November 2, 2012
On October 26, 2012, the Court of Appeals for the Federal Circuit denied Baxter International’s request for rehearing en banc of the court’s earlier May 17, 2012 decision. In the earlier decision, the court had affirmed the U.S. Patent and Trademark Office’s (USPTO’s) finding during reexamination that the claims of one of Baxter’s patents were unpatentable for obviousness over the prior art. Both the May decision and the denial of rehearing en banc have drawn attention because in an earlier decision, the same court had affirmed a district court’s finding that the same patent was not invalid over the prior art over an attack by the same challenger.
Baxter’s patent related to a touch-screen user interface for controlling a hemodialysis machine. In 2003, one of Baxter’s competitors, Fresenius Medical Care, filed a declaratory judgment action in the U.S. District Court for the Northern District of California seeking a declaration that the patent was invalid. The district court held as a matter of law that Fresenius had failed to establish obviousness by clear and convincing evidence. Fresenius appealed that decision to the Federal Circuit, which in 2009 issued an opinion affirming the district court’s ruling.
In parallel with the California litigation, and at Fresenius’s request, the USPTO reexamined the Baxter patent. The USPTO found that the claims of the patent were unpatentable as obvious in light of substantially the same prior art considered by the California district court and by the Federal Circuit. In making its finding, the USPTO stated that “[a]lthough claims 26–31 were not proven invalid in court, a lower standard of proof and the broadest reasonable interpretation standard of claim construction apply at the PTO and therefore the agency is not bound by the court’s determination.”
Baxter appealed. In its May decision, the Federal Circuit affirmed the USPTO’s finding of unpatentability, despite its 2009 decision affirming the California district court’s ruling that the patent had not been proven invalid. The court rejected Baxter’s argument that the USPTO improperly ignored the district court’s and its own prior decision. Quoting In re Swanson, an earlier case that had considered a similar issue, the court stated, “[t]he PTO in reexamination proceedings and the court system in patent infringement actions ‘take different approaches in determining validity and on the same evidence could quite correctly come to different conclusions.’” One aspect of the referenced “different approaches” relates to the higher burden of proof in the district court (clear and convincing evidence) than in the USPTO (preponderance of the evidence). Another aspect is that there exists no presumption of validity in the USPTO as there is in the district court. The Federal Circuit also explained that district courts do not find patent claims “valid,” only that the patent challenger failed to prove that the patent claim was invalid. The USPTO, on the other hand, determines in reexamination whether a patent claim is patentable or unpatentable.
Addressing its differing conclusions regarding validity of the Baxter patents, the Federal Circuit added, “Lest it be feared that we are erroneously elevating a decision by the PTO over a decision by a federal district court, which decision has been affirmed by this court, the following additional comments must be made. When a party who has lost in a court proceeding challenging a patent, from which no additional appeal is possible, provokes a reexamination in the PTO, using the same presentations and arguments, even with a more lenient standard of proof, the PTO ideally should not arrive at a different conclusion.”
In its October 26 denial of Baxter’s request for a rehearing, 10 of the 11 Federal Court judges agreed that Baxter’s request ought to be denied. In a concurrence of the denial, Judge O’Malley noted that “In a court proceeding, a patent is not found ‘valid.’ . . . If the PTO later considers the validity of the same patent, it does so based on the evidence before it and under the lesser burden of proof that applies in reexamination proceedings.” Judge O’Malley added, “These conclusions do not mean, however, that, when the PTO does act in the context of a reexamination proceeding, its conclusions can alter the binding effect of a prior judgment in a judicial proceeding.”
Dissenting, Judge Newman commented that “[t]he appeal is again in the Federal Circuit, with this court deferring to the PTO’s decision as ‘substantially’ supported, and refusing to recognize our own final decision three years earlier on the same evidence. Although patent validity is a question of law, the court declines de novo review, refuses to be bound by our prior decision, and authorizes the agency to overrule the court, all without a nod to finality, or correctness, or res judicata, or the Constitution.”
The Baxter case provides a useful explanation of the differences between the standards used in the federal courts and those used in the USPTO. The case also highlights the implications of parallel proceedings in the USPTO and the courts. These implications are expected to become more significant in light of the new post-grant procedures in the USPTO established by the America Invents Act.
For more information, please contact Fitch Even partner Joseph F. Marinelli.