In re Baxter: A Second Bite at the Apple Was Sweet

A couple of weeks back, the Federal Circuit decided In re Baxter, affirming a patent office Board decision of obviousness. 2011-1073, May 17, 2012.  That result, by itself, is hardly noteworthy.  The Board was addressing a patent in an ex parte reexamination, that not surprisingly, was brought by a defendant involved in a patent infringement action, Fresenius, USA , Inc.  So, an unsurprising result, with an unsurprising history.  Why then, are we even talking about this case?  OK, here is the twist.  In the litigation, the district court held that Fresenius failed as a matter of law to meet its burden to prove invalidity of the asserted claims.  That decision was appealed and the Federal Circuit affirmed, holding that “Fresenius failed to present any evidence- let along substantial evidence- that the structure corresponding [to one claim element] existed in the prior art.”  Fresenius USA, Inc. v. Baxter, Int’l 582 F.3d 1288, 1299 (Fed. Cir. 2009).  Now, three years later, based on largely the same (but not quite identical) prior art, the Federal Circuit affirmed the Board decision that the same claims previously affirmed are indeed invalid as obvious. 

Why the different result?  The short answer is that the Board decision is based on a different evidentiary standard, there is no “presumption of validity” in reexaminations, and the standard of appellate review for board decisions is deferential, applying a “substantial evidence” standard.  The original holding in Fresnius was not that the asserted claims were valid.  It was a holding affirming that the defendant did not meet the clear and convincing standard to establish invalidity.  In contrast, in order to reverse the Board's finding of invalidity, the Federal Circuit would have had to find that the decision was not supported by substantial evidence.  In this case, the Federal Circuit found the Board’s decision was well supported.  Opinion 14-15.

The Baxter decision highlights tension in the roles of the district court and the patent office.  Typically, when a party looses an issue and all appeals are exhausted, that issue cannot be relitigated by that party.  Typically, government agencies are bound by final decisions of the courts.  However, the Baxter court deferred to Congress and its own precedent noting that “Congress has provided for a reexamination system that permits challenges to patents by third parties, even those who have lost prior judicial proceedings.”  Opinion at 15.   As a result, unless Congress decides to change the reexamination statute, the possibility remains that a party seeking to invalidate a patent can take two full bites at the apple.

Judge Newman presented a ten page dissent in which she argues that the Board decision amounted to improper “agenc[y] nullification of this court’s final decision” and violated principals of law of the case, litigation repose, estoppel and issue preclusion.  I am a huge fan of Judge Newman, and many of her arguments are (as usual) compelling.  But, there are a couple of points about her dissent that I don’t quite understand.  She argues that “[a] patent that has been adjudicated to be valid cannot be invalidated by administrative action, any more than a patent adjudicated to be invalid can be restored to life by administrative action.”  District courts to not find patents “valid,” however.  When a patent survives a validity challenge at the district court, the court is finding that the challenged claims are not invalid based on the evidence presented.  Finding a patent claim invalid in a subsequent agency action with a different party (the PTO), different evidentiary record, and different procedural standard does not seem at all inconsistent.   The other point causing me angst deals with issue preclusion and estoppel.  Even though the reexamination was initiated by Fresnius, it was an ex parte proceeding and the patent office, not Fresnius, was the party to the decision being appealed.  Since the patent office was not a party to the district court action, it is unclear why issue preclusion and estoppel should attach with respect to the patent office.