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CAFC: PTO Has Power to Reexamine Already Adjudicated Patents


Written by Scott M. Daniels
Westerman Hattori Daniels & Adrian, LLP
Author of the US PTO Litigation Blog
Posted: December 12, 2011 @ 4:02 pm

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The CAFC’s split panel decision this past week – In re Construction Equipment Company – extends the PTO’s authority to reexamine a patent even where its validity has already been adjudicated and confirmed by the courts.  Yet the CAFC once again fails to explain how a PTO reexamination finding that a patent is invalid effects an earlier judicial determination that the same patent is valid and infringed.

In re Swanson

The authority of the PTO to reexamine a patent that has previously been found to be valid by the courts was established by the CAFC’s 2008 decision, In re Swanson.  There, the patent owner sued for infringement.  A jury found that the patent was not infringed, but additionally found that the patent was not invalid over the so-called Duetsch reference.  The trial judge denied the various post-trial motions, confirming the jury’s verdict.  And the CAFC affirmed the trial judge’s judgment regarding validity, explicitly finding that “Deutsch” did not anticipate the patent claims.

Following the appeal, the accused infringer requested reexamination based on the Deutsch reference that had been before the examiner in the original prosecution.  The PTO found that the Deutsch reference had been considered in the original prosecution only as a secondary reference related to a single limitation, so that the assertion of Deutsch as an anticipatory reference in the reexamination request raised a substantial new question of patentability.  The PTO proceeded with the reexamination, ultimately determining that the patent claims were either anticipated by or obvious over Deutsch and canceling the patent claims.

The CAFC affirmed the PTO’s cancelation of the claims.  But since the patentee had waived any challenge to the rejection itself, the sole issue on appeal was “whether Deutsch raised a substantial new question of patentability.”  Judge Gajarsa (writing for himself and Judges Lourie and Bryson) agreed with the PTO’s decision to grant reexamination, specifically that the question of patentability raised in the request for reexamination had not been considered in the original prosecution.

The fact that both the trial court and the CAFC had already considered “the precise question at issue on reexamination [of] whether Deutsch anticipates” the claims, was irrelevant to the threshold reexamination requirement of substantial new question of patentability.  “The focus on previous examinations rather than prior litigation follows from the fact that ‘reexamination[s are] conducted according to procedures established for initial examination,’ 35 U.S.C. § 305, and PTO examination procedures have distinctly different standards, parties, purposes, and outcomes compared to civil litigation.”  Further, “the court’s judgment and the examiner’s rejection are not duplicative – they are differing proceedings with different evidentiary standards for validity.”  Judge Gajarsa then concluded from the ex parte reexamination statute and legislative history “that Congress did not intend a prior court judgment upholding the validity of a claim to prevent the PTO from finding a substantial new question of validity regarding an issue that has never been considered by the PTO.”

As to the Constitution, Judge Gajarsa stated that “there is no Article III issue created when a reexamination considers the same issue of validity as a prior district court proceeding.”

Left untouched in the Swanson decision was whether the cancelation of the claims in reexamination could be used by the accused infringer to attack the trial court’s final judgment.  Judge Gajarsa stated only that “an attempt to reopen a final federal court judgment of infringement on the basis of a reexamination finding of invalidity might raise constitutional problems.”  (Emphasis added).

In re Construction Equipment

The history of the Construction Equipment case is similar to that of Swanson.  In the original case, the patent was determined to be valid and infringed, and the trial judge issued an injunction against further infringement.  The judgment was then affirmed by the CAFC in 2000.  Reexamination was requested by the accused infringer and granted by the PTO.  The PTO subsequently found the claims to be invalid over the prior art and canceled the claims.  Finally, in the decision released on Friday, December 9, 2011, Judge Prost (joined by Judge O’Malley) affirmed the PTO’s cancelation of the claims.  Judge Prost’s majority opinion expressly affirmed the PTO’s authority to grant reexamination despite an earlier court decision affirming the patent’s validity.  Additionally, unlike the opinion in Swanson, the Construction Equipment opinion affirmed the PTO’s authority to reject claims in reexamination and then affirmed the rejection itself.

The majority opinion, however, was brief, and it was Judge Newman’s dissent that laid out the issues.  She called the majority opinion “curious” and the outcome “unconstitutional.”  Critically, for Judge Newman, the rejection of claims in reexamination after a favorable judgment in the courts constituted a reversal of that judgment.  Citing Supreme Court precedent dating back to 1792, she explained that the “plan of the Constitution places the judicial power in the courts, whose judgments are not thereafter subject to revision or rejection.  Neither the legislative nor the executive branch has the authority to revise judicial determinations.”  The court’s earlier decision affirming the validity of the patent is complete and “warrants the finality of the Judicial Power.”  To do otherwise would make the court’s judgment “merely advisory” and preliminary to the final decision of the PTO.

