Stop in the Name of the Pto! a Review of the Fresenius Saga and Pto-judicial Interplay

• Publication year: 2015

Stop in the Name of the PTO! A Review of the Fresenius Saga and PTO-Judicial Interplay

Wayne A. Kalkwarf

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STOP IN THE NAME OF THE PTO! A REVIEW OF THE FRESENIUS SAGA AND PTO-JUDICIAL INTERPLAY

Wayne A. Kalkwarf^*

Table of Contents

I. INTRODUCTION..........................................................................................316

II. EN GARDE: FRESENIUS USA VS. BAXTER INTERNATIONAL.............316

III. THE RULE BOOK........................................................................................322

IV. TIME TO REVISE THE RULES....................................................................328

V. CONGRESSIONAL HISTORY SHOULD REPEAT ITSELF.........................329

VI. UNITING FOR THE COMMON GOOD......................................................330

VII. THE NEW RULE..........................................................................................331

A. THE SPARK............................................................................................332
B. THE SMOKE...........................................................................................332
C. FIRE........................................................................................................333
D. FOUR ALARM FIRE................................................................................334
E. APPEASING ACADEMIA.......................................................................335

VIII. REVOLUTION AND RESOLUTION............................................................336

IX. WILL THE COURTS WHISTLE THE PROPOSAL FOR PASSING FORWARD?...................................................................................................337

X. THE COUP DE GRACE................................................................................342

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I. Introduction

Disputes are a basic tenet of the law. Without disputes there would be no need for the courts, no need for judicial decisions. Whether the conflict is between individuals, statutes, or constitutional provisions, the courts must stand as referees to render final judgment in the contest presented. Fresenius USA, Inc. v. Baxter International, Inc.¹ addresses a controversy involving the conflicting interests of Articles I and III of the United States Constitution.

Fresenius concerns the question of how the jurisdictional restrictions of Article III can impact a proceeding involving the Patent Clause of Article I.² The holding of Fresenius is heart wrenching. It is the equivalent of watching a brilliantly victorious fencer being stripped of a hard fought championship on account of some obscure, seldom-invoked regulation.³

The decision has had a significant impact in the competitive world of patents, an impact which has yet to be fully realized.⁴ Although the decision is not without its critics,⁵ it is based upon a longstanding technicality of law. Because the technicality exists, the rule must be enforced. But technicalities can be changed, and Fresenius emphasizes one such technicality that needs to be changed.

II. En Garde: Fresenius USA vs. Baxter International

The decade-long bout began when Fresenius USA, Inc. and Fresenius Medical Care Holdings, Inc. filed for a declaratory judgment against Baxter International, Inc. and Baxter Healthcare Corporation alleging that claims 26—

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31 of U.S. Patent No. 5,247,434 ('434 patent) were invalid and not infringed.⁶ Baxter counterattacked by suing Fresenius for infringement.⁷

Baxter was the owner of the '434 patent, which involved a hemodialysis machine.⁸ Hemodialysis machines are used in the place of kidneys to cleanse the blood of toxins.⁹ When a person's blood is pumped through the machine, toxins pass from the blood into a solution called dialysate.¹⁰ The relevant claims of the '434 patent teach the use of a dialysis machine with an integrated touch screen interface.¹¹

In 2003, Fresenius, a manufacturer of hemodialysis machines, 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, including claims 26—31 of the '434 patent, as well as claims involving U.S. Patent No. 5,744,027 ('027 patent) and U.S. Patent No. 6,284,131 ('131 patent).¹² In riposte,¹³ Baxter counterclaimed for infringement.¹⁴ Fresenius actually stipulated to the infringement of the '434 patent's claims, but argued that the claims were invalid.¹⁵ A jury returned a verdict in Fresenius's favor, finding the relevant claims of the '434 patent invalid and that certain claims of the '027 and '131 patents invalid.¹⁶

Fresenius's early touch was quickly met and surpassed as the district court granted Baxter's motion for judgment as a matter of law finding insufficient evidence to prove that the patents' claims were invalid.¹⁷ A jury trial on damages was then conducted, and the jury awarded Baxter $14.266 million for infringement on the three patents.¹⁸ The district court then entered a

