300B
AMERICAN BAR ASSOCIATION
ADOPTED BY THE HOUSE OF DELEGATES
AUGUST 12-13, 2013
RESOLUTION
RESOLVED, That the American Bar Association supports the authority of the U.S. Patent &
Trademark Office to cancel a patent claim in a proceeding authorized by law to review the
patentability of issued claims.
FURTHER RESOLVED, That the American Bar Association supports the authority of a
court to dismiss a pending action with respect to any patent claim that, acting pursuant to law,
the U.S. Patent & Trademark Office has taken final action to cancel and no further appeal
may be taken, and that such authority of a court exists so long as any earlier court judgment
relating to the claim continues to be subject to appeal or under appeal with respect to any
issue.
FURTHER RESOLVED, That the American Bar Association opposes a court’s application
of such a cancelation of a patent claim to reopen or set aside a court judgment that is final as
to all issues in that it is no longer subject to appeal or under appeal with respect to any issue.
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REPORT
On July 2, 2013, the U.S. Court of Appeals for the Federal Circuit issued a split panel decision in
Fresenius USA, Inc. v. Baxter International, Inc., Appeal Nos. 2012–1334, –1335 (“Fresenius
II”). The decision raises important questions relating to the finality of judicial decisions, and the
interplay of those decisions with decisions of quasi-judicial administrative proceedings in which
the same issues are addressed. Anticipating that the decision may be the subject of further
appeals, the Section of Intellectual Property Law recommends that the House of Delegates adopt
this Resolution to provide policy to support an Association amicus curiae brief in this case or in
another judicial proceeding presenting the same or similar issues.
Congress has established a number of quasi-judicial administrative proceedings whereby the
validity of issued patents can be challenged. These proceedings in the U.S. Patent & Trademark
Office (“PTO”) frequently proceed in parallel with district court litigation, creating an
opportunity for differing results concerning whether a valid patent exists. A district court can
find that the accused infringer had not presented sufficient evidence to invalidate a patent claim.
Meanwhile, the PTO can find that same patent claim to be unpatentable and cancel the claim,
notwithstanding the earlier district court determination.
Fresenius II gave effect to a PTO determination that certain patent claims were unpatentable.
Even though the parties had previously litigated that issue in the district court, and Fresenius (the
accused infringer) had lost, the panel found that Baxter was not entitled to judgment because its
cause of action had been extinguished by the PTO’s cancellation of the asserted claims. The
majority determined that the district court judgment was not sufficiently final to be immune from
a PTO reexamination determination.
Judge Newman, a member of the three-judge panel, disagreed, and criticized the majority
decision as “authoriz[ing] the Patent and Trademark Office … to override and void the final
judgment of a federal Article III Court of Appeals.” Judge Newman asserted that the PTO cannot
invalidate a patent whose validity the court had been adjudicated, because that act would render
the district court’s judgment no more than “advisory,” which is improper. By her analysis,
finality attached to the district court’s earlier 2007 decision, which was affirmed in relevant part
by the Federal Circuit in 2009, even though other issues were remanded for further consideration
by the district court.
Fresenius II raises an important question as to when a district court decision is sufficiently final
to be immune from a PTO reexamination determination that produces conflicting results.
Patent Reexamination: Congressionally Established Programs for Administrative Review
and Correction of Improperly Granted Patents
Not all issued patents are valid, and a significant percentage of litigated patents are held invalid.
Recent studies by reputable scholars looking at the period 1983-1999 reported that one-third to
almost half of litigated patents were found invalid.
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In 1980, Congress authorized ex parte patent reexamination proceedings as an important tool for
improving patent quality. Patent owners and third parties could request reexamination of issued
patents, at any time during the period for enforcement of the patent if there was “a substantial
new question of patentability” Reexamination benefits the public by providing a relatively low
cost way to challenge and eliminate invalid patents, and by giving the PTO an opportunity to
correct its own mistakes by cancelling patent claims that never should have been issued.
Congress took patent reexamination a step further in 2002, when it established the inter partes
reexamination program, providing for more robust challenges to patent validity and more
substantial participation by challengers. The America Invents Act, enacting in September, 2011,
expands the opportunities for these quasi-judicial challenges to issued patents even further, by
adding the program of Post-Grant Review and replacing inter partes reexamination with a
program known as Inter Partes Review.
In an ex parte reexamination proceeding, the patent owner can appeal a cancellation decision to
the Patent Trial Appeal Board at the PTO. If the Board affirms the rejection, the patent owner
can appeal to the Federal Circuit, and then seek Supreme Court review. Similar rights of appeal
apply in Post-Grant Review and Inter Partes Review, except that in these proceedings, an
unsuccessful challenger may also appeal.
