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.  

The Supreme Court's Decision in Microsoft v. i4i - No Change

In Microsoft Corp. v. i4i, 10-200, the Supreme Court considered the issue of the appropriate standard of proof that is applicable when a party seeks to invalidate a patent.  The Federal Circuit has consistently held that the presumption of validity imposed a clear and convincing evidence standard.  Moreover, this standard applied even when the prior art relied upon by the defendant was not previously considered by the patent office.  Microsoft argued that the preponderance of evidence standard should apply to invalidity defenses, at least in those cases where a defendant presented evidence that was not considered by the patent office.  The Supreme Court rejected this argument and has unequivically held that the clear and convincing standard applies to assertions of patent invalidity.  In short, the decision can be summed up in two words - No Change.  

And that concludes the patent law Supreme Court Watch for this term.

Some Things To Watch For In 2011

With 2010 winding down, it’s a good time to look ahead a bit and see what 2011 may have in store for us folks practicing IP law.




False Marking Cases



In 2010, we saw the surging tide of false marking cases. This cause of action, that was asserted less than a dozen or so times leading up to 2010, was the basis for over 600 cases filed during the year. What could 2011 bring?  Probably, more of the same, but some potential changes may help:



• In In re BP Lubricants USA Inc., BP Lubricants filed a petition for a writ of mandamus to the Federal Circuit seeking to overturn the denial of its motion to dismiss the complaint for failing to sufficiently plead intent. The complaint had allegations that many of us are all too familiar with now, including vague allegations that “’upon information and belief,’ that defendant is a ‘sophisticated company’ which ‘knows, or should know’ that the patent at issue had expired.” (DOJ Brief In Support of Petition at 4.). In a somewhat surprising move, the Department of Justice (“DOJ”) filed an amicus brief in support of BP’s petition. The DOJ's brief urges the Federal Circuit to hold that the intent element of a false marking action needs to satisfy the heightened pleading requirement of Fed. R. Civ. P. 9(b) and that under this standard, the complaint in the BP case is insufficient as a matter of law.



The BP case squarely presents the question of the requirements for pleading a false marking case. If the Federal Circuit adopts the position urged by BP and the DOJ, in 2011 defendants will have valuable precedent to use in seeking early dismissal of a large number of the false marking “troll” cases that are supported by nothing more than bland, generic allegations of what a company “should know” about its expired patents.



• In 2010, several legislative proposals were made that would have effectively ended the majority of false marking cases. These proposals were lumped in with patent reform legislation which stalled in Congress. Will 2011 include a legislative solution to the false marking problem?



Patent Reform Legislation

• In 2010 (as in many years prior), it looked like progress was being made on patent reform legislation and there was some momentum in Congress for a patent reform bill. During IPO’s annual meeting in September, one Congressional staffer even suggested that a vote on the pending bills was possible in 2010. That didn’t happen. Will 2011 be the year that patent reform legislation finally makes it through Congress?



The Supreme Court

• As noted in an earlier post, the Supreme Court has taken up three patent cases for its current term. Clearly, the most significant of these cases is Microsoft v. i4i which has the potential to fundamentally alter patent litigation by changing the standard of proof required to establish patent invalidity. A change from the “clear and convincing” standard to the “preponderance of the evidence” standard would greatly impact all phases of patent litigation, from pre-filing due diligence through trial and appeal. This is clearly poised to be the most significant event in patent law in 2011! Then again, many thought that Bilsky had that same potential, and looking back now, we know that didn’t happen.  Only time will tell.



The stage is set for 2011 to be an interesting year for patent law.

I hope that everyone has a very Happy New Year and that 2011 brings excitement, fun and prosperity to all!

The Supreme Court is Set to Significantly Re-Shape Patent Rights and Litigation

The Court Agrees to Hear Three Patent Cases in 2011

The Supreme Court has agreed to hear three patent cases in its upcoming term. The first case touches upon the standard for establishing intent in the context of inducement of infringement. In October, the Supreme Court granted certiorari in Global-Tech Appliances Inc. v. SEB S.A. on the question of “whether the legal standard for the ‘state of mind’ element of a claim for actively inducing infringement under 35 U.S.C. 271(b) is ‘deliberate indifference of a known risk’ that an infringement may occur or instead ‘purposeful, culpable expression and conduct’ to encourage an infringement.” The difference in these standards, essentially the difference between “known” and “should have known,” will significantly effect the way that businesses deal with third party patents from the point of conducting clearance searches and obtaining opinions all the way through trial.


