Baxter Loses $23.5 Million Judgment to Later Reexamination: Judgment not “Sufficiently Final”

Scott Daniels | July 3, 2013

The power of reexamination was demonstrated once again in the CAFC’s decision yesterday in Fresenius v. Baxter Int’l.  There, the Court vacated an infringement judgment and an award of damages, because of a later finding of invalidity by the Patent Office in a reexamination proceeding.  For practitioners, the panel’s decision is consistent with the Court’s precedent since In re Swanson.  Also, the decision might clarify the period of time in which judgments are vulnerable to later reexaminations.  In the words of the panel majority, the answer is when the final judgment is “sufficiently final.”

The procedural history of the case is important:

  • In 2003 Fresenius filed a declaratory judgment action against Baxter International, alleging that certain claims 26–31 of U.S. Patent No. 5,247,434 were invalid and not infringed.
  • Baxter counterclaimed for infringement.
  • In 2005 Fresenius requested reexamination of the claims.
  • In 2007 the trial court entered judgment against Fresenius, finding that the ’434 claims were infringed and not invalid.
  • On appeal, the CAFC affirmed the determination that the claims were not invalid, but remanded to the trial court to reconsider its injunction and post-verdict damages.
  • In 2010, while the litigation was pending on remand, the PTO completed a reexamination of the ’434 patent, determining that all asserted claims were invalid.
  • In 2012 the CAFC affirmed the PTO’s invalidity determination from the reexamination proceeding, and issued its mandate.
  • In 2012 the trial court entered judgment against Fresenius in the pending infringement action, awarding Baxter $23.5 million.  Both sides appealed.

What does all this mean?  Is Baxter’s patent valid or invalid?  Which ruling counts?  Does the damages award in favor of Baxter survive the later determination of invalidity by the PTO?

The CAFC ruled for Fresenius.  In light of the PTO’s cancellation of the asserted ’434 claims, and of the fact that the infringement suit remains pending before the CAFC, the CAFC found that Baxter no longer has a cause of action. Accordingly, the CAFC vacated the trial court’s judgment, remanding the case with instructions to dismiss.

Baxter conceded that cancellation of a patent claim moots any pending infringement litigation.  On the other hand, Baxter insisted, cancellation of the asserted claims in this case does not have any effect at this moment in the infringement litigation, because the validity of the ’434 patent and Fresenius’ infringement of that patent were conclusively decided in 2007.  According to Baxter, the trial judge’s 2007 judgment is “final” and “binding” on the parties.  Invoking notions of res judicata, Baxter asserted that “the liability determination and Past Damages Award are now final and Fresenius is precluded from relitigating those issues.”

Judge Dyk, speaking for the panel two-judge panel majority framed the issue as “whether, under the reexamination statute, the cancellation of claims by the PTO is binding in pending district court infringement litigation.”  The Judge added that the panel was “not dealing with finality for purposes of determining the potential res judicata effect of this infringement litigation on another suit.”  Rather, the case raises the question of “whether the judgment in this infringement case is sufficiently final so that it is immune to the effect of the final judgment in the PTO proceedings, as affirmed by this court in In re Baxter” (emphasis added).

Judge Dyk then addressed the case’s procedural history: “there is no question of reopening a final court judgment, because no such judgment has been entered.”  Although the trial court’s judgment had been entered in November of 2007 for an appeal to the CAFC, and although “that judgment 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 in In re Baxter, and in any event, we set the district court’s judgment aside in the first appeal in the infringement case.”

Further, the subsequent remand to the trial court did not end the controversy between the parties, or leave “nothing for the court to do but execute the judgment.” “To the contrary, we left several aspects of the district court’s original judgment unresolved, including royalties on infringing machines, royalties on related disposables, and injunctive relief … where the scope of relief remains to be determined, there is no final judgment binding the parties (or the court).”  Judge Dyk then reviewed the relevant case law, including the CAFC’s 1994 decision in Mendenhall v. Barber-Greene, concluding any decision on validity and infringement, where “further damages proceedings [are incomplete,] is not a final judgment.”

To be sure, there was a dissent by Judge Newman.  But past CAFC decisions suggest that there are no other CAFC judges who would join her.

 

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