Once all such appeals have concluded (or the time for filing an appeal has elapsed) in any of
these proceedings, the PTO will issue a certificate making any changes to the patent that are
required by the proceeding, including the cancellation of any rejected claims. Issuance of the
certificate formally concludes the proceeding.
Concurrent PTO Proceedings and District Court Litigation
Patent reexaminations are increasingly being filed concurrently with district court litigation, as a
supplement to district court litigation. Nearly a third of patents undergoing ex parte
reexamination were known to be in litigation, according to a June 30, 2010 PTO report on
reexamination filing.
The PTO’s broad authority to conduct reexamination proceedings is largely un-impacted by
ongoing district court litigation. During these administrative proceedings, the PTO may consider
various issues previously addressed by district courts, in furtherance of the congressionally
recognized public interest in removing or expunging invalid patents. Recent Federal Circuit
decisions recognize that during reexamination the PTO is not bound by a district court’s claim
construction (In re Translogic Tech., Inc.504 F.3d 1249 (Fed. Cir. 2007); that reexamination can
be instituted notwithstanding a prior Federal Circuit decision affirming a district court judgment
upholding validity (In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008)); and that during
reexamination the PTO is not bound by a district court’s validity determination. (In re Baxter
Int’l, Inc., 678 F.3d 1357 (Fed. Cir. 2012)).
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Timing and Sequence of Interrelated Judicial and Administrative Actions
The timing and sequence of the interface of judicial judgments and administrative actions
relating to the same patent claims play a considerable role in the resolution of the legal issues
that are raised. A brief summary of the history of the litigation in question therefore follows.
The Fresenius II decision arose from a declaratory judgment action brought by Fresenius in
2003, challenging a Baxter patent identified as “the ’434 patent.” In 2005, while the district court
litigation was pending and before trial, Fresenius had also requested an ex parte reexamination
before the PTO of the ’434 patent. This created concurrent or parallel consideration of the
validity of the ’434 patent claims in the district court and their patentability in the PTO.
At the trial in the district court, Fresenius cited technology that predated Baxter’s claimed
invention, and argued that this prior art rendered the ‘434 patent claims obvious and
unpatentable, and therefore not infringed.
In February 2007, the district court entered final judgment in favor of Baxter. It granted Baxter’s
motion for judgment as a matter of law that the challenged claims were not proven invalid, in
that the evidence submitted by Fresenius did not constitute the requisite “clear and convincing”
evidence that these claims were obvious. Both parties appealed.
As noted above, in September 2009, the Federal Circuit affirmed the district court’s grant of
JMOL with respect to the claims of the ’434 patent. (Fresenius I). However, the panel reversed
with respect to two other patents and remanded for district court reconsideration of its injunction
and damages award in light of the Federal Circuit’s reversal regarding the other patents.
As noted above, in October 2005, almost four years before the above-referenced Fresenius I
decision by the Federal Circuit, Fresenius had filed an ex parte reexamination request seeking
cancelation of ’434 patent claims based on citation to prior art giving rise to new questions of
patentability, and which was not cited to or considered by the district court in its earlier ruling in
favor of Baxter.
The PTO reexamination resulted in a determination in December 2007 that claims 26-31 of the
’434 patent were unpatentable.
After a March 2010 decision of the PTO Board affirming the decision to cancel the claims in
question, Baxter appealed to the Federal Circuit.
In March 2012, while Baxter’s appeal to the Federal Circuit was pending, the district court, on
remand from the Federal Circuit in Fresenius I, entered final judgment for Baxter, based on its
2007 JMOL in favor of Baxter.
In May 2012, the Federal Circuit in In re Baxter International, 678 F.3d 1357, affirmed the PTO
Board’s determination that the challenged claims should be canceled as obvious.,
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In the In re Baxter proceedings in the Federal Circuit, Baxter argued that the PTO Board had
ignored the Federal Circuit’s prior decision in Fresenius I, finding that claims 26–31 of the
’434 patent were not proven to be invalid by clear and convincing evidence during the Fresenius
v. Baxter district court litigation. Similarly, Judge Newman’s dissent in In re Baxter argued that
the panel majority had improperly elevated a decision by the PTO—an administrative agency—
over a prior decision by a federal district court that was affirmed by the Federal Circuit.
The majority in In re Baxter disagreed with both points, noting that in PTO reexamination
proceedings, the standard of proof is a preponderance of the evidence, a different and lower
standard than the clear and convincing standard that applies to validity challenges in a district
court, and that for this reason, the PTO and district court decisions were not actually in conflict.
The majority found relevance in the fact that Congress has provided for a reexamination system
that permits challenges to patents by third parties, even those who have lost in prior judicial
proceedings, and that the Executive branch was therefore functioning as authorized and intended
by Congress. In her dissent, Judge Newman argued that the panel majority’s decision could not
be squared with the constitutional principles of finality and law of the case. In her view, the
Federal Circuit was obligated to defer to the earlier district court decision, but instead had
allowed the PTO to re-open that final decision.
