Reimagining finality in parallel patent proceedings.

Author:Picozzi, Ben


Parties may challenge the validity of issued patents in federal courts and before the Patent and Trademark Office (PTO) and its administrative tribunal, the Patent Trial and Appeal Board (PTAB). Recently, the Court of Appeals for the Federal Circuit, which has exclusive appellate jurisdiction over cases arising under the patent laws, has struggled to manage cases contested in parallel judicial and administrative proceedings.

In Fresenius USA, Inc. v. Baxter International, Inc., the Federal Circuit held that a district court's judgment may be modified by an "intervening" judgment arising out of a parallel administrative proceeding unless all issues have been fully adjudicated in the district-court action. (1) This requirement remains controversial. At least five of the court's eleven judges oppose the court's finality rule, (2) and this debate has led to vigorous dissents from panel decisions and denials of petitions for rehearing en banc. (3) Nevertheless, the rule has attracted little academic attention, and commentators that have addressed the rule have analyzed it under formalistic constitutional and preclusion doctrines, ignoring other approaches. (4)

This Comment argues that none of the arguments for or against the Federal Circuit's finality rule are legally determinative. Given that the current debate need not define the scope of possibilities, I propose a more flexible rule that looks outside the parameters of this debate for a solution. Under the proposed rule, district courts would have the discretion to adhere to their prior remedy decisions despite intervening administrative judgments of invalidity. Such a rule would allow courts both to prevent litigants from abusing administrative challenges and to preserve the viability of injunctions. In addition, the proposed rule would encourage courts to more carefully communicate their decisions. It might also secure approval from those who disagree with the Federal Circuit's constitutional analysis. (5)

Furthermore, courts could implement the proposed rule without waiting for legislative action. Congress could solve the problems identified in this Comment by limiting administrative reexamination (6) or eliminating it entirely. (7) However, such a development is unlikely and would run counter to current congressional trends. The Leahy-Smith America Invents Act expanded, rather than limited, reexamination, (8) and subsequent legislative proposals have favored patent challengers. (9) Consequently, courts remain the actors best positioned to address the problems caused by parallel proceedings.

This Comment proceeds in three Parts. Part I describes patent law's system of parallel judicial and administrative adjudication. Part II analyzes the Federal Circuit's finality jurisprudence and arguments for and against the court's adopted rule. Part III proposes an alternative rule and explains its advantages.


    Administrative patent validity proceedings have existed for more than thirty years. In 1980, Congress authorized the PTO to conduct ex parte reexaminations of issued patents and to cancel claims found invalid. (10) Supporters believed reexamination would "permit efficient resolution of questions about the validity of issued patents without recourse to expensive and lengthy infringement litigation." (11) Accordingly, the 1980 statute makes reexamination broadly available. "Any person at any time" may request reexamination, and the PTO will grant any request that raises a "substantial new question of patentability" regarding the patent's novelty or obviousness. (12) The "substantial new question" standard is easily met, and a request may raise a "substantial new question" even if a court has previously considered the prior art references asserted by the request. (13)

    Ex parte reexamination procedures are procedurally similar to those used in an initial examination. (14) If the examiner finds the patent invalid, the patentee may appeal the examiner's determination to the PTAB and then directly to the Federal Circuit. (15) Requests may be anonymous, and requestors are not precluded from challenging the patent's validity in subsequent proceedings. (16) Rather, the reexamination statute's drafters believed that courts would exercise their stay power to "prevent costly pretrial maneuvering which attempts to circumvent the reexamination procedure." (17)

    Between July 1981, when the ex parte reexamination statute entered into force, and September 2014, the PTO received 13,217 requests. (18) The PTO granted ninety-two percent of these requests and changed or cancelled claims in seventy-eight percent of reexaminations. (19) Contrary to the drafters' expectations, requestors commonly use ex parte reexamination as a supplement, not an alternative, to litigation. Parallel judicial and administrative proceedings are common, and thirty-three percent of reexaminations involve patents known to be in litigation. (20) Courts have been reluctant to grant stays in these cases in part because they recognize that the outcome of the reexamination will be unlikely to resolve all litigation issues. (21) Furthermore, appeals may require four or more years to resolve, and resolution of these appeals often does not prevent further legal action between the parties. (22)

