Post-Trial Re-examination

A patent always faces the threat that it could be invalidated on re-examination. Yet, for a patentee who has already sued for infringement, won a jury verdict, and obtained a judgment for damages, does a subsequent re-examination pose an equal threat to that award? What if the patent is not necessarily invalidated, but claims on which infringement was found at trial are narrowed, no longer justifying the jury's findings? Even if past damages cannot be set aside, can a re-examined patent extinguish an infringer's obligation to pay future royalties? In sum, to what extent does re-examination equip an infringer who loses in court with the additional opportunity, aside from an appeal, to escape liability.

Re-examination provides an avenue of defense to those facing liability. Both ex parte and inter partes re-examination permit a third party, who is neither the patentee nor the assignee, to petition for a patent's re-examination provided a substantial new question of patentability exists. 35 U.S.C. ” 302, 311. Congress intended the re-examination statute to empower private actors to correct patents that were erroneously issued by the PTO. H.R. Rep. No. 107-120 (2002); see also In re Swanson, 540 F.3d 1368, 1375 (Fed. Cir. 2008). Accordingly, claims cannot be enlarged through re-examination, but only invalidated or narrowed in scope. 35 U.S.C. ' 305. Persons who are therefore likely to seek re-examination include potential and existing licensees, infringers, or litigants. M.P.E.P. ' 2612.

The re-examination statute does not limit its use by infringers against whom liability has already been determined. Nevertheless, courts have proven reluctant to sanction the re-examination process as a runaround to an appeal or a back-door attempt to circumvent a judgment for infringement. The Federal Circuit recently indicated that a judgment should not be set aside even where a claim's scope is narrowed on re-examination and the very basis on which the jury found infringement has been undermined. Amado v. Microsoft Corp., 517 F.3d 1353 (Fed. Cir. 2008).

Amado v. Microsoft

In Amado, Microsoft waited until after an unfavorable jury verdict and entry of judgment before petitioning for re-examination of the patent. During the re-examination, Amado, the patent's inventor and owner, made statements to the PTO that narrowed the scope of the claim found infringed at trial. Microsoft argued that because the grounds on which the jury found infringement no longer applied, the verdict must be disregarded and the judgment set aside.

The Federal Circuit disagreed. Microsoft was aware of the prior art on which it commenced the re-examination well before trial, yet it waited until after the unfavorable jury verdict to pursue re-examination, without appealing the jury's finding of validity. Thus, despite the scope of the infringed claim being narrowed following trial, Microsoft's lack of diligence in pursuing the re-examination convinced the court that the judgment must stand.

Constitutional Concerns

More recently, the Federal Circuit suggested that allowing infringers to escape an entered judgment through re-examination may implicate constitutional concerns. In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008). In Swanson, the patent's assignee, Surmodics, Inc., argued that because a district court previously considered a prior reference, but nevertheless held the patent valid, the same reference cannot be the basis of a substantial new question of patentability for the purpose of justifying the patent's re-examination. Indeed, Surmodics contended that allowing an executive agency, such as the PTO, to review an Article III court's decision of validity through re-examination of the patent violates the constitutionally mandated separation of powers.

The Federal Circuit disagreed. Whereas a PTO Examiner considers a prior art reference without a presumption of validity and determines a patent to be valid by a preponderance of the evidence, a district court, by contrast, considers whether a prior art reference clearly and convincingly overcomes the presumption of validity. Furthermore, unlike the PTO, a district court does not “validate” a patent, but rather determines whether the evidence presented does or does not render it invalid. Accordingly, differing standards of proof as well as differing purposes underlying re-examination and district court actions prohibit duplicative proceedings, thereby avoiding a violation of separation of powers.

In a footnote, however, the Federal Circuit observed that, whereas no Article III issue exists when a re-examination proceeding considers the same reference previously considered by a prior district court, a separation of powers concern may arise if a party moves to set aside a judgment for infringement based on the patent's invalidation on re-examination. The court stated that “an attempt to reopen a final federal court judgment of infringement on the basis of a re-examination finding of invalidity might raise constitutional problems.” 540 F. 3d at 1379 n.5.