The second case on the Supreme Court docket is Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems. In this case, the Supreme Court will consider ownership rights to inventions that were made with government funding under the Bayh-Dole Act. Although this case addresses a fairly narrow question, it could prove to be a significant case to universities and research institutions which rely heavily on federal research grants to sponsor wide ranging research projects which are the source of many inventions.


The third case, Microsoft v. i4i Ltd. 10-290, could prove to have a fundamental impact on every patent case, as it deals with the core issue of the burden of proof for establishing invalidity of a patent claim.


On November 29, 2010, the Supreme Court granted Microsoft’s petition for a writ of certiorari on the question “did the court of appeals [for the Federal Circuit] err in holding that Microsoft’s invalidity defense must be proved by clear and convincing evidence?”  As noted in a previous posting, Microsoft's petition was supported by numerous amici.

 At trial, Microsoft’s invalidity defense was based on a lack of novelty due to a prior sale of the patentee’s own earlier software. This prior art was not before the patent office during examination and was not considered by the patent examiner. Despite the fact the patent office never had the opportunity to consider this prior art, the patent benefited from the “presumption of validity” and the district court (bound by Federal Circuit precedent) rejected Microsoft’s request for a jury instruction seeking to prove invalidity only by a “preponderance of the evidence." The Federal Circuit affirmed, setting the stage for Microsoft's petition.

The Microsoft case has the potential to significantly change the nature of patent litigation and level the playing field between plaintiffs and defendants. If the Supreme Court reduces the burden of proof for proving invalidity on issues that were not before the patent examiner to a preponderance of evidence, defendants will face a far less daunting task in establishing a successful invalidity defense. Considering the less stringent standard for establishing obviousness under the Supreme Court’s holding in KSR, lowering the burden of proof required to establish an invalidity defense would certainly reduce perceived strength of every issued patent.

Microsoft, and a Large Group of Powerful "Friends," Ask The Supreme Court to Eliminate the Clear and Convincing Evidence Standard for Patent Invalidity

In Microsoft Corp. v. i4i, U.S., No. 10-290, Microsoft is seeking certiorari on the question of whether the "clear and convincing" standard is appropriate in challenging patent validity in civil litigation. For most issues in civil litigation, such as the question of patent infringement, the party asserting the claim only needs to meet the lower “preponderance” standard. The question then, is why should patent validity be treated differently between private litigants, and should this always be the case?  For example, if the presumption of administrative correctness and deference to the USPTO are the justifications for the heightened evidentiary standard, why should the heightened standard apply when the prior art used to challenge a patent’s validity was not considered by the examiner during prosecution? These and other questions are being addressed by a powerful collection of amici that have submitted eleven briefs supporting Microsoft’s bid for high court review of this fundamental question of patent law.


As reported by BNA, the list of amici and their counsel include:

• 36 law, business, and economics professors, filed by Mark A. Lemley of the Stanford Law School;

• Acushnet Co., General Motors LLC, Pregis Corp., and SAP America Inc., by James W. Dabney and John F. Duffy of Fried, Frank, Harris, Shriver & Jacobson, Washington, D.C.;

• Apple Inc., by Deanne E. Maynard of Morrison & Foerster, Washington, D.C.;

• CTIA—The Wireless Association, by Michael K. Kellogg of Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington, D.C.;

• Electronic Frontier Foundation, Public Knowledge, the Computer & Communications Industry Association, and the Apache Software Foundation, by Michael Barclay of the EFF, San Francisco;

• Facebook Inc., Intuit Inc., Netflix Inc., Newegg Inc., Toyota Motor Corp., and Trimble Navigation Ltd., by John D. Vandenberg of Klarquist Sparkman, Portland, Ore.;

• Google Inc., Verizon Communications Inc., Dell Computer Corp., Hewlett-Packard Co., HTC Corp., and Wal-Mart Stores Inc., by Paul D. Clement of King & Spaulding, Washington, D.C.;

• Intel Corp., by Dan L. Bagatell of Perkins Coie Brown & Bain, Phoenix;

• The Securities Industry and Financial Markets Association and the Clearing House Association, by John A. Squires of Chadbourne & Parke, New York;

• Teva Pharmaceuticals USA Inc., the Generic Pharmaceutical Association, and Cisco Systems, by Henry C. Dinger of Goodwin Procter, Boston; and

• Yahoo! Inc., by William C. Rooklidge of the Howrey law firm in Irvine, Calif.


This is clearly an issue that is worthy of attention as the outcome could represent a fundamental change in patent law.  i4i’s responsive brief is due on October 29, 2010, and a second wave of amicus briefs in support of the clear and convincing standard will likely follow.