In proceeding in the district court following the Federal Circuit decision in In re Baxter, the court
denied Fresenius’ motion for a new trial to re-determine damages, conducted a de novo
evidentiary hearing on the post-verdict royalty issue and awarded damages, including damages
based on its 2008 award of damages for infringement of the ‘434 claims, which claims had been
cancelled in the PTO reexamination that was affirmed by the Federal Circuit in May 2012.
In the appeal from that district court decision, the Federal Circuit in its July 2, 2013 decision in
Fresenius II held that Baxter no longer had a cause of action because of the cancellation of
claims 26–31 of the ‘434 patent during ex parte reexamination. Judge Dyk authored the panel
majority opinion, joined by Judge Prost. Judge Newman dissented arguing that Fresenius I had
conclusively decided the validity issue.
The issue in Fresenius II was what effect the PTO and Federal Circuit reexamination decisions
should be given in light of the prior district court and Federal Circuit litigation decisions. The
majority held that Fresenius I was merely a non-final, interim appellate decision. That decision
had remanded the case back to the district court to decide additional issues unrelated to validity,
which rendered it non-final. The majority maintained that the Federal Circuit decision in In re
Baxter affirming the PTO reexamination determination was binding, and the PTO’s
determination to cancel claims 26–31 extinguished the cause of action for patent infringement.
In her dissent, Judge Newman asserted that a final judgment can include a remand to the district
court. She argued that the validity issues on appeal were finally adjudicated by the Federal
Circuit in Fresenius I, that the remand only authorized the district court to determine postjudgment royalties, and that the remand issues were not related any issue in reexamination;
validity had been finally resolved in the courts.
The Resolution and Policy Proposed
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300B
The resolution first expresses support for the authority of the PTO to cancel patent claims in
reexamination proceedings. There is little controversy regarding the existence or propriety of this
authority. The statutes and legislative history establishing these administrative review
proceedings expressly provide such authority, and make clear that elimination of patents that
should not have been issued is a primary purpose of the proceedings.
The resolution next provides that courts have authority to dismiss a law suit regarding a claim
that has been cancelled in such a PTO administrative proceeding if no further appeal of the
cancelation is possible, notwithstanding an earlier non-final court judgment relating to the claim.
The authority of a court to dismiss a suit based on an earlier PTO cancelation of the claims
involved is not in dispute. However, opinions of the judges of the Federal Circuit reveal widely
divergent views on the extent of this authority, particularly as it relates to issues of finality.
These differences are likely to be addressed in an appeal to the Supreme Court or in further
proceedings in the Federal Circuit.
The resolution supports the authority of a court to dismiss under these circumstances when (1)
proceedings regarding the cancelation are final and (2) the earlier court decisions regarding the
claims are not final. In both circumstances, the resolution provides that exhaustion of all appeals
is a prerequisite to finality.
As revealed in the preceding discussion in this report of the diverging opinions of the Federal
Circuit judges, the dispute regarding finality seems to be focused most recently on the question
of issue finality vs. case finality. In multiple dissenting opinions, Judge Newman has argued that
in cases involving the validity of a patent claim, a court judgment is final when all issues of
validity have been resolved. The majority opinions maintain that finality requires finality on all
issues presented in the litigation. Supreme Court and Federal Circuit precedent support the latter
rule.
In the litigation that led to the proposed resolution, issues remain unresolved. The proposed
resolution urges that the authority of a court to dismiss a suit based on PTO cancelation of the
claim involved is not precluded by an earlier non-final court judgment concerning which any
issue remains subject to appeal and therefore unresolved.
Finally, the proposed resolution opposes authority of a court to reopen or set aside a final court
judgment based on the cancelation by the PTO of a patent claim involved. As noted by judges in
both the majority and the dissent in the underlying litigation, an executive branch decision to
cancel a patent claim can never as a matter of law serve to “reopen or set aside” a court judgment
that is final and subject to no further appeal. The opposition expressed in the resolution is
intended to apply to circumstances in which a court judgment is final within the meaning of the
resolution, and is not dependent upon an interpretation that dismissal of the claim would
constitute reopening or setting aside the earlier final judgment.
Conclusion
300B
The Section of Intellectual Property urges the House of Delegates to adopt the proposed
resolution to provide authority for the submission of an ABA amicus curiae brief in a judicial
proceeding presenting the issues addressed in the resolution and report.
Respectfully submitted,
Joseph M. Potenza, Chair
Section of Intellectual Property Law
August 2013
7
300B
GENERAL INFORMATION FORM
Submitting Entity:
Section of Intellectual Property Law
Submitted by:
Joseph M. Potenza, Section Chair
1.
