Bosch, Fresenius and Alexsam Cases: Finality, Appeal and Reexamination

1. Bosch, Fresenius and Alexsam Cases: Finality, Appeal and Reexamination Joerg-Uwe SziplAIPLA IP Practice in Japan PremeetingMarriot Wardman Hotel, Washington, DC October 22, 2013

2. Litigation Efficiency and Res Judicata • Reexamination and Post Grant Review procedures are intended to promote efficiency in patent disputes by allowing validity of issued patents to be challenged in administrative proceedings • Reexamination proceedings often take place in parallel with civil litigation • While District Courts may grant stays in view of pending reexamination proceedings, they most often do not • The current situation leads to duplicative proceedings with possible contradictory results. • While the USPTO should take into account the invalidity determinations of District Court’s, they are not bound by their determinations according to Baxter and can freely come to opposite conclusions.

3. Litigation Efficiency and Res Judicata • Interlocutory appeals allowing appeal of infringement and validity decisions before the resolution of all issues including damages and willfulness • However, piecemeal interlocutory appeals reduce overall litigation and efficiency by potentially increasing the duration and expense of legal disputes. • Does the present system adequately balance efficiencies?

4. Robert Bosch, LLC v. Pylon Mfg. Corp, Fed. Cir. No. 2011-1363, Slip Opinion, June 14, 2013 • District Court bifurcated the litigation at Pylon’s request and over Bosch’s objection • Discovery as to damages was deferred • After summary judgments and a jury trial Pylon was found to infringe valid claims of the ‘905 and ‘434 patents • District Court denied entry of permanent injunction • Federal Circuit on interlocutory appeal, reversed and ordered appropriate injunction entered

5. Robert Bosch, LLC v. Pylon Mfg. Corp • Pylon appealed the judgments of infringement and validity • Bosch argued that the appeal was premature because damages and willfulness had not been decided. • Federal Circuit issued a sua sponte order to consider the issues • Whether 28 U.S.C. 1292(c)(2) confers jurisdiction • (a) “when a trial on damages has not yet occurred” or • (b) “when willfulness issues are outstanding and remain undecided”

6. Robert Bosch, LLC v. Pylon Mfg. Corp • When a trial on damages has yet to occur • The en banc court split 7-2 • The statute provides that the court could review decisions that were final with the exception of an “accounting” • The court reviewed practice since the 19th century and all predecessor statutes to determine that “accounting” according to the statute included trials on damages • While interlocutory appeals could lead to inefficiencies, the resolution of infringement and validity on appeal could avoid the necessity of a costly and perhaps unnecessary trial on damages

7. Robert Bosch, LLC v. Pylon Mfg. Corp • When willfulness issues are outstanding and remain to be decided • Court looked at the same statute and analyzed the same history from the 19th century to decide that willfulness was also part of the “accounting” rather than a substantive issue of liability • This time splitting 5-4, the court held that the Federal Circuit had jurisdiction on Appeal before the determination of willfulness • Dissenters argued that accounting in the statute did not cover the subjective state of mind and recklessness determinations required in a willfulness inquiry • Thus, the interlocutory appeal goes forward

8. Fresenius USA Inc. v. Baxter Int’l Inc., Fed. Cir., No. 2012-1334, Slip Opinion, July 2, 2013 • $24 Million damages award in a patent infringement case started in 2003 was wiped out because cancellation of asserted patent claims in reexamination required dismissal • District Court ordered judgment as a matter of law on infringement and validity for the patentee • Federal Circuit confirmed the District Court’s holding of no invalidity • In the mean time reexamination proceeded and claims were cancelled as invalid • Federal Circuit held that the USPTO should take note of the court decision on validity, but need not come to the same conclusion

9. Fresenius USA Inc. v. Baxter Int’l Inc. • The District Court subsequently reduced the original rate and rendered a final decision in March of 2012 • Fresnius appealed denial of new damages trial aqnd Baxter the reduction in royalty rate • What was the effect of the USPTO’s 2013 determination that the claims were invalid?

10. Fresenius USA Inc. v. Baxter Int’l Inc. • Court agreed that a subsequent finding of invalidity would not disturb a final judgment of infringement and no invalidity • Federal Circuit held that the District Court’s 2007 judgment was final only for purposes of appeal and not for purposes of res judicata • The traditional view is that judgments are not final when questions of damages are still open • Since damages were still to be finally decided on appeal at the time of the reexamination, the cancellation of claims in reexamination required the case to be dismissed.

11. Fresenius USA Inc. v. Baxter Int’l Inc., • Although the power to issue a final judgment resides with the judicial branch, the finding of invalidity by the USPTO in a case is new law which must be applied on appeal • Thus, until all issues are finally decided on appeal, a patent’s validity and pending judgments can be overturned.

12. Alexsam Inc. v. IDT Corp., Fed. Cir. , No. 2012-1063, Slip Opinion, May 20, 2013 • Fed. Cir. upheld both non-infringement findings as to some products and infringement holding as a penalty for discovery abuse as to others • The infringement sanction for discover abuse was fair due to five factors of review: • IDT had been warned of impending sanctions • IDT had made empty promises to comply • Alexsam’s request for sanctions was not frivolous • IDT bore some degree of culpability • The District Court had previously sanctioned IDT • There was a substantial relationship between sanctions and discovery abuse since Alexsam was severely prejudiced in preparing for trial.

13. Alexsam Inc. v. IDT Corp. • Alexsam case was an issue in hearings regarding proposed Goodlatte anti-NPE bill that would make mandatory stays in litigation against customers when a suit against a manufacturer is pending • Numerous suits were filed by Alexsam and numerous reexaminations were pending and/or decided • Would it be efficient to stay customer suits while suits against a manufacturer are pending?

14. Conclusions • Decisions are final for purposes of appeal and appeal jurisdiction is had even when issues of damages and willfulness remain to be decided • Decisions are not final for res judicata purposes until all issues including damages are finally decided on appeal • Patents and Judgments are vulnerable in litigation to USPTO determinations of invalidity until all issues have been decided • Interlocutory appeal jurisdiction of Federal Circuit has been expanded and can lead to inefficiencies, although the purpose is to provide more efficiency • Concurrent reexaminations and civil trials could still easily lead to inconsistent results and dismissal of suits after long and costly litigation.

15. Thanks for your attention! Questions? Joerg-Uwe Szipl President Griffin and Szipl, PC 2300 Ninth St., South, Suite 112 Arlington Va, 22204 +1(703) 979-5700 Szipl@szipl.com