Declining to reconsider its panel decision holding that reexamination proceedings at the Patent Office (PTO) binds subsequent district court litigation, the U.S. Court of Appeals for the Federal Circuit split 6-4 in denying en banc review.  Fresenius USA v. Baxter International, Inc., Nos. 12-1334; 1335 (Fed. Cir. Nov. 5, 2013) (per curium) (Dyk, J., joined by Prost, J., concurring in denial of petition for rehearing en banc) (O’Malley, J., joined by Rader, C.J., and Wallach, J., dissenting from denial of petition for rehearing en banc) (Newman, J., dissenting from denial of petition for rehearing en banc). 

On July 2, 2013, a divided panel of the Federal Circuit held that the Patent and Trademark Office’s (PTO’s) cancellation of Baxter’s patent claims in reexamination left Baxter without a viable cause of action, thus mooting the pending litigation over the patent.  Fresenius II, (IP Update, Vol. 16, No. 7).  The Court vacated the district court’s judgment, and remanded with instructions to dismiss.  This opinion followed two prior Federal Circuit opinions, one affirming the district court’s judgment that the patent was not invalid and infringed, and awarding past damages  (Fresenius I) (IP Update, Vol. 13, No. 5); and a second opinion affirming the PTO’s rejection of the asserted patent claims as obvious (In re Baxter) (IP Update, Vol. 15, No. 11).  As Fresenius I had remanded the case for an accounting of post-verdict damages, the case was still pending following In re Baxter.  In Fresenius II, Judge Dyk, joined by Judge Prost, wrote that the district court’s judgment of infringement was final for the purposes of appeal, but “not sufficiently final to preclude application of the intervening final judgment in In re Baxter.”  Judge Newman dissented, viewing the Court’s ruling as endorsing “administrative abrogation of final judicial decisions.”

Concurring in the denial of en banc review, Judge Dyk reiterated that a patentee’s right to damages for infringement is “founded on the validity of his patent,” citing Simmons and Mendenhall for the proposition that final decisions on infringement liability potentially sufficient to create collateral estoppel were not sufficiently final to bar the preclusive effect of a final judgment in another case.

Judge Newman dissented again, contending that subjecting Article III judgments to agency override violated principles of judicial finality.  Since the Federal Circuit had already affirmed the judgment of the district court on issues of validity, infringement and damages to the date of judgment, the only issue on remand was a determination of post-judgment damages.

Judge O’Malley wrote separately in dissent, stating that “the PTO’s actions cannot, and should not be permitted to, dislodge the judgment for past infringement . . .” “Although In re Baxter eliminated any rights Baxter may have against third parties, it does not extinguish Baxter’s vested rights in the final judgment on the merits of this case against Fresenius.”  Unlike in Mendenhall andSimmons, damages had been calculated and affirmed on appeal, and neither the district court nor the Federal Circuit had the power to disturb the judgment on the merits.  Finality for preclusion purposes sometimes differs from finality for purposes of appeal, but that is because “finality often may be applied less strictly for preclusion purposes than for purposes of appeal, not more so.”  Judge O’Malley noted that the majority’s opinion could render years of litigated decisions meaningless by later PTO decisions, and believes that stays pending reexaminations would be inevitable once trial courts realized the fragility of their decisions.