The District Court granted Apotex's motion to dismiss under Fed. R. Civ. Pro. 12(b)(6) for failure to state a justiciable claim, on the grounds that Senju's claim was barred under res judicata.

The Federal Circuit affirmed, in an opinion by Judge Plager joined by Judge Newman, with Judge O'Malley dissenting.  The majority set out the black letter law, that "under the doctrine of res judicata, a judgment 'on the merits' in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action," citing the Supreme Court's decision in Lawlor v. Nat'l Screen Serv. Corp., 349 U.S. 322, 326 (1955).  Their review being plenary on this issue, the Court applied Third Circuit law in assessing whether Senju's cause of action was barred under these circumstances.  In the Third Circuit, the majority asserted, there were three requirements for issue preclusion:  "(1) a final judgment on the merits in a prior suit involving[ ] (2) the same parties or their [privies]; and (3) a subsequent suit based on the same cause of action," citing CoreStates Bank, N.A. v. Huls Am., Inc., 176 F.3d 187, 194 (3d Cir. 1999).

Here, the first two prongs of the test were clearly met, and the issue devolved to deciding whether the instant lawsuit was based on the same "cause of action."  Under Federal Circuit law (which the majority applies to determining the features of a cause of action sounding in patent law), the Court looks at the "transaction facts from which [the cause of action] arises" and "the extent of the factual overlap" between a prior and pending case.  With regard to the extent of the overlap, the majority cited as factors the "product or process" at issue in the two cases (emphasis in opinion).  Claim preclusion may apply where the products or processes at issue are "essentially the same," citing Acumed LLC v. Stryker Corp., 525 F.3d 1319, 1323 (Fed. Cir. 2008).  Another consideration is whether the same patent or patents are asserted, because "[o]rdinarily, '[e]ach patent asserted raises an independent and distinct cause of action,"' according to Kearns v. Gen. Motors Corp., 94 F.3d 1553, 1555 (Fed. Cir. 1996).  Stated another way, "[c]laim preclusion will generally apply when a patentee seeks to assert the same patent against the same party and the same subject matter."

Applying these precepts to the case before them, the majority held that issue preclusion applied and the District Court was correct in dismissing the second lawsuit against Apotex.  First, the panel majority noted that the products against which the patents were asserted were the same (as set forth in Apotex's ANDA).  The "more difficult question" for the majority was whether the patent resulting from the reexamination certificate (or, as the majority clarifies, the patent rights asserted) were the same in the two causes of action.  It was undisputed that the asserted claims were different (they were narrower and contained express limitations directed to the presence of EDTA in the formulation, and the pH).  Controlling precedent, according to the panel majority (and Senju) is Aspex Eyewear, Inc. v. Marchon Eyewear, Inc., 672 F.3d 1335, 1340-42 (Fed. Cir. 2012).  Apotex applied the same precedent and argued that it supported the opposite conclusion, i.e., Senju's second lawsuit was precluded by adverse judgment in the first lawsuit.  The majority found Apotex's argument to be the more persuasive one, based in part on the legal reality that the reexamined claims could have the same or more narrow scope as compared to the original claims, and that these claims "cannot create a new cause of action that did not exist before."  In distinguishing Senju's argument, the opinion states:

Senju's theory is based on the patent claims that are found in the original patent and the cause of action thereunder; the cause of action in the second suit is based on the new or amended patent claims now in the patent as a result of the re-examination.  According to Senju, in order to determine whether a cause of action for infringement is the same in both suits, the differences between the patent claims must be examined to determine whether there are substantial differences, in which case the causes of action are different.

The panel majority agrees with Apotex that the proper focus is on "whether the same patented invention" is asserted in the second action, and that whether the patent claims are the same or substantially the same in the two actions is a secondary consideration.  The majority relied upon four "separate issues" raised in the Aspex Eyewear case:

First was the issue in this case:  whether a new cause of action arose as a result of the reexamination that had occurred; second was whether the same product was at issue in both cases (it was not an ANDA case); third was the effect of a settlement agreement between the parties; and fourth were certain claim construction issues the court undertook to address.

