Discomfort Grows as Patent Reexamination Once Again Trumps Court Decision

Robert M. Asher

By Robert Asher. Co-chair of the Patent Practice Group

June 2012 IP Update

In the latest in a line of such cases, the Federal Circuit has affirmed a decision of an administrative agency, the Board of Patent Appeals and Interferences (“the Board”),that rejected certain patent claims even though they had been previously upheld by a final decision of the courts.

Indeed, the Federal Circuit had itself approved the claims a couple of years earlier on appeal. Now, with In re Baxter Int’l, Inc., the court has endorsed a later, opposite Board decision that the claims are unpatentable. Baxter Int’l raises constitutional questions about the power of an administrative board to negate a final court decision.

The Federal Circuit evinces some discomfort with having the Board apparently usurp judicial authority.  In Baxter Int’l, Judge Lourie writes: “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.”

Circumstances in the Baxter reexamination were presumably not conducive to achieving the “ideal” of consistent rulings: The Federal Circuit, notwithstanding its stated desire for consistent results in administrative and judicial proceedings, affirmed the Board’s rejection of patent claims which the court had previously upheld on appeal from a court decision.

Judge Lourie blames patent legislation for the inconsistent results: “The fact is that Congress has provided for a reexamination system that permits challenges to patents by third parties, even those who have lost in prior judicial proceedings.”

A dissent by Judge Newman rails against what she sees as the constitutional impropriety of an administrative agency in the executive branch ruling against a final decision of the courts: “No authority, no theory, no law or history, permits administrative nullification of a final judicial decision.” She quotes a 1948 decision of the U.S. Supreme Court: “Judgments, within the powers vested in courts by the Judiciary Article of the Constitution, may not lawfully be revised, overturned or refused faith and credit by another Department of Government.”

When it comes to inter partes reexamination–and to the new inter partes review authorized by the recent America Invents Act—Congress has addressed the problem by providing for an estoppel against a losing party. (Estoppel bars a litigant from later asserting that a claim is invalid after a final decision has been entered that the party has not sustained its burden of proving invalidity of that claim.)

But Baxter Int’l involved an ex parte reexamination [1]. In Ethicon v. Quigg (1988) and In re Swanson (2008), the Federal Circuit interpreted the ex parte reexamination statutes to give the PTO power to invalidate patent claims even if a court has ruled otherwise.

In the case of In re Swanson, our firm offered the Federal Circuit a solution to this problem:  Refuse any reexamination after a court decision on the very same prior art, on the grounds that it fails to raise a substantial new question of patentability. But the court only dug itself in deeper, insisting that the “substantial new question” standard is met as long as the question is new to the PTO.

Since then, the Federal Circuit affirmed the rejection of claims in In re Construction Equipment Co. (2010) despite having upheld the claims ten years earlier on appeal from a litigation. Judge Newman dissented then on the same constitutional grounds as she now does in Baxter Int’l.

Judge Lourie explains why different standards of claim construction applied by the PTO and the courts can result in conflicting determinations. In Swanson, the court pointed out: “Unlike in district courts, in reexamination proceedings ‘[c]laims are given their broadest reasonable interpretation, consistent with the specification…’”

By contrast, in discussing claim construction in Baxter Int’l, Judge Lourie does not describe “broadest reasonable construction,” but instead refers to Phillips v. AWH,which guides claim construction in the courts.

In that 2005 en banc decision, the Federal Circuit held that claim meaning should be determined in court by looking at the words of the claims themselves; the patent specification; the prosecution history; and any relevant extrinsic evidence. Phillipsclarified the law of determining meaning by demoting the importance of dictionaries below intrinsic evidence such as the written description.

If the Phillips approach to claim construction were ever to be applied in an ex parte reexamination, it would be a stark departure from settled law that establishes the claim construction standard in reexaminations as the “broadest reasonable interpretation consistent with the specification.” Such harmonization could be beneficial to patent law, as I have recently argued. In view of the court’s citation ofPhillips, we may be witnessing the court’s first step toward a common claim-construction standard to be applied in reexaminations and litigations alike.

If the evidence presented to the PTO differs from that presented in court, getting different results is not surprising or especially troubling. The biggest concern over inconsistent decisions between the PTO and the courts exists when the evidence presented in the two forums is the same.

To play down the conflict, Judge Lourie asserted that “the examiner relied on new prior art that had not been raised in the prior district court proceeding.” But Judge Newman was of the view that the “new” prior art had in fact been presented to the district court. Judge Newman’s concerns about the PTO’s authority to nullify a district court decision on the same evidence is of such great import that it will likely require resolution in the Supreme Court someday.

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The Baxter opinion included some instructive comments on the conduct of patent litigation, emphasizing the importance of choosing one’s lawyers well for litigation and reexamination work. In the district court, Baxter’s rival“ failed to identify ‘the structure in the specification that corresponds to the means for delivering dialysate’ and further failed to compare the identified structure to those structures present in the prior art.”

Thus, regardless of the content of the prior art, a court can find the burden of proof has not been met if the lawyers do not make a clear and convincing presentation of the prior art in the specific manner prescribed by case law.

On reexamination, the PTO considers the prior art references themselves and is not limited to the particular presentation made by the parties. Nevertheless, an issue of lawyering arose in this context as well. As to one of the dependent claims, issues of patentability could not be argued before the Federal Circuit because they had been waived for failure to raise the issues before the Board of Appeals. Thus, one’s chances depend not on just the strength of one’s case but on the quality of one’s lawyers.

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Baxter raises the question of when a judgment regarding patent validity is really final.  By giving a challenger a second bite at the apple through an ex parte reexamination, Congress may have sown the seeds of a constitutional challenge involving separation of powers.