Summary of Resolution
The resolution calls for the Association to adopt policy supporting the authority of the
U.S. Patent and Trademark Office (PTO) to cancel a patent claim in congressionally
established administrative proceedings, and supporting the authority of a court to dismiss
a suit based on such a claim, notwithstanding an earlier conflicting non-final court
judgment relating to the claim. The resolution opposes a court’s authority to apply this
authority to dismiss a suit if it would reopen or set aside a final court judgment.
2.
Approval by Submitting Entity
The Section Council approved the resolution on July 16, 2013.
3.
Has this or a similar resolution been submitted to the House of Delegates or Board of
Governors previously?
No.
4.
What existing Association policies are relevant to this Resolution and would they be
affected by its adoption?
There are no relevant existing Association policies.
5.
What urgency exists which requires action at this meeting of the House?
On July 2, the U.S. Court of Appeals for the Federal Circuit issued a split opinion that
presents the issues addressed in the resolution. It is expected that further appellate review
will be sought in a petition for certiorari or motion for en banc review in the Federal
Circuit. Adoption of the policies contained in the resolution is requested to support an
ABA amicus brief in the event of further review of the issues involved in this or another
proceeding concerning the same issues. The report cannot be considered by the House of
Delegates at a time later than the 2013 Annual Meeting in that, should further review be
granted, the deadline for filing an amicus brief on the merits will be reached before the
next meeting of the House of Delegates.
6.
Status of Legislation. (If applicable.)
None.
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7.
Brief explanation regarding plans for implementation of the policy, if adopted by the
House of Delegates.
The policy would support the filing of an ABA amicus brief in a case that may be
reviewed in the U.S. Supreme Court, or in another appropriate case presenting the issues
addressed in the policy.
8.
Cost to the Association (both direct and indirect costs).
Adoption of the recommendations would not result in additional direct or indirect costs to
the Association.
9.
Disclosure of Interest
There are no known conflicts of interest with regard to this recommendation.
10.
Referrals
This recommendation is being distributed to each of the Sections and Divisions and
Standing Committees of the Association.
11.
Contact Person (prior to meeting)
Donald R. Dunner
Section Delegate to the House of Delegates
Finnegan, Henderson,
Farabow, Garrett & Dunner LLP
901 New York Avenue, N.W.
Washington, DC 20001-4413
Ph: 202 408-4062
Fax: 202 408-4400
don.dunner@finnegan.com
Cell: 202 251-1893
12.
Contact Persons (who will present the report to the House)
Donald R. Dunner (See item 11 above).
-9-
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EXECUTIVE SUMMARY
1.
Summary of the Resolution
The resolution provides policy relating to judicial resolution of issues concerning the
interplay of congressionally-established administrative proceedings relating to validity of
a patent and parallel judicial proceedings concerning the same patent. The resolution
supports the authority of the U.S. Patent and Trademark Office (PTO) to cancel a patent
claim in these administrative proceedings. It supports the authority of a court to dismiss a
suit that is based on a patent claim that has been administratively cancelled,
notwithstanding an earlier conflicting non-final court judgment relating to the claim. The
resolution opposes a court’s authority to apply this authority to dismiss a suit if it would
reopen or set aside a final court judgment.
2.
Summary of the Issue that the Resolution Addresses
Congress has established a number of quasi-judicial administrative proceedings whereby
the validity of issued patents can be challenged. These proceedings in the PTO frequently
proceed in parallel with district court litigation, and produce differing patent validity
determinations. A district court can find that the accused infringer had not presented
sufficient evidence to invalidate a patent claim. Meanwhile, the PTO can cancel that
same patent claim as unpatentable notwithstanding the earlier district court determination.
On July 2, 2013, the U.S. Court of Appeals for the Federal Circuit issued a split panel
decision in a case that raises important questions relating to the finality of judicial
decisions, and the interplay of those decisions with decisions of quasi-judicial
administrative proceedings in which the same issues are addressed. Anticipating that the
decision may be the subject of further appeals, the Section of Intellectual Property Law
recommends that the House of Delegates adopt this Resolution to provide policy to
support an Association amicus curiae brief in this case or in another judicial proceeding
presenting the same or similar issues.
3.
Please Explain How the Proposed Policy Position Will Address the Issue
Application of the policy would address the issues presented by clarifying that the PTO
does have authority to cancel patent claims in administrative proceedings, and that a court
may dismiss a suit based on a claim that has been cancelled, notwithstanding an earlier
conflicting non-final court judgment relating to the same claim. The policy addresses the
issue of finality by providing that a court judgment relating to a claim is not final if it is
under appeal or subject to appeal with respect to any issue. The resolution opposes court
application of a PTO cancelation order if it would serve to reopen or set aside a final
court judgment.
4.
Summary of Minority Views
None known at this time.