MercExchange v. eBay

District courts have also demonstrated a reluctance to allow post-trial re-examinations to interfere with plaintiff's relief, particularly where the re-examination decision remains appealable. In MercExchange v. eBay, after receiving an unfavorable jury verdict, eBay commenced re-examination of the patent in the PTO. During the re-examination, the PTO issued a non-final office action that rejected all of the claims as obvious. Based on these rejections, eBay moved to stay the district court's post-trial proceedings. The district court refused to allow eBay's post-verdict maneuver to jeopardize MercExchange's judgment because this would “create the incentive for adjudicated infringers to seek to circumvent an otherwise enforceable jury verdict by utilizing an alternate forum.” MercExchange v. eBay, 500 F. Supp. 2d 556, 565 (E.D. Va. 2007).

eBay subsequently sought an order directing MercExchange to post a bond because the patent would unlikely survive re-examination in light of the Supreme Court's recent holding in KSR v. Teleflex, 550 U.S. 398 (2007). The district court agreed that the re-examination would likely invalidate the patent. It nevertheless rebutted eBay's presumption that this would extinguish its obligation to pay the jury award. The court stated that “it does not necessarily follow that the invalidation of the patent means the invalidation of the damages award. Indeed, that question remains far from settled, and its line of reasoning was rejected by this court when eBay proffered it in support of its motion for a stay of the proceedings on the [patent.].” MercExchange v. eBay, 2007 U.S. Dist. LEXIS 93027, No. 2:01cv736 (E.D. Va. Dec. 11, 2007).

Attempts to Avoid Paying Future Royalties

In addition to barring attempts to set aside infringement judgments, courts have also blocked attempts by infringers to use re-examination to avoid paying future royalties. Glasstech, Inc. v. AB Kyro Oy, 1989 U.S. Dist. LEXIS 14780, No. 85-7388 (N.D. Ohio May 19, 1989). In Glasstech, the parties entered into a consent judgment whereby Kyro agreed to certain ongoing royalty payments after it was found to infringe Glasstech's patent in a previous ITC action. Thereafter, an Ohio law firm commenced re-examination of the patent at issue in the PTO, which subsequently issued a final office action rejecting all of the patent's claims. In the district court action, Kyro argued that all future royalty payments under the
consent judgment should be paid into escrow because its obligations under the judgment would be extinguished in the event the patent is invalidated on re-examination.

The district court disagreed. It held Kyro to be bound by the consent judgment ' wherein Kyro admitted to the patent's validity ' even if the patent were to be invalidated by the PTO. The court reasoned that allowing the re-examination to affect the terms of a consent judgment would create an incentive for defendants to hastily enter settlement agreements, knowing they could always re-litigate validity upon re-examination.

The court's reasoning in Glasstech mirrored that of an earlier decision by the Federal Circuit in a similar situation. Hemstreet v. Spiegel, 851 F.2d 348 (Fed. Cir. 1988). In Hemstreet, the Federal Circuit held that future royalty payments must still be made even though the patent was subsequently deemed invalid in a separate litigation. Otherwise, the court reasoned, it “would seriously decrease the willingness of parties to settle litigation on mutually agreeable terms and thus weaken the efficacy of settlements generally.” 851 F.2d at 351.

Both of these cases indicate, however, that the wording of a settlement agreement or consent judgment can impact an infringer's ability to circumvent future royalties following re-examination. In Hemstreet, the settlement agreement expressly provided that the defendant remained liable for future royalties notwithstanding any subsequent invalidation of the patent. In Glasstech, the court was persuaded in part by Kyro's admission of the patent's validity within the settlement agreement.

Judgments and settlement agreements often obligate a defendant to pay future royalties for the “life of the patent,” which becomes ambiguous in the event the patent is subsequently invalidated on re-examination, rather than expiring by virtue of its granted patent term. At least one court has addressed the temporal scope of this phrase. Panduit Corp. v. Hellermanntyton Corp., 2004 U.S. Dist. LEXIS 15918, No. 03 C 8100, at *11 (N.D. Ill. Aug. 10, 2004).

