post-grant proceedings and pending litigation:...

Post-Grant Proceedings and Pending Litigation:

Impact of Fresenius v. Baxter Leveraging PTO Decisions to Nullify or Support Infringement Judgments and Damages

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WEDNESDAY, SEPTEMBER 11, 2013

Presenting a live 90-minute webinar with interactive Q&A

Michael L. Kiklis, Partner, Oblon Spivak McClelland Maier & Neustadt, Alexandria, Va.

Scott A. McKeown, Partner, Oblon Spivak McClelland Maier & Neustadt, Alexandria, Va.

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© Copyright 2013 Oblon, Spivak, McClelland, Maier & Neustadt L.L.P.

Post Grant Patent Practice:

Litigation Alternatives & Collateral

Attacks

Scott McKeown

1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 5

Post Grant History

1980s ex parte reexam

Slow, unpredictable

One sided, Favorable to patentees

1999 AIPA

Inter Partes

USPTO – CRU

Portola Packaging

Trolls

2012 AIA

IPR, PGR, CBM

1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 5 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 5


Fresenius v. Baxter

Concurrent ex parte reexam with litigation

Verdict not invalid….appeal to CAFC on 103

(Fresenius I 2009)

Remand on damages…damages determined, execution

stayed pending appeal (Fresenius II)

USPTO CAFC Appeal - Reexam appeal adverse to

patentability affirmed (2012) 2003 litigation…2006 reexam filing…6 year duration

USPTO cancels claims

Fresenius II

District court not final enough



Fresenius Game Changer or

Hype?

Ex Parte (no estoppel)

Translogic v. Hitachi (2007)

Jury verdict overturned..unconstitutional?

BPAI judges not appointed?

Cert denied

In re Construction Equipment (2011)

Injunction?

Fresenius (2013)

SAP v. Versata (2014)

IPR and CBM to multiply fact patterns?



Fresenius En Banc?...Unlikely

Reexam Era Closes

Now IPR, CBM,

PGR



PTAB will win the Race

Speed!

CBM

IPR…ITC, rocket dockets


0

10

20

30

40

50

60

70

80

90

Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

IPR and CBM Filings



USPTO Third Party Mechanisms

Legislative Solutions (AIA)

Patent Trial & Appeal Board (PTAB)

Inter Partes Review (IPR)

Post Grant Review (PGR)

Transitional Business Method (CBM)

Other Options

Patent Reexamination (ex parte)

Least attractive



What Advantages Does the

USPTO Offer Patent Challengers?

Vastly Improve Chances of Success

BRI (broadest reasonable interpretation)

No Presumption of Validity (Patentability)

Technical Audience

Preponderance of evidence (51%)

Clear & Convincing 80%+ (Courts/ITC)

Claim Construction within 4-6 months (PTAB)

Obtain settlement leverage faster…disrupt war chest

Courts..Markman/SJ...take years

11 1940 Duke Street, Alexandria, VA 22314, 703.413.3000, Fax 703.413.2220, www.oblon.com 11


What Advantages Does the

USPTO Offer Patent Challengers?

Much Lower Cost

Patent litigation $3-5 million to trial (avg.)

IPR (100s of $K) (CBM, PGR, higher)

Reexam (10s of $K) (request)

Troll Model Unsuited for USPTO

No Significant Discovery Burden (PTAB)

SPEED Changes Everything!!

Technical Judges (no examiners)

Competitor Policing (reexam)



What Risks Does the USPTO

Pose to Patent Challengers?

Estoppel (PTAB)

But is it really a concern?

Not all defenses at risk…reasonably raised?

Average Texas juror vs. PTAB Judge?

“New” Procedure…not really

Estoppel (Reexam)

Practical estoppel…stronger patent, more claims

Anonymity at a price

Mishandled third party submissions

Undermine later defenses and options



Strategic Post Grant Options

Choosing a USPTO Post Grant

Option That Suits Your Needs



Post Grant Choice: Patent

Reexamination

Patent Reexamination or PTAB Proceeding?

Why use Ex Parte Patent Reexamination?

