Federal Circuit Rejects Request for Fresinius Rehearing En Banc

The Federal Circuit recently rejected Baxter International’s request for an en banc rehearing of the Federal Circuit’s decision from July voiding Baxter’s infringement award against Fresinius USA after a jury finding in Baxter’s favor.

The case involved the question of whether a reexamination decision of invalidity by the PTO trumps a district court decision upholding validity. In 2003, Fresinius filed a declaratory judgment action against Baxter seeking declaratory judgments of non-infringement and invalidity with regard to three Baxter patents covering hemodialysis machines. A jury found in favor of Fresinius. In February 2007, the district court granted judgment as a matter of law finding that Fresinius had presented insufficient evidence to support invalidity. In 2009, that decision was affirmed by the Federal Circuit.

Meanwhile, in 2005, Fresinius filed for ex parte reexamination of the claims of one of the patents. In June 2007, after the district court had granted judgment in favor of Baxter as to that patent, Fresinius moved to stay the litigation. The district court denied the motion. In December 2007, the PTO finally rejected the claims. It was not until March 2012, years after the final reexamination rejection, that the district court entered final judgment for Baxter. In May 2012, the Federal Circuit affirmed rejection of the ‘434 patent claims.

The Federal Circuit, by a 2-1 decision issued in July, held that the PTO’s invalidity determination trumped the district court litigation proceedings. The Court held that the PTO decision took precedence because the litigation judgment had not become final before the PTO invalidated the claims.

Judge Newman issued a lengthy and vigorous dissent, arguing that the PTO’s reexamination decision should not take precedence because the lawsuit resulted in a final decision on the merits of the invalidity issue, and the only remaining issues open had nothing to do with invalidity. She reasoned that the US Constitution forbids the executive branch of government (of which the PTO is a part) to override judgments of the courts. She said that the PTO can neither invalidate, nor revive, a patent whose validity a court has adjudicated, lest the court’s judgment is no more than “advisory.”

In denying Baxter’s request for en banc rehearing, the majority reasoned that a patentee should not be entitled to damages relating to a patent conclusively found to be invalid by the PTO. A three-judge minority dissented on the basis that the PTO’s actions should not have dislodged the past judgment in Baxter’s favor, as the issues in the reexamination did not relate to invalidity or infringement. Judge Newman dissented as she did in the underlying appeal, regarding the precedence of the PTO’s invalidity determination in reexamination as usurping the district court proceedings and thus unconstitutional.
Unless the Supreme Court grants certiorari and decides differently, the Fresinius ruling means that as long as any issue in a lawsuit is not final, even an issue wholly unrelated to infringement or validity, a finding at trial may be rendered moot by a PTO decision. With the increasing numbers of inter partes post-grant proceedings at the PTO under the AIA, and the shortened time for these proceedings to reach finality, it is possible that the situation in Fresinius could happen with some frequency unless district courts begin to stay litigation while the PTO proceedings play out. It will be interesting to see if the trial courts do begin to stay litigation more frequently to avoid their proceedings becoming moot, as was the case in Fresinius.