In Panduit, the court held the phrase “life of the patent” means “exactly that ' until the date at which the patent ceases to have legal force. This could mean its natural expiry date, or it could mean the date in which a court or the PTO holds it partially or totally invalid.” 2004 U.S. Dist. LEXIS 15918, at *11. Notably, the court rejected the defendant's contention that in the event the patent is invalidated on re-examination, it never had any “life,” and the plaintiff would thus be required to return any collected past damages. Rather, only the plaintiff's future royalties would be uncollectable. Accordingly, settlement agreements and consent judgments should be mindful of anticipating the treatment of future royalties in the event the patent is invalidated or narrowed in the future.

Zachary Silbersher is an associate at Locke Lord Bissell & Liddell LLP specializing in patent litigation and patent prosecution. He can be reached at [email protected].

A patent always faces the threat that it could be invalidated on re-examination. Yet, for a patentee who has already sued for infringement, won a jury verdict, and obtained a judgment for damages, does a subsequent re-examination pose an equal threat to that award? What if the patent is not necessarily invalidated, but claims on which infringement was found at trial are narrowed, no longer justifying the jury's findings? Even if past damages cannot be set aside, can a re-examined patent extinguish an infringer's obligation to pay future royalties? In sum, to what extent does re-examination equip an infringer who loses in court with the additional opportunity, aside from an appeal, to escape liability.

Re-examination provides an avenue of defense to those facing liability. Both ex parte and inter partes re-examination permit a third party, who is neither the patentee nor the assignee, to petition for a patent's re-examination provided a substantial new question of patentability exists. 35 U.S.C. ” 302, 311. Congress intended the re-examination statute to empower private actors to correct patents that were erroneously issued by the PTO. H.R. Rep. No. 107-120 (2002); see also In re Swanson, 540 F.3d 1368, 1375 (Fed. Cir. 2008). Accordingly, claims cannot be enlarged through re-examination, but only invalidated or narrowed in scope. 35 U.S.C. ' 305. Persons who are therefore likely to seek re-examination include potential and existing licensees, infringers, or litigants. M.P.E.P. ' 2612.

The re-examination statute does not limit its use by infringers against whom liability has already been determined. Nevertheless, courts have proven reluctant to sanction the re-examination process as a runaround to an appeal or a back-door attempt to circumvent a judgment for infringement. The Federal Circuit recently indicated that a judgment should not be set aside even where a claim's scope is narrowed on re-examination and the very basis on which the jury found infringement has been undermined. Amado v. Microsoft Corp. , 517 F.3d 1353 (Fed. Cir. 2008).

Amado v. Microsoft

In Amado, Microsoft waited until after an unfavorable jury verdict and entry of judgment before petitioning for re-examination of the patent. During the re-examination, Amado, the patent's inventor and owner, made statements to the PTO that narrowed the scope of the claim found infringed at trial. Microsoft argued that because the grounds on which the jury found infringement no longer applied, the verdict must be disregarded and the judgment set aside.

The Federal Circuit disagreed. Microsoft was aware of the prior art on which it commenced the re-examination well before trial, yet it waited until after the unfavorable jury verdict to pursue re-examination, without appealing the jury's finding of validity. Thus, despite the scope of the infringed claim being narrowed following trial, Microsoft's lack of diligence in pursuing the re-examination convinced the court that the judgment must stand.

Constitutional Concerns

More recently, the Federal Circuit suggested that allowing infringers to escape an entered judgment through re-examination may implicate constitutional concerns. In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008). In Swanson, the patent's assignee, Surmodics, Inc., argued that because a district court previously considered a prior reference, but nevertheless held the patent valid, the same reference cannot be the basis of a substantial new question of patentability for the purpose of justifying the patent's re-examination. Indeed, Surmodics contended that allowing an executive agency, such as the PTO, to review an Article III court's decision of validity through re-examination of the patent violates the constitutionally mandated separation of powers.