One sided….favorable Patentee statistics

Slow, but improving…$12k filing fee

Amendment opportunity/interviews

Marginal change can be effective (no search)

Decreasing importance at USPTO

Popular products ….secondary considerations?

Patent examiners are not created equal

Filing rate has dropped significantly in 2013…why?

Benefits?



Post Grant Choice:

Reexamination

Patent Reexamination or PTAB Proceeding?

Why use Ex Parte Patent Reexamination?

ANONYMITY

Strong art (102, multiple grounds)

Easy to understand technology

Short claim using plain language

Interface, Menu system, design patent, etc

Proactive…Portfolio diligence

-Not recommended for litigation disputes

-Complex technology

-Legal Challenges (priority, complex 103)

Has a place, but more for systematic policing



Post Grant Choice: Inter Partes

Review (IPR)

Why use Inter Partes Review? Contested….favorable Challenger statistics: 89% success

No anonymity (estoppel)

Primarily alternative to litigation

Fast…$23k fee (3/19/13 9k…14K)

New in name, but old in function

Patents and printed pubs only

Most popular USPTO proceeding for combating trolls, uses:

Stays

Claim construction

Portfolio attack

Must be completed within 12 months



Post Grant Choice: Inter Partes

Review (IPR)

Why use Inter Partes Review?

PTAB Trial Section: Litigation, Interference and

Industry Experience (law clerks, litigators)

3 Judges per case (no examiners)

160 proceedings in 6 months

50 CBMs ~400 IPRs

IBM, Oracle, Motorola, RIM, SAP, Apple, Samsung

50+% of filings target trolls

Courts staying cases in recognition of differences with

patent reexamination (speed, quality)



Post Grant Choice: Post Grant

Review (PGR)

Why use Post Grant Review?

Future consideration, not yet available (2015)

Primary benefit is expanded scope 101, 112, etc

More of interest to Bio/Pharma

Significant estoppel!!

Threshold standard different, but not really

Limited Window

Not expected to be popular.

Congress addressing



Post Grant Choice: Covered

Business Method (CBM)

Why use CBM?

Special standing requirements

Limited to business methods/ecommerce

Exclude technological inventions

Must have been sued or charged with infringement

Strong stay provisions…deadly even

interlocutory

No significant estoppel

No litigation timing concerns


PTAB Timeline

8/17/2013

Petitioner Reply

2/17/2013 - 2/17/2014

Post Grant PTAB Proceedings

(17-23 Months)

9/17/2012 8/17/20141/1/2013 1/1/2014

2/17/2013

Order/Sched.

3/17/2013

Conference Call

Discuss Scheduling,

Protective Order &

Motions

PO Discovery

2/17/2013 - 6/17/2013

6/17/2013 - 8/17/2013

Petitioner Discovery

Oblon Spivak

Patentspostgrant.com

© Copyright 2012

9/17/2013

PO Reply

2/17/2014 - 8/17/2014

Director Extension?

9/17/2012 - 2/17/2013

Front End ~ 5 Months

6/17/2013

PO Response/Amend 2/17/2014

Written Decision?

-Beware Substantial

Evidence Standard-

10/26/2013

Settlement/Request for Hearing

--motions to exclude, observations, etc--

12/12/2013

Oral Hearing

8/17/2013 - 9/17/2013

PO Discovery

12/17/2012

PO Resp?

10/19/2012

Mandatory Disclosures



PTAB Timing Controls

IPR/PGR

Defendant 1 year litigation bar (IPR)

Triggered upon service of complaint

Includes privies

Earlier suits dismissed w/o prejudice do not prevent

IPR (MacAuto IPR)

DJ control (invalidity) (IPR/PGR)

Lose USPTO option thereafter

Can file later for strategic reasons

DJ on non-infringement

TPCBMP no litigation controls



Jury vs. PTAB Judge?

Conclusions

The patent litigation landscape has changed in the U.S.

Small trolls cases are no longer viable investments especially for

e-commerce/business methods.