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permanent injunction, which was stayed, and bestowed upon Baxter ongoing post-verdict royalties on infringing machines and related disposables sold by Fresenius.¹⁹ Both parties, not surprisingly, appealed.²⁰

On September 10, 2009, the Federal Circuit reversed in part, affirmed in part, vacated in part, and remanded the case to the district court.²¹ The Federal Circuit held that the asserted claims of the '027 and '131 patents were invalid, reversing the district court's decision blessing Baxter's motion for a judgment as a matter of law.²² The court, however, did find that Fresenius had failed to present sufficient evidence that the claims of the '434 patent at issue were obvious.²³ These clams required a "means for delivering the dialysate to a dialysate compartment of a hemodialyzer."²⁴ The court stated that Fresenius had "failed to present any evidence . . . that the structure corresponding to the means for delivering dialysate limitation, or an equivalent thereof, existed in the prior art."²⁵ The Federal Circuit further decreed that because Fresenius had failed to present any evidence that the structure in question existed in the prior art, a judgment as a matter of law was appropriate.²⁶

Thus the court affirmed the district court's grant of judgment as a matter of law regarding the '434 patent claims, reversed the district court regarding the other two patents, and vacated the district court's injunction and royalty awards.²⁷ The Federal Circuit directed on remand that the district court revise or reconsider its injunction in light of the court's reversal regarding the '027 and '131 patents.²⁸ The district court was also "to consider whether the previous [royalty] award [wa]s proper in light of [the Federal Circuit's] modification of the district court's judgment."²⁹ The Federal Circuit noted that, "[i]n particular, . . . our decision . . . may [have] affect[ed] how the district court weighs [the relevant] factors" in determining the royalty award.³⁰

On remand, Baxter lunged for "a final decision on the permanent injunction and ongoing royalties."³¹ Fresenius parried, asserting that it was no longer

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selling the infringing machines, rendering the injunction unnecessary, and that the ordered royalties were unreasonable. Fresenius also sought to retry the pre-verdict damages on the '434 patent.³² On May 26, 2011, the district court denied Fresenius's motion for a new trial on the question of pre-verdict damages.³³ In December 2011, the district court then held an evidentiary hearing on the issue of post-verdict royalties.³⁴ By this time, the permanent injunction had become moot as the '434 patent had expired in April 2011.³⁵

On March 8, 2012, the district court awarded Baxter post-verdict damages, but at a reduced royalty rate.³⁶ On March 16, 2012, the district court entered its final judgment for Baxter.³⁷ Fresenius was ordered to pay Baxter over $23 million in damages and interest, in addition to royalties, for units sold prior to the expiration of the '434 patent.

Naturally, Fresenius appealed.³⁸ Baxter countered, cross-appealing the district court's reduction of the post-verdict royalties.³⁹ On May 3, 2012, the district court granted Fresenius's motion to stay the execution of the new judgment pending appeal.⁴⁰ In granting the stay, the district court rejected the argument that Baxter was entitled to enforce and execute the 2007 judgment.⁴¹ The district court explained that "the March 16, 2012 final judgment appears to supercede [sic] the Nov. 7, 2007 final judgment."⁴²

In the meantime, while the parties were thrusting accusations back and forth in the third branch of government, Fresenius performed a brilliant attaque au fer.⁴³ In 2005, Fresenius requested an ex parte reexamination with the United States Patent and Trademark Office (PTO) of claims 26—31 of the '434 patent, the only claims which were ultimately remaining in the pending infringement litigation.⁴⁴ In January 2006, the PTO agreed that a substantial new question of

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patentability had been raised in light of new prior art, and granted the request for a reexamination.⁴⁵

The PTO's reexamination proceeded on a parallel track with the district court litigation.⁴⁶ In December 2006, less than a year before the damages trial, the PTO examiner raised the yellow card⁴⁷ after reaching an initial determination that the claims would have been obvious.⁴⁸ A year later, in December 2007, the red card⁴⁹ went up as the PTO examiner reached a final determination rejecting claims 26—31 of the '434 patent.⁵⁰ The examiner concluded that all structures required by claim 26, including the "means for delivering the dialysate," were present in the prior art, and that the claim would have been obvious.⁵¹ The examiner also determined that claim 30 would have been obvious over a combination of references which were not before the PTO during the initial examination.⁵² Thus, the patent examiner found new, invalidating...