The Federal Circuit disagreed. Whereas a PTO Examiner considers a prior art reference without a presumption of validity and determines a patent to be valid by a preponderance of the evidence, a district court, by contrast, considers whether a prior art reference clearly and convincingly overcomes the presumption of validity. Furthermore, unlike the PTO, a district court does not “validate” a patent, but rather determines whether the evidence presented does or does not render it invalid. Accordingly, differing standards of proof as well as differing purposes underlying re-examination and district court actions prohibit duplicative proceedings, thereby avoiding a violation of separation of powers.

In a footnote, however, the Federal Circuit observed that, whereas no Article III issue exists when a re-examination proceeding considers the same reference previously considered by a prior district court, a separation of powers concern may arise if a party moves to set aside a judgment for infringement based on the patent's invalidation on re-examination. The court stated that “an attempt to reopen a final federal court judgment of infringement on the basis of a re-examination finding of invalidity might raise constitutional problems.” 540 F. 3d at 1379 n.5.

MercExchange v. eBay

District courts have also demonstrated a reluctance to allow post-trial re-examinations to interfere with plaintiff's relief, particularly where the re-examination decision remains appealable. In MercExchange v. eBay, after receiving an unfavorable jury verdict, eBay commenced re-examination of the patent in the PTO. During the re-examination, the PTO issued a non-final office action that rejected all of the claims as obvious. Based on these rejections, eBay moved to stay the district court's post-trial proceedings. The district court refused to allow eBay's post-verdict maneuver to jeopardize MercExchange's judgment because this would “create the incentive for adjudicated infringers to seek to circumvent an otherwise enforceable jury verdict by utilizing an alternate forum.” MercExchange v. eBay, 500 F. Supp. 2d 556, 565 (E.D. Va. 2007).

eBay subsequently sought an order directing MercExchange to post a bond because the patent would unlikely survive re-examination in light of the Supreme Court's recent holding in KSR v. Teleflex , 550 U.S. 398 (2007). The district court agreed that the re-examination would likely invalidate the patent. It nevertheless rebutted eBay's presumption that this would extinguish its obligation to pay the jury award. The court stated that “it does not necessarily follow that the invalidation of the patent means the invalidation of the damages award. Indeed, that question remains far from settled, and its line of reasoning was rejected by this court when eBay proffered it in support of its motion for a stay of the proceedings on the [patent.].” MercExchange v. eBay, 2007 U.S. Dist. LEXIS 93027, No. 2:01cv736 (E.D. Va. Dec. 11, 2007).

Attempts to Avoid Paying Future Royalties

In addition to barring attempts to set aside infringement judgments, courts have also blocked attempts by infringers to use re-examination to avoid paying future royalties. Glasstech, Inc. v. AB Kyro Oy, 1989 U.S. Dist. LEXIS 14780, No. 85-7388 (N.D. Ohio May 19, 1989). In Glasstech, the parties entered into a consent judgment whereby Kyro agreed to certain ongoing royalty payments after it was found to infringe Glasstech's patent in a previous ITC action. Thereafter, an Ohio law firm commenced re-examination of the patent at issue in the PTO, which subsequently issued a final office action rejecting all of the patent's claims. In the district court action, Kyro argued that all future royalty payments under the
consent judgment should be paid into escrow because its obligations under the judgment would be extinguished in the event the patent is invalidated on re-examination.

The district court disagreed. It held Kyro to be bound by the consent judgment ' wherein Kyro admitted to the patent's validity ' even if the patent were to be invalidated by the PTO. The court reasoned that allowing the re-examination to affect the terms of a consent judgment would create an incentive for defendants to hastily enter settlement agreements, knowing they could always re-litigate validity upon re-examination.

The court's reasoning in Glasstech mirrored that of an earlier decision by the Federal Circuit in a similar situation. Hemstreet v. Spiegel , 851 F.2d 348 (Fed. Cir. 1988). In Hemstreet, the Federal Circuit held that future royalty payments must still be made even though the patent was subsequently deemed invalid in a separate litigation. Otherwise, the court reasoned, it “would seriously decrease the willingness of parties to settle litigation on mutually agreeable terms and thus weaken the efficacy of settlements generally.” 851 F.2d at 351.

Both of these cases indicate, however, that the wording of a settlement agreement or consent judgment can impact an