(In)valid patents.

Author:Gugliuzza, Paul R.
Position:Inconsistent patent validity decisions between the Patent and Trademark Office and federal courts - II. Conflicting Decisions in Concurrent Proceedings B. The Absolute Finality Rule 3. Extension through Conclusion, with footnotes, p. 302-330
  1. Extension

    The Federal Circuit's most recent decision in this line of cases, ePlus v. Lawson, (240) extended the absolute finality rule by allowing an infringer to rely on a PTO decision of invalidity to abrogate a court order holding the infringer in contempt. In that case, ePlus sued Lawson for infringement of U.S. Patents No. 6,023,683 (the '683 patent) and 6,505,172 (the T72 patent). (241) The patents claim methods and systems of using electronic databases to search for product information and to order products from third-party vendors. (242) The allegedly infringing software sold by Lawson was modular, meaning that Lawson's customers could choose to buy particular software components depending on their needs. (243) ePlus alleged infringement by five different configurations of Lawson's software, referred to by the Federal Circuit as "Configurations 1-5." (244) The jury found that Configurations 3 and 5 infringed both claim 1 of the T72 patent and claims 3, 26, 28, and 29 of the '683 patent and that Configuration 2 infringed claim 1 of the T72 patent. (245) The jury found that Configurations 1 and 4 did not infringe any of ePlus's asserted patent claims. (246)

    The Federal Circuit reversed in part, ruling that claim 1 of the T72 patent and claim 3 of the '683 patent were invalid and that claims 28 and 29 of the '683 patent were not infringed. (247) The Federal Circuit, however, affirmed the district court's finding that claim 26 of the '683 patent was infringed. (248) Because only Configurations 3 and 5 infringed that claim, the Federal Circuit "remand[ed] for the district court to consider what changes are required to the terms of the injunction, consistent with this opinion." (249)

    On remand, the district court deleted from the injunction Configuration 2, which infringed only a patent claim that the Federal Circuit had ruled to be invalid. (250) The court also found Lawson in contempt, ruling that its redesigned software continued to infringe claim 26 of the '683 patent. (251) The court ordered Lawson to pay a compensatory fine of roughly $18.2 million and coercive daily fines of roughly $62,000 until it complied with the injunction. (252) From that contempt order, Lawson again appealed to the Federal Circuit.

    Meanwhile, claim 26 had been undergoing ex parte reexamination at the PTO in proceedings instituted by SAP, who was a defendant in a previous infringement suit filed by ePlus. (253) The Board of Patent Appeals and Interferences eventually issued a final decision invalidating claim 26, (254) and, while Lawson's appeal from the contempt order was pending, the Federal Circuit affirmed the Board's decision. (255)

    On Lawson's appeal from the contempt order, the Federal Circuit panel unanimously vacated the injunction prospectively because the PTO had invalidated the patent claim on which the injunction was based. (256) The court then confronted the sanctions the district court had awarded for Lawson's past violations of the injunction, that is, for the violations that occurred before the PTO invalidated the patent in reexamination. The majority (Judge Dyk, joined by Chief Judge Prost) relied on Fresenius to vacate the sanctions order. (257) In Fresenius, the court explained, "We held ... that even if this court has rejected an invalidity defense to infringement, an 'intervening decision invalidating the patents unquestionably applies' as long as 'the judgment in [the infringement case] is not final.'" (258) As to finality, the court explained that "where the scope of relief remains to be determined, there is no final judgment." (259) In the court's view, its remand in the first appeal meant that the propriety of an injunction was still an open question at the time the PTO invalidated claim 26. (260) Thus, over the dissent of Judge O'Malley, the court held that Fresenius mandated vacatur of the sanctions award. (261)

    The Federal Circuit denied ePlus's petition for rehearing en banc by a vote of five to five, one vote shy of the majority needed to grant review. (262) Three judges wrote dissenting opinions, including-judge Newman, who again argued that the absolute finality rule conflicts with the law in other circuits that a ruling on liability is entitled to preclusive effect on that issue, (263) and Judge O'Malley who similarly cited the need "to reevalute our finality jurisprudence." (264)

    Judge Moore wrote a provocative dissent focusing in part on the incentives created by the absolute finality rule, noting that it "encourages defendants to scrap and fight to keep underlying litigation pending in the hope that they will fare better with the PTO and then be able to unravel the district court judgment against them." (265) She also highlighted broader concerns about parallel review of patent validity, writing:

    [T]here are problems with a system which permits defendants to snatch victory from the already closed jaws of defeat. Whether these problems are to be resolved by the Supreme Court through its precedent on finality or through Congress, this sort of gamesmanship ought to be curtailed. I have no problem with the dual track system Congress has created, but for at least a subset of cases, defendants are abusing the process by doing both. This is wasteful of judicial, executive, and party resources, and it is just plain unfair. Congress intended [post-issuance review] to be an alternative to district court litigation of certain validity issues, not duplicative of them. (266) With the Federal Circuit's denial of rehearing in ePlus, and the Supreme Court's denial of certiorari, (267) the absolute finality rule is now indisputably the law. Yet the sharp disagreements among the Federal Circuit's judges suggest that the issue is far from settled. Consequently, this Article's next task is to provide a close analysis of the rationale for and consequences of the absolute finality rule.

    1. How Final Is Final?

      The first question in that analysis involves the meaning of the absolute finality rule itself. For a PTO decision to be sufficiently final to provide grounds for vacating a court decision, it seems that all proceedings at the PTO, plus any judicial review of those proceedings, must be concluded. Although the Federal Circuit has not explicitly stated that rule, in Fresenius the court wrote that "the [reexamination] statute requires that a final PTO decision affirmed by this court be given effect in pending infringement cases that are not yet final." (268) District courts have accordingly interpreted Fresenius as requiring judgment in favor of the accused infringer only once the PTO's decision has been affirmed by the Federal Circuit. (269) Moreover, in a recent case between smartphone behemoths Apple and Samsung, the Federal Circuit affirmed a $548 million judgment in favor of Apple even though the PTAB had already determined--in a decision that had not yet been reviewed by the Federal Circuit--that one of the infringed patents was invalid. (270) As a matter of statutory interpretation, it makes sense that PTO proceedings would be considered final only upon the conclusion of any appeal to the Federal Circuit. The statutes governing post-issuance review require the PTO to issue its certificate canceling patent claims determined to be unpatentable only "when the time for appeal has expired or any appeal proceeding has terminated." (271)

      For a court decision to be sufficiently final to avoid vacatur due to a PTO decision of invalidity, the Federal Circuit has suggested, as noted above, that the "scope of relief' must be resolved. (272) Although the court has not expressly stated what it means for the scope of relief to be resolved, its decisions provide important clues. In cases involving only damages, finality seems to occur when all proceedings regarding entitlement to and amount of damages, including direct appeals from those proceedings, are concluded. (273) If the scope of relief has been resolved, a subsequent PTO ruling of invalidity will not provide the infringer with a basis for avoiding payment of damages pursuant to the judgment. As discussed in more detail below, separation of powers almost certainly prohibits the action of an administrative agency, such as the PTO, from serving as a basis for reopening a litigation-ending judgment awarding damages. (274)

      In the injunction context, one might reasonably observe that the "scope of relief' is never definitively resolved because courts always have the power to revise injunctions in light of changed circumstances. (275) Indeed, the Federal Circuit has squarely held that the invalidation of a patent justifies the prospective vacatur of any injunction against infringement of that patent. (276) One might invoke the court's ongoing power to alter injunctions to assert, similarly, that an order imposing sanctions for past violations of an injunction can also be vacated if the PTO invalidates the underlying patent, even if the terms of the injunction had already been definitively resolved. (277) In a recent case involving proceedings both in court and at the International Trade Commission, however, the Federal Circuit ruled that an order imposing sanctions cannot be vacated based on a subsequent ruling of invalidity unless--as was the case in ePlus--the injunction that provided the basis for sanctions is still subject to review on a direct appeal. (278)

      To summarize: Federal Circuit law creates, essentially, a race to the finish. If a court decision awarding damages for infringement is contained in a final, litigation-ending judgment, that decision will be unaffected by any subsequent PTO decision of invalidity. Similarly, a court decision awarding contempt sanctions for violation of an injunction against infringement will be unaffected by any subsequent PTO decision of invalidity, so long as the injunction has merged into a final, litigation-ending judgment. Conversely, a PTO decision of invalidity that has been affirmed by the Federal Circuit...

To continue reading