Speed of PTAB has yet to be experienced by many courts, this will

change soon

Speed will outpace most litigation schedules

USPTO filings are no longer a litigation tool, but an alternative

Courts are likely to grant stays much more liberally once the PTAB

establishes a track record

But what happens in cases that are a race, what have we learned

from Fresenius et al?



Thank You

Scott A. McKeown

[email protected]


mailto:[email protected]

Post-Grant Proceedings and

Pending Litigation: Impact of

Fresenius v. Baxter

September 11, 2013

Michael L. Kiklis [email protected]

© Copyright 2013 Oblon, Spivak, McClelland, Maier & Neustadt L.L.P.


Agenda

Background

Res Judicata/Collateral Estoppel

Prior Fed Cir decisions

Fresenius v. Baxter (Fed. Cir. July 2, 2013)

Best practices

Res Judicata/Collateral Estoppel

The Restatement of the Law, Judgments 2d.

§ 17. Effects of Former Adjudication–General Rules

A valid and final personal judgment is conclusive between the parties,

except on appeal or other direct review, to the following extent:

1. If the judgment is in favor of the plaintiff, the claim is extinguished

and merged in the judgment (see § 18);

2. If the judgment is in favor of the defendant, the claim is extinguished

and the judgment bars a subsequent action on that claim (see § 19);

3. A judgment in favor of either the plaintiff or the defendant is

conclusive, in a subsequent action between them on the same or a

different claim, with respect to any issue actually litigated and

determined if its determination was essential to that judgment

(see § 27).


Res Judicata

“Under res judicata, a final judgment on the merits of an action

precludes the parties or their privies from relitigating issues that

were or could have been raised in that action.” San Remo Hotel,

L.P. v. City & Cnty. of S.F., 545 U.S. 323, 336 n.16 (2005)

(emphasis added).

A judgment otherwise final for purposes of the law of res judicata is

not deprived of such finality by the fact that time still permits

commencement of proceedings in the trial court to set aside the

judgment and grant a new trial or the like; nor does the fact that a

party has made such a motion render the judgment nonfinal.

Restatement §13, comment f.


Collateral Estoppel

Restatement § 27. Issue Preclusion–General Rule

When an issue of fact or law is actually litigated and determined by a

valid and final judgment, and the determination is essential to the

judgment, the determination is conclusive in a subsequent action

between the parties, whether on the same or a different claim.

Four factor test:

(1) The issue is identical to one decided in the first action;

(2) The issue was actually litigated in the first action;

(3) Resolution of the issue was essential to a final judgment in the first

action; and

(4) Plaintiff had a full and fair opportunity to litigate the issue in the first

action. In re Freeman, 30 F.3d 1459, 1465 (Fed.Cir. 1994).


Collateral Estoppel (cont’d)

Restatement § 28(4): an exception for when a “party against whom

preclusion is sought had a significantly heavier burden of persuasion

. . . in the initial action than in the subsequent action. . . .”

The Federal Circuit has refused to apply issue preclusion to PTO

prior art validity challenges, citing the different burden of proof and

different claim construction standard. In re Swanson, 540 F.3d 1368,

1377 (Fed. Cir. 2008); see also In re Construction Equip. Co., 665

F.3d 1254, 1256 n.3 (Fed. Cir. 2011); In re Baxter Int’l, Inc. 678 F.3d

1357, 1365 (Fed. Cir. 2012).

The Federal Circuit has refused to bind the Board to a district court’s

Markman order because the PTO was not a party at the district

court. In re Trans Texas Holdings Corp., 498 F.3d 1290, 1296-98

(Fed. Cir. 2007).


Mendenhall v. Barber-Green (Fed Cir. 1994)


Facts:

Mendenhall asserts patent against Cedarapids and Astec in

separate suits

Astec litigation found patent not invalid, but Fed. Cir.

remanded for damages determination

While Astec pending on remand, asserted patent ruled invalid

in Cedarapids litigation

Invalidity affirmed by Fed. Cir. on appeal in Cedarapids while

damages still pending before Astec district court

Mendenhall v. Barber-Green (Cont’d)


Held: Cedarapids decision barred Mendenhall from

recovering for infringement in the Astec litigation

Invalidity of the patents was a defense that subsequently

arose and that Astec could properly assert

Because there was no final judgment in Astec litigation, court

was not barred from applying the Cedarapids judgment to the

Astec case

Cedarapids judgment was “intervening controlling authority”

giving Astec an “overriding defense.”