Of these, the majority found only the first relevant to the question they were deciding.  As to this issue, the majority found express parallels, wherein patentee Aspex made the same arguments now made by Senju that the Aspex court rejected on the grounds that the claims emerging from reexamination are not (indeed, cannot be) broader than the claims asserted in the first action, and thus could not "create a new legal right against infringement" lacking in the first action.

Here, the majority stated that the reexamined patent cannot confer new rights on the patentee because "a so-called 'reexamined patent; is the original patent; it has just been examined another time . . ." and "[r]eexamination does not involve the filing of a new patent application nor the issuance of a new patent."  As a result of the statutory constraints (including 35 U.S.C. §§ 132(a) and 305) on claims in reexamination, the panel majority concluded that:

[A] reexamined patent claim cannot contain within its scope any product or process which would not have infringed the original claims.  Put another way, because the patent right is a right to exclude whose outer boundary is defined by the scope of the patent's claims, as explained in Aspex, reexamination does not provide larger claim scope to a patentee than the patentee had under the original patent claims.

The majority (perhaps) tipped its hand on the equitable underpinnings of its decision in its penultimate paragraphs:

At its core, what Senju seeks is a do-over.  Having lost its suit, Senju seeks to use reexamination to obtain a second bite at the apple, to assert its patent against the same party, Apotex, and the same product, the Gatifloxacin ophthalmic solution described in ANDA No. 79-084.  But that is exactly what claim preclusion was designed to prevent.

Judge O'Malley, writing in dissent, provided the more compelling argument to the contrary.  According to her opinion, "[t]he dispositive issue in this case is whether Senju's reexamined claims granted new patent rights that Senju could not have asserted in its first lawsuit against Apotex."  For her they do; she distinguishes the difference between claims of broader scope (which are precluded under the reexamination statute) and claims of broader rights than in the original patent (emphasis in dissenting opinion).  The reason this is important is that the original claims, being invalid for obviousness, conferred no rights, whereas the reexamined claims do confer rights because they are non-obvious.  Quoting Lawlor, Judge O'Malley noted that "a prior judgment 'cannot be given the effect of extinguishing claims which did not even then exist and which could not possibly have been sued upon in the previous case.'"  The majority's requirement "would fault Senju for failing to raise claims that did not exist" at the time of the earlier adjudication (and that would "requir[e] patentees to assert rights they have, or may later acquire, in a single lawsuit)" (emphasis in opinion).  Because the District Court did not compare the claims asserted in the earlier litigation with the reexamined claims to determine whether Senju had obtained such new patent rights, Judge O'Malley would have the case remanded so that the District Court could make that determination.

Judge O'Malley noted that the majority's analytical framework can be properly employed when the question is infringement, because of the constraints against expanding claim scope set forth in the statute:  "[i]n other words, when infringement is the only consideration, reexamined claims cannot expand a patentee's rights beyond those granted by the original claims."  But "[t]he majority [] does not consider how issues of validity affect the preclusion analysis" according to Judge O'Malley.  Judge O'Malley distinguishes the Aspex Eyewear decision on the grounds that in the first of those actions the accused article was found not to infringe, and thus reexamined claims could not result in a contrary result.  Here, on the other hand, the issue is claim validity, where "[t]he reexamined claims that issued were presumptively valid and, unlike the invalid original claims, may have provided Senju with actionable patent rights (i.e., a new cause of action)."  The Aspex decision is consistent with Judge O'Malley's argument, according to the dissent because in that case the court stated that "[i]f a claim did not exist at the time of the earlier action, it could not have been asserted in that action and is not barred by res judicata."  And regarding the majority's concern with Senju obtaining "a second bite at the apple," Judge O'Malley states:

Reexamination routinely provides defendants with a second opportunity to invalidate a patent's claims.  Even after a defendant fails to invalidate a patent in district court, it can nonetheless strip the plaintiff of any right to relief if it succeeds in invalidating the plaintiff's claims in reexamination before final judgment is entered in the first case.  See, e.g., Fresenius USA, Inc. v. Baxter Int'l, Inc., 721 F.3d 1330 (Fed. Cir. 2013).

