Fresenius USA, Inc. v. Baxter International, Inc.

Addressing the issue of whether the cancellation of claims by the U. S. Patent and Trademark Office (PTO) in reexamination proceedings binds district courts in pending litigation, a divided panel of the U.S. Court of Appeals for the Federal Circuit answered affirmatively, finding that the cancellation of claims in reexamination mooted the issue of infringement and vacated a district court's damages award. Fresenius USA, Inc. v. Baxter International, Inc., Case Nos. 12-1334; 1335 (Fed. Cir., July 2, 2013) (Dyk, J.) (Newman, J., dissenting).

In 2003, Fresenius filed a declaratory judgment action of invalidity and non-infringement of three Baxter patents. Baxter counterclaimed for infringement. Fresenius and Baxter manufacture hemodialysis machines, and the asserted claims of one of the patents were directed to a dialysis machine with an integrated touch screen interface. Fresenius also sought ex parte reexamination at the U.S. Patent and Trademark Office (PTO).

The district court declined to stay the case pending reexamination, found the patent was valid, and in 2007 entered judgment for Baxter, awarding damages of roughly $14 million. In 2009, the Federal Circuit affirmed as to the subject patent, reversed as to the other patents, vacated the damage award and remanded for reconsideration.

In 2010, the PTO Board of Patent Appeals and Interferences rejected the asserted claims of the subject patent as obvious. In March 2012, the district court entered final judgment awarding reduced damages to Baxter but stayed execution pending appeal of the PTO determination. In May 2012, the Federal Circuit affirmed the PTO’s determination, stating the decision was not inconsistent with its prior holding because the rejections were based on prior art references “not squarely at issue” during the district court trial.

Baxter argued in this appeal that the PTO’s cancellation cannot be given effect, because the district court’s 2007 judgment had conclusively decided the issue of validity, and that that decision was “final and binding” on the parties, resulting in res judicata effect within the pending litigation.

Distinguishing different concepts of finality, the Federal Circuit panel majority held the district court's 2007 judgment was final for the purposes of appeal but “not sufficiently final to preclude application of the intervening final judgment in In re Baxter.” The Court found that its 2009 decision was not sufficiently final because it had been remanded for reconsideration of damages and thus “did not end the controversy between the parties.”

The Court also found no violation of Constitutional separation of powers. Comparing assertion of a cancelled patent to assertion of a right under an act of Congress later repealed, the majority wrote “unless it exists, and is in force at the time of trial and judgment, the suits fail.”

In dissent, Judge Newman viewed the Court’s ruling as an endorsement of “administrative abrogation of final judicial decisions” that is “contrary to the legislative purposes of reexamination…” According to Judge Newman, the Federal Circuit’s 2009 decision affirming issues of validity and infringement constituted final judgment as to those issues, and a judicial decision that binds other courts, the parties and the public, must likewise bind the other branches of government.