Fresenius Majority: “virtually identical” to Mendenhall

Translogic Tech v. Hitachi, et al. (Fed. Cir. 2007)

Infringement judgment against defendants

Damages and permanent injunction

While litigation on appeal, same panel

affirmed obviousness of the patent via

PTO reexamination.

Fed Cir vacates the District Court’s

decision and remands case for dismissal


In re Baxter (Fed. Cir. 2012)

Appeal from reexamination

Fed. Cir. had already affirmed district court

JMOL of not invalid because Fresenius

had failed to present sufficient evidence

Board decision discussed the Fed Cir’s

decision: "[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."


In re Baxter (cont’d)

Fed Cir justified different outcomes:

burden of proof and Examiner used

additional references “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 re Baxter (cont’d)

Newman’s dissent: “No authority, no theory, no law or history, permits administrative

nullification of a final judicial decision.”

“The reexamination of Baxter's patent claims 26-29 and 31 was

based solely on the same references on which Fresenius relied in

the litigation.”

“My colleagues justify the PTO's authority to overrule judicial

decisions on the argument that the standard of proof is different in

the PTO than in the courts. That theory is flawed, for obviousness is

a question of law, and the PTO, like the court, is required to reach

the correct conclusion on correct law.”


Fresenius USA, Inc. v.

Baxter Int’l, Inc. Majority: Judges Dyk & Prost

Dissent: Judge Newman


Fresenius USA v. Baxter No. 2011-1334, -1335 (Fed. Cir. July 2, 2013)

Technology: ‘434 patent directed to a hemodialysis

machine with an integrated touch screen interface

Brief Chronology:

Fresenius brings DJ suit against ‘434 patent

Judgment against Fresenius – ‘434 not invalid and

infringed

While litigation pending, reexamination determined that all

asserted claims invalid

Post-judgment damages remain pending

Fresenius argues that Baxter no longer has cause of

action


Fresenius USA v. Baxter (cont’d)

Issue: Whether cancellation of claims

during reexamination proceeding by the

PTO must be given effect in litigation

where merits issues finally decided, but

some damages issues remain on appeal


Timeline


Statutory Backdrop


Majority decision begins with a review of PTO

reissue authority

Pre-1928: grant of reissue extinguished all causes of

action under original patent (Moffitt v. Garr, 66 U.S.

273 (1861))

1928 Amendment: If reissue claims are substantially

identical, suit for infringement of original claims may

stand

Patentee could recover for past infringement of claims

“identical” to those in the original patent

Statutory Backdrop (cont’d)


Reexamination statute modeled from Reissue

Suit for past infringement only allowable for claims that

survive reexamination in “identical” form

General Rules:

Cancelation of claims = claims void ab initio

Patentee loses any cause of action based on

canceled claims, pending litigations moot

Similarly, cancelation of claims cannot be used

to reopen final damages judgment

Baxter’s Argument on Appeal


District Court’s 2007 judgment is “final” and “binding”

between the parties and, therefore, has res judicata

effect within the pending litigation

Fed. Cir.:

“It is important here to distinguish between different concepts of

finality…. We are … not dealing with finality for purposes of

determining the potential res judicata effect of this infringement

litigation on another suit. We are concerned instead with

whether the judgment in this infringement case is sufficiently final

so that it is immune to the effect of the final judgment in the PTO

proceedings.”

Majority Decision (cont’d)


Held: 2007 judgment may have been given preclusive

effect in another infringement case between parties,

but it was not sufficiently final to preclude application of

the intervening final judgment in reexam

2007 judgment did not “end[] the litigation on the merits and

leave[] nothing for the court to do but execute the judgment.”

Quoting Mendenhall v. Barber-Green Co., 26 F.3d 1573, 1580 (Fed. Cir.

1994).

Where the scope of relief remains to be determined, there is

no final judgment binding the parties (or the court)

Even if liability already established



Fed. Cir. rejected Baxter’s argument that allowing a

PTO determination to control the outcome of pending

litigation offends separation of powers, citing Plaut v.

Spendthrift Farm, Inc., 514 U.S. 211 (1995)

Plaut should not be read to impose restrictions on reopening

cases before there is a final judgment ending the case

Similarly, Plaut recognized that “when a new law makes clear

that it is retroactive, an appellate court must still apply that law

in reviewing judgments still on appeal that were rendered

before the law was enacted, and must alter the outcome

accordingly.”



Summary:

If damages issues remain pending, a district court’s

finding that an asserted patent is “not invalid” is

subject to “reversal” via reexamination

In other words, without a final (non-appealable)

judgment, a reexamination finding of invalidity can

erase a prior damages award

Finality means that there is nothing for the court left to do

but execute the judgment

Newman Dissent


Majority ruling is an unconstitutional violation of

separation of powers

“My colleagues hold that the prior adjudication by this

court of validity and infringement is irrelevant, and that the

later decision by the PTO overrides and displaces our

prior adjudication, depriving the parties to that

adjudication of their binding judgments.”

“Reexamination is an alternative to litigation, not a

dominating sequel to litigation.” Intention to override Art. III courts would have been mentioned in the

legislative process

Newman Dissent (cont’d)


Adjudication of the validity of the patent was final

between the parties

Prior judicial determination of validity cannot be annulled

by a coequal government branch

“The judgment of validity is binding not only on the

courts and the parties, but also on the PTO.”

Cases cited by the majority addressing “finality”

relate solely to court-to-court relationships

Irrelevant to whether the PTO can override or ignore prior

judicial decision on same question



Remand related only to post-judgment royalties &

had no relation to any issues in the reexamination

Once issue finally decided cannot be reopened

although other issues remain

Judge Newman cites cases from each circuit standing for

the proposition that preclusion and estoppel apply to

issues finally decided in full and fair litigation

Mendenhall inapposite:

Decision does not bar issue preclusion nor relieves PTO

of its obligation to separation of powers principles



Majority’s analogy to reissue patents a “needless

distraction:” Reexamination cannot negate res judicata effect

“Claims that emerge from reexamination do not create a new cause of

action that did not exist before. We therefore reject Aspex’s argument

that the issuance of [amended or new claims] had the effect of

negating the res judicata effect of the prior litigation [of the original

claims].” Aspex Eyewear, 672F.3d 1335, 1341-42 (Fed. Cir. 2012)

Accordingly, reissue statute does not authorize the PTO to

review, override, or deny full faith and credit to prior judicial

rulings

Versata Software v. SAP America 106 USPQ2d 1649 (Fed. Cir. 2013)

Technology: computerized pricing engines

Versata’s “Pricer” won 35% of bids pre SAP

Pricer sales went to zero after SAP entered market

At trial: Versata awarded

$260 million lost profits

$85 million reasonable royalties

Decision affirmed by CAFC in May 2013

CBM:

Prior to CAFC litigation decision, SAP sought

Covered Business Method Patent Review


Versata Software v. SAP America (cont’d)

Jan 2013: PTAB rejects Versata’s preclusion/estoppel

arguments

“As the final judgment in the related Versata v. SAP litigation

is currently on appeal to the Federal Circuit, we hold that the

district court’s judgment is not sufficiently firm to be accorded

conclusive effect for purposes of 37 C.F.R. 42.302 as it is still

subject to reversal or amendment.”

May 2013: CAFC affirms litigation holding. Remand to

consider scope of injunction

June 2013: PTAB finds asserted claims invalid under

101 as “disembodied concept”


Best Practices

Take advantage of PTO post-grant proceedings

in parallel to litigation

Comparatively easier invalidity burden

Crystalize issues, e.g., claim construction, for the

litigation

File PTO proceedings as soon as possible

Increases likelihood that PTO proceeding will finish

before court proceeding

Increases likelihood of a district court stay


Stay Tuned

This issue is ripe for Fed Cir en banc review

and Supreme Court Review


post-grant proceedings and pending litigation:...

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