    Today, ex parte reexamination is not the only, or even the most popular, administrative option for challenging the validity of issued patents. In 2011, the America Invents Act expanded parties' administrative options by creating inter partes review and other adversarial proceedings. (23) Despite the availability of these paths of review, reexamination continues to provide a meaningful avenue for challenging patent validity. While the number of reexamination requests decreased significantly in 2013, after the America Invents Act's review provisions entered into force, this decline stabilized in 2014. (24) Furthermore, inter partes review proceedings might themselves create opportunities for conflicting judicial and administrative judgments. Despite estoppel provisions (25) and strict statutory deadlines, (26) inter partes review proceedings themselves may require nearly two years to resolve, enough time for a district court to enter judgment. (27)


    1. The Rule's History

      The Federal Circuit's finality rule emerged out of this parallel system of district court and administrative proceedings. In 2003, Fresenius filed a declaratory judgment action against Baxter, alleging that three of Baxter's patents, including U.S. Patent No. 5,247,434 (the '434 patent), were invalid and noninfringed. (28) Baxter counterclaimed for infringement. (29) In 2007, the jury awarded Baxter $14,266,000 in preverdict damages, and the district court further awarded Baxter a permanent injunction and postverdict damages, calculated at a reasonable royalty rate. (30)

      In Fresenius I, the Federal Circuit affirmed the district court's findings that the '434 patent was valid and infringed, but found the other patents invalid. (31) Accordingly, the court vacated the injunction and postverdict damages award and remanded for "further proceedings consistent with [its] opinion." (32) Significantly, Fresenius did not appeal the district court's preverdict damages award, and the Federal Circuit did not expressly vacate this portion of the district court's judgment. (33) The Federal Circuit panel disagreed over the remand order's legal effect. Judges Dyk and Newman concurred separately, attempting to shape the order in opposite directions. Judge Dyk argued that on remand, the district court could stay the litigation pending the resolution of a parallel ex parte reexamination proceeding before the PTO. (34) Judge Newman, by contrast, argued that stay would be inappropriate and that "[o]nly an issue of adjustment of damages and a modification of the permanent injunction ... remain[ed] on remand." (35)

      Subsequently, the district court declined to stay the litigation (36) and proceeded to adjudicate the remaining issues. Simultaneously, the PTO found the claims at issue invalid. (37) While the appeal from the reexamination proceeding was pending, the district court entered judgment for Baxter. (38) The court's judgment preserved the $14,266,000 preverdict damages award but, in compliance with the Federal Circuit's remand order, reduced postverdict damages. (39)

      Baxter's victory was short-lived. The Federal Circuit affirmed the PTO's finding of invalidity. (40) The district court's contrary decision did not bind the PTO "because the two proceedings necessarily applied different burdens of proof and relied on different records." (41) Subsequently, Fresenius appealed the district court's judgment, arguing that although Fresenius would ordinarily be precluded from relitigating infringement and preverdict damages, the Federal Circuit was obligated to apply its own intervening judgment holding the claims invalid. (42)

      In Fresenius II, the Federal Circuit agreed and ordered the district court to dismiss the action entirely. (43) The court explained that although the district court's judgment was "final for purposes of appeal" and "might have been given preclusive effect in another infringement case between these parties, it was not sufficiently final to preclude application of the intervening final judgment" affirming the PTO's finding of invalidity. (44) "To rise to that level, the litigation must be entirely concluded so that [the] cause of action [against the infringer] was merged into a final judgment ... one that 'ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'" (45) However, Fresenius I "left several aspects of the district court's original judgment unresolved," including postverdict damages and injunctive relief. (46) Thus, the court reasoned, under "general res judicata principles governing the preclusive...

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