Senju Pharmaceutical Co. v. Apotex Inc. (Fed. Cir. 2014)
Panel:  Circuit Judges Newman, Plager, and O'Malley
Opinion by Circuit Judge Plager; disenting opinion by Circuit Judge O'Malley

Comments

[Heebie-Jeebies]

"Judge O'Malley noted that "a prior judgment 'cannot be given the effect of extinguishing claims which did not even then exist and which could not possibly have been sued upon in the previous case.'" "

Technically true, but in theory, the patentee could have narrowed its claims to avoid validity issues *before* it sued for infringement. That's a harsh result here, one more akin to what certain European jurisdictions might say, and it's particularly distasteful since O'Malley is right that two bites at the apple isn't necessarily unfair, as defendants now routinely get several bites at the apple. Odd that Newman, who went to town in her dissent in Fresenius, isn't troubled by the asymmetry, but maybe she puts finality of judgment above all else.

The take-home message for plaintiffs is clear: look before you leap. If you're thinking about suing for infringement, get your claims in order before you sue. You don't need to raise a substantial issue of patentability for a narrowing re-issue.

[lee caffin]

Would the same result have occurred if the second patent with more limited claims had issued as a Continuation application? Another example perhaps where maintaining a pending application on file can become important in conflict proceedings.

[GrzeszDeL]

I agree with Heebie Jeebies that the take home is to get your claims in order before you file suit. I do wonder, however, whether Senju could not have employed a little procedural chicanery to avoid this outcome.

What if instead of a re-exam, Senju had filed for reissue, and then filed a continuation off of its reissue application (per MPEP 1451)? They could have pulled the original back out of reissue, and pursued the narrower claims in a separate application, which would have resulted in a separate patent. Would that have changed the outcome here, given that Senju would not be suing on the same patent in both suits?

[Igor Faynshteyn]

The majority stated that the primary consideration in determining whether the res judicata is at play, is whether the invention in the previous suit is the same, and only secondarily whether the claims are substantially the same. Since the invention is the same, and the claims are narrower in scope, it seems to me that this should end the inquiry.

As to the issue of broader rights, it seems less relevant that a presumption of validity of patent rights after reexamination matters, because at the time of the first suit, the original claims upon which the suit was commenced, were also preemptively valid. Thus, if the dissenting opinion was the rule, it would set a perverse rule, providing the plaintiffs with the second bite at the apple via a lawsuit, as opposed to a defendant which equally gets two bites at the apple, but via two different procedures - a suit and reexamination.

Lastly, the majority opinion should prevail if for no other reason than the consideration of judicial economy. Allowing the plaintiff to narrow the claims during the reexamination proceeding for the purpose of commencing a second suit on the newly presumptive claims which are narrower in scope, on the same invention, would set a perverse precedent.

If there is any unfairness to the plaintiff here, it is that the newly acquired patent rights, with narrower claim scope, may still found to be infringed by the defendant, since the original broader claims scope was found to be infringed in the first suit. And this should be a good argument for the plaintiff, which I am not sure if the dissent noted it (I did not read the opinion).

[Igor Faynshteyn]

I also am not sure I agree with HJ's comment, where he says: "the patentee could have narrowed its claims to avoid validity issues *before* it sued for infringement"

The patentee couldn't have known that the patent would be invalidated by the district court.

I am also not entirely sure I agree with the majority on the panel (after reading the opinion). I would have concurred.

Particularly, I disagree with the majority's reasoning that what ultimately matters is whether the claims in the second suit are substantially the same after reexamination as in the first suit, prior to the reexam. If this reasoning is proper, then I would agree with the dissent, in that the 12(b)(6) motion shouldn't have been granted to the defendant, because the plaintiff should have his day in court in determining whether the narrower claims after reexam are in fact substantially the same. I am not sure that there should be such a presumption here, unless the Federal Circuit grounds it in judicial economy.

Instead, I think a more expansive rule, barring any second suits on the same invention after reexam, would be more appropriate, because ultimately the patent infringement suit is about infringement. And if after reexam infringement by the same product/process is logically impossible under any circumstances, then there remains little sense in determining whether the patent claims are substantially the same between prior to and after reexam.

Of course, I realize that my theory above likely runs afoul of a textualist understanding of the claim preclusion doctrine. However, I think from a judicial economy policy perspective, a broader ruling makes more sense than leaving the door open to determining whether the claims are substantially the same or not.