Judge Newman acknowledged Judge Gajarsa’s recitation of the differences between infringement actions in court and reexamination at the PTO, but “a lower standard of proof in an administrative agency cannot override the finality of judicial adjudication.”  She called the result of the majority a waste of “judicial and administrative resources.”  Moreover, the “adverse effect on the patent incentive, due to uncertainty as to the validity of a duly granted patent, is notorious, and permeates the hearing record of the recently enacted America Invents Act.” She acknowledged the laudatory purpose of the reexamination statute in offering a less expensive alternative to patent litigation, “but when the same issue has already been litigated and finally adjudicated, interested persons should be able to rely on the judicial decision.”

Touching briefly on the merits of the rejection itself, she called it a “hindsight combination” of art, “unaccompanied by any ‘articulation of a rational underpinning’ for combining the references” to obtain the claimed invention.

Judge Newman concludes by invoking the “fundamental principles” of the Constitution, judicial powers, legislative structure, and national innovation policies, to conclude that “reexamination in the PTO is not generally available after the issue of patentability has been litigated to a final judgment from which no appeal can be or has been taken.”  Other than that, Mrs. Lincoln, how do you enjoy the play?

The meat of the majority opinion, replying to Judge Newman, is in the two-page long footnote 3.  There, Judge Prost essentially relied upon Judge Gajarsa’s constitutional analysis in Swanson.  Since “the district court’s judgment was not that the patent was valid per se, but that the accused infringer had failed to carry his burden to prove it invalid,” there was not impermissible reversal of the trial court’s judgment.

Significantly, however, the majority opinion gives no guidance on the effect that the PTO’s cancelation of the claims might have on the trial court’s final judgment and injunction: “We express no opinion on whether [the accused infringer] might not be entitled to seek abrogation of the injunction.”  That statement is likely the correct comment on an issue that was not presented to an appellate court, but it does not help the parties now or in the future.

Further Thoughts

More questions are raised than settled.  If the accused infringer in Construction Equipment does proceed successfully to challenge the final judgment or the injunction, would such a challenge undermine the rationale in the opinions of Judge Gajarsa and Judge Prost – specifically, the premise that the grant of reexamination (Swanson) or the cancelation of claims in reexamination (Construction Equipment) does not negate the court’s judgment?  Yet, how could a court deny a challenge to the injunction after the PTO has determined that the patent on which the injunction is based is invalid?

Clearly, the best way for resolving the uncertainties that now abound regarding the effect of post-judgment reexaminations would have been resolved in the America Invents Act.  But that did not happen.  What did happen was a multiplication of post-grant procedures that is likely to replicate the dilemmas left unresolved in Construction Equipment.


About the Author

Scott M. Daniels is a partner in the Washington, DC law firm of Westerman Hattori Daniels & Adrian, LLP, and is the author of the firm's US PTO Litigation Blog. Daniels has 30 years of experience in patent litigation, particularly litigation at the U.S. International Trade Commission. He now leads the litigation and reexamination groups at WHDA. He is also a regular contributor to the PLI Patent Law Practice Center.

14 comments
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  1. . . . meaning then . . . that a patent which a court found to be anticipated and/or obvious by prior art . . . could through a post suit reexamination be found to be not be anticipated and/or obvious . . . over the exact same art.

    Then what?

    Judge Newman got another one right.

  2. Dear Scott:

    Maybe not. The court does not adjudicate validity, but invalidity. The question is whether an accused infringer has proven by clear and convincing evidence that a claim in invalid (under any of the statutory sections). So a reexamination over the same art using the PTO preponderance standard is not a reversal of the court’s decision – it’s a reversal of the outcome of that decision. Which is not the same as an unconstitutional act by an executive agency over the judiciary.

    The answer to the conundrum question is that the infringer who has lost at trial (infringed but not invalid) will need to satisfy the judgment until the PTO makes its decision. Should the Office find the patents invalid, the infringer can then go back to the court and get an injunction lifted. Not perfectly equitable, but not unconstitutional either.

  3. Kevin,

    I hear you. But the problem i have with both In re Construction Equipment and In re Swansoni is the very fact that you’re now letting the alleged infringer go over the same ground again, after an adjudication at trial. The PTO can call it a “new substantial question of patentability” but you’re still esentially going over the same ground again. The only thing that’s really changed is that standard for invalidity has changed: from clear and convincing at trial to preponderance of the evidence in the PTO reexam. Also, while the “clear and convincing standard” is based on how the presumption under 35 USC 282 is interpreted (as reaffirmed by SCOTUS in Microsoft v. i4i), the fact that someone can simply go to an agency and go over the same ground (again) based on a different standard seems to me to violate the principles underlying res judicata, collateral estoppel, etc.

    I also think this issue is so big and critical that it needs resolution by the Federal Circuit en banc. We’ve already got one Federal Circuit Judge (Newman) who has expressed concerns with these rulings. That suggests the entire Federal Circuit needs to consider the holdings in Swanson and Construction Equipment.

  4. I agree with you Eric. The CAFC, sitting en banc, needs to sort this out.

    Scott

  5. Eric:

    The problem is that the infringer has been sued by the patentee and raises invalidity as a defense in the district court case, but raises the reexamination in the context of an agency decision (to grant an allegedly invalid patent). Patenting could be exclusively ex parte, but the concept that a patent is “affected by a public interest” gives the public the right to raise the invalidity challenge. And one’s status as an accused or even adjudged infringer does not strip that right from the infringer at the agency level – although it is likely that the agency will understand the “skin in the game” that the infringer has.

    One could just as easily make the equitable argument that an “innocent” infringer was adjudged to infringe and prevented from using invalidity as a shield due to the heavier presumption at trial (which presumption inures to the patentees benefit, as well as the public’s insofar as it prevents frivolous challenges and injudicious use of judicial resources). The agency route provides a way for such an “innocent” infringer to have the agency having the requisite expertise review its decision to grant the patent. After all, the only way the infringer benefits is to have claims come out of the Office with a scope that does not support an infringement judgment, and even then the patentee does not have to remit whatever damages s/he has collected. All such an outcome would do is provide a basis for lifting a permanent injunction and cancelling royalty payments. But the Supreme Court has already said that public policy favors challenging patents, even by licensees (MedImmune). Accordingly, shouldn’t an accused infringer have at least as much right to make such a patent challenge before the agency charged with granting patents in the first place?

    But as always fun to discuss. Don’t hold your breath for an en banc CAFC panel on this issue.

  6. Kevin,

    I hear you again. I can’t disagree with you comment that SCOTUS favors a public policy allowing patents to be challenged, or that SCOTUS has droned on about patents being “affected by a public interest.” That’s because the Justices of SCOTUS (unfortunately in my view) have a strong “anti-trust” bias that goes back the 20’s, 30’s and 40’s. Much of that anti-trust bias is driven by cases, like Hartford-Empire, which involved patents being used to foster serious (and illegal) horizontal conspiracies amongst competitors. Those days are, for the most part, long gone, but the unfortunate bias lingers.

    I also would view this situation differently if the alleged infringer had asked for reexam during the court proceeding, but the judge stayed the reexam in favor of the trial. In that case, the accused infringer did what they could to get the validity of the patent claims at issue before the PTO in reexam, but the judge decided not to give them the opportunity. But to allow the accused infringer to be able to simply file for reexam AFTER a trial on the merits is completed (which is what happened in Construction Equipment) on the basically the same validty issue just makes me ill from the standpoint of violating the principles of res judicata, issue preclusion, and collateral estoppel. In that regard, I’m in Judge Newman’s camp, so we may have to agree to disagree. But that’s OK too, and yes, it’s fun to discuss anyway. And I won’t hold my breath for an en banc Federal Circuit ruling

  7. The reexamination of a patent and its claims is placing the power of an executive agency (PTO) above the judicial system and hence unconstitutional (paraphrasing Judge Newman). The invalidity defense by an accused infringer should be allowed only in the court, and that defense should include reexamination of validity based on prior art, anticipation, obviousness, and fraud. Such a defense must raise all possible challenges that include those examined and those missed by the PTO in its original prosecution. As an executive agency, the PTO has the power to grant patents, but once patents are granted, the PTO should not have the judicial power to reexamine said patents and claims.

    Since this raises constitutional issues, it should be resolved by the supreme court, or by new laws written by Congress.

  8. Of course, all administrative agencies perform a judicial function (just not under Article III). As do other Executive Departments (like the military). The argument here is one of timing, that once an Article III court has ruled that is the end of it. But of course Congress can overrule even the Supreme Court (as can the people, by amending the Constitution) so nothing is absolute.

    I don’t see the issue Judge Newman sees. But I admit that her views did give me pause.

  9. Kevin,

    This whole discussion reminds me of the “sick chick” case (Schlecter Poultry) we reviewed in constitutional law about the constitutional authority of federal agencies to govern. Much of the water in this area of law is under the bridge/over the dam. But if nothing else, may be Newman’s dissent should “reawaken” where we’ve gone with the authority of agencies to rule. That Newman’s views at least gave you “pause” isn’t necessarily bad. Peace.

  10. I think we need to be reminded that the “clear and convincing evidence” burden that attaches in court but not in the PTO applies to findings of fact, not to the conclusions of law that are to be drawn from them. If I’m not mistaken, this case involved two obviousness-attacks based on the same asserted underlying facts – one in court, where the judge declined to make a legal determination of obviousness, and one subsequently in the PTO, where the Office determined obviousness on the same facts. The ultimate conclusion of obviousness is one of law. If the “factual predicates” (the underlying references) were the same in both proceedings, then the different outcome in both proceedings really comes down to different conclusions of law. In those instances, the court should trump.
    Put it differently – assume this case were about a pure question of law, say enablement or 101 patent-eligibility, and the claim construction were the same. Would you still say the PTO is free to reach a different conclusion from the district court?

  11. Fair enough, Moo. But how about this:

    District court in bench trial finds defendants did not bear their invalidity burden on “question of law” issue, and CAFC affirms. PTO finds on same factual basis that the claims are invalid, and patentee appeals to CAFC. Is your position that the CAFC is bound to overturn the PTO based on its own prior precedent?

  12. Kevin:

    The problem is the administrative agency (USPTO) is “used” by accused infringers to have multiple bites through re-exam after the court (CAFC) has adjudicated on invalidity against them. If the issue (or fact) is the same, then the different standards (clear and convincing vs preponderance) may lead to different results, but “clear and convincing” should trump “preponderance”. When the issues are not the same, as when a new issue is raised during re-exam requests, then the question is should the court remand the case for a retrial on invalidity based on the new issue using clear and convincing standard, or should the court accept the USPTO (or BPAI if appealed) decision based on the preponderance standard? Given the rules of the courts, it should be the former, and if the so called “new issue” was not raised during trials when it should have been, the accused infringer has waived it. At the very least the court need not be bound by the USPTO decision, and the outcome may confirm or dismiss USPTO’s decision since a different (higher) standard for invalidity is required.

    But it is the difference in standard, and the multiple venues, that create this inefficiency in the judicial system. Congress should remove these inefficiencies, which is one reason that patent infringement cases drag on for years even when the infringement issues are long resolved.

  13. While I agree Congress could (and maybe should) give trial verdicts preclusive effects in reexams, I don’t see any political will to do anything that will strengthen patents. Almost 15 years of academic and industry whining about “bad” patents has seen to that. So now we are stuck with a presumption that a patent should be open to as many challenges as possible. Perhaps judicial explication of the scope of estoppel regarding post-grant review will help, but I don’t see any avenue to stop the behavior complained of here (and the constitutional argument is not convincing in my view)

  14. Kevin:
    you have a point. Indeed, earlier versions of the new AIA opposition-type proceedings included provisions that would have applied estoppel in the PTO proceeding based on earlier final validity adjudicacations in district court. Just like at section 317 of the current inter partes reexamination statute. Unfortunately, those provisions were whittled away during AIA negotiations this Congress. In fact, I think it’s very noteworthy that Congress abandoned the estoppel that flows from district court to the PTO’s IPR (i.e. there’s no provision like today’s Section 317(b), but chose to preserve the estoppel that flows from the PTO’s IPR to district court (i.e. Congress kept essentially today’s 315(c) estoppel). This differential treatment, depending on the direction of the estoppel, keeping one and striking the other from current law, could be used for some kind of Congressional intent argument.
    Anyway, the effect under the AIA is that any defendant in district court will be free to go to the PTO for a second bite at the apple in inter partes review, re-hashing their losing argument under a lower standard of proof. They must do so, however, within 1 year – or get someone else to bring the challenge in their stead.
    And if they are lucky, the district court judge left some kind of verbiage about a “close case” somewhere in the record – that would be good fodder for an argument that the PTO review petition has a “reasonable likelihood of prevailing” under the PTO’s lower standard of proof. Great. And if the PTO gets used to its newfangled power to “correct” district court adjudications with which it disagrees, then we all have something interesting to look forward to.