On Nov. 5, 2013, a divided Court of Appeals for the Federal Circuit declined en banc review of its July 2, 2013, decision in Fresenius USA, Inc. v. Baxter International Inc. (“Fresenius II”). In Fresenius II, the Federal Circuit had ruled that the cancellation of patent claims by the United States Patent and Trademark Office (USPTO) under the USPTO's statutory reexamination authority must be given effect in pending infringement litigation.

The twelve-member Federal Circuit split 6-4 to deny en banc review, with Judges Raymond Chen and Todd Hughes not participating. Judges Timothy Dyk and Sharon Prost defended the denial of en banc review in a concurring opinion. The dissenting judges provided two separate opinions: one written by Judge Kathleen O'Malley, joined by Judges Randall Rader and Evan Wallach, and one authored by Judge Pauline Newman. Unless the Supreme Court overturns the Federal Circuit, Fresenius II could provide accused infringers a pathway to dislodge a “final” infringement award. This would be done by invalidating the claims at issue, before litigation concludes in district court, through a post-grant proceeding filed at the USPTO.

This case has a long and complex history. It began more than 10 years ago, in April 2003, when Fresenius filed suit in the United States District Court for the Northern District of California seeking declaratory judgments of invalidity and non-infringement with respect to three Baxter patents. Baxter counterclaimed for patent infringement. The district court entered judgment against Fresenius in 2007 finding the asserted claims of U.S. Patent No. 5,247,434 infringed and not invalid. A jury awarded more than $14 million in damages. Although both parties appealed, Fresenius did not appeal the pre-verdict damages awarded by the jury. In 2009, the Federal Circuit affirmed the determination that the asserted '434 patent claims were not invalid (“Fresenius I”). The Federal Circuit, however, remanded for reconsideration of injunctive relief and post-verdict damages. In March 2012, the district court entered a damages award of the original $14 million in pre-verdict damages, plus $9.3 million in post-verdict damages, but stayed execution of the award pending appeal.

While the district court litigation was pending on remand, the USPTO completed a reexamination of the '434 patent in 2010. In contrast to the district court's ruling in 2007 that the asserted '434 patent claims were not invalid, which was affirmed by the Federal Circuit in 2009, the USPTO determined that all asserted claims were invalid. The Federal Circuit affirmed the USPTO's invalidity determination in May 2012. After the Federal Circuit's mandate was issued, the USPTO cancelled the '434 patent claims in April 2013.

In Fresenius II, Baxter argued that the cancellation of the '434 patent could not be given effect in the present litigation because there was a previous final judgment in Fresenius I. The Federal Circuit panel majority — Judges Dyk and Prost — disagreed and held that Baxter had no viable cause of action against Fresenius because Baxter's remaining asserted claims had been cancelled by the USPTO.

In his Nov. 5 concurrence denying en banc review, Judge Dyk cited two decisions — Simmons Co. v. Grier Bros Co. and Mendenhall v. Barber–Greene Co. — under which the Federal Circuit must find that the judgment in Fresenius I was not final. In Simmons, the Supreme Court held that the 3rd Circuit's determination of patent invalidity was overturned by a later Supreme Court decision in a separate case that the asserted patent claim was not invalid. Even though the 3rd Circuit had resolved the issue of patent validity, the judgment was not a “final decree” because there were still issues being litigated. In Mendenhall, the Federal Circuit held that “[a]bsent a final judgment ending the litigation, the issue of liability is not barred from reconsideration.” The Mendenhall court reversed the district court's finding of liability because the asserted claims were rendered invalid in a separate appeal to the Federal Circuit.

In her dissent, Judge O'Malley noted that “[t]he only live issues remaining in the case related to post-verdict relief,” and that therefore the Federal Circuit's earlier finding of liability for infringement should be considered final. Judge O'Malley distinguished Simmons and Mendenhall on the grounds that neither of those cases involved an appeal from a final judgment and completed accounting, and emphasized the contrasting interlocutory nature of the appeal in Mendenhall. Unlike the situation in Simmons and Mendenhall, Judge O'Malley stated that in Fresenius I a final judgment had been entered, past damages had been calculated, and appellate review of those determinations had concluded. Judge O'Malley also pointed out in a footnote that Simmons involved a suit in equity, which predated the merger of law and equity and thus had even less relevance to the present suit. She ended her dissent by expressing concern about district court litigation being dragged out and being rendered meaningless by much later USPTO decisions. She stated, “We should be striving to make trial courts more accessible to litigants, not less so; more streamlined and efficient, not less so; and more fair, not substantially less so. The panel majority decision in this case is, in my view, both incorrect and ill-advised.”

Judge Newman's dissent stressed her concern that the panel decision violated the Constitution, precedent, and the Federal Rules, and was contrary to the purposes of patent law. More specifically, Judge Newman was concerned that duplicative litigation and reexamination of the same patents undermines the incentive to innovate by significantly increasing litigation costs. She also sought to clarify that she does not believe that a court's final decision is always “immune” from review, but that she was concerned about “routinely subjecting Article III judgments to agency override,” particularly when it overrides a decision that was “final for purposes of preclusion, estoppel, and stare decisis.”

In view of the divided nature of the Federal Circuit in both Fresenius II and the denial of en banc review, the impassioned dissenting opinions from Judges O'Malley and Newman, and the potential implications of the Fresenius II panel decision, this case may be poised for Supreme Court review. A petition for writ of certiorari is due Feb. 3, 2014.

On Nov. 5, 2013, a divided Court of Appeals for the Federal Circuit declined en banc review of its July 2, 2013, decision in Fresenius USA, Inc. v. Baxter International Inc. (“Fresenius II”). In Fresenius II, the Federal Circuit had ruled that the cancellation of patent claims by the United States Patent and Trademark Office (USPTO) under the USPTO's statutory reexamination authority must be given effect in pending infringement litigation.

The twelve-member Federal Circuit split 6-4 to deny en banc review, with Judges Raymond Chen and Todd Hughes not participating. Judges Timothy Dyk and Sharon Prost defended the denial of en banc review in a concurring opinion. The dissenting judges provided two separate opinions: one written by Judge Kathleen O'Malley, joined by Judges Randall Rader and Evan Wallach, and one authored by Judge Pauline Newman. Unless the Supreme Court overturns the Federal Circuit, Fresenius II could provide accused infringers a pathway to dislodge a “final” infringement award. This would be done by invalidating the claims at issue, before litigation concludes in district court, through a post-grant proceeding filed at the USPTO.

This case has a long and complex history. It began more than 10 years ago, in April 2003, when Fresenius filed suit in the United States District Court for the Northern District of California seeking declaratory judgments of invalidity and non-infringement with respect to three Baxter patents. Baxter counterclaimed for patent infringement. The district court entered judgment against Fresenius in 2007 finding the asserted claims of U.S. Patent No. 5,247,434 infringed and not invalid. A jury awarded more than $14 million in damages. Although both parties appealed, Fresenius did not appeal the pre-verdict damages awarded by the jury. In 2009, the Federal Circuit affirmed the determination that the asserted '434 patent claims were not invalid (“Fresenius I”). The Federal Circuit, however, remanded for reconsideration of injunctive relief and post-verdict damages. In March 2012, the district court entered a damages award of the original $14 million in pre-verdict damages, plus $9.3 million in post-verdict damages, but stayed execution of the award pending appeal.

While the district court litigation was pending on remand, the USPTO completed a reexamination of the '434 patent in 2010. In contrast to the district court's ruling in 2007 that the asserted '434 patent claims were not invalid, which was affirmed by the Federal Circuit in 2009, the USPTO determined that all asserted claims were invalid. The Federal Circuit affirmed the USPTO's invalidity determination in May 2012. After the Federal Circuit's mandate was issued, the USPTO cancelled the '434 patent claims in April 2013.

In Fresenius II, Baxter argued that the cancellation of the '434 patent could not be given effect in the present litigation because there was a previous final judgment in Fresenius I. The Federal Circuit panel majority — Judges Dyk and Prost — disagreed and held that Baxter had no viable cause of action against Fresenius because Baxter's remaining asserted claims had been cancelled by the USPTO.

In his Nov. 5 concurrence denying en banc review, Judge Dyk cited two decisions — Simmons Co. v. Grier Bros Co. and Mendenhall v. Barber–Greene Co. — under which the Federal Circuit must find that the judgment in Fresenius I was not final. In Simmons, the Supreme Court held that the 3rd Circuit's determination of patent invalidity was overturned by a later Supreme Court decision in a separate case that the asserted patent claim was not invalid. Even though the 3rd Circuit had resolved the issue of patent validity, the judgment was not a “final decree” because there were still issues being litigated. In Mendenhall, the Federal Circuit held that “[a]bsent a final judgment ending the litigation, the issue of liability is not barred from reconsideration.” The Mendenhall court reversed the district court's finding of liability because the asserted claims were rendered invalid in a separate appeal to the Federal Circuit.

In her dissent, Judge O'Malley noted that “[t]he only live issues remaining in the case related to post-verdict relief,” and that therefore the Federal Circuit's earlier finding of liability for infringement should be considered final. Judge O'Malley distinguished Simmons and Mendenhall on the grounds that neither of those cases involved an appeal from a final judgment and completed accounting, and emphasized the contrasting interlocutory nature of the appeal in Mendenhall. Unlike the situation in Simmons and Mendenhall, Judge O'Malley stated that in Fresenius I a final judgment had been entered, past damages had been calculated, and appellate review of those determinations had concluded. Judge O'Malley also pointed out in a footnote that Simmons involved a suit in equity, which predated the merger of law and equity and thus had even less relevance to the present suit. She ended her dissent by expressing concern about district court litigation being dragged out and being rendered meaningless by much later USPTO decisions. She stated, “We should be striving to make trial courts more accessible to litigants, not less so; more streamlined and efficient, not less so; and more fair, not substantially less so. The panel majority decision in this case is, in my view, both incorrect and ill-advised.”

Judge Newman's dissent stressed her concern that the panel decision violated the Constitution, precedent, and the Federal Rules, and was contrary to the purposes of patent law. More specifically, Judge Newman was concerned that duplicative litigation and reexamination of the same patents undermines the incentive to innovate by significantly increasing litigation costs. She also sought to clarify that she does not believe that a court's final decision is always “immune” from review, but that she was concerned about “routinely subjecting Article III judgments to agency override,” particularly when it overrides a decision that was “final for purposes of preclusion, estoppel, and stare decisis.”

In view of the divided nature of the Federal Circuit in both Fresenius II and the denial of en banc review, the impassioned dissenting opinions from Judges O'Malley and Newman, and the potential implications of the Fresenius II panel decision, this case may be poised for Supreme Court review. A petition for writ of certiorari is due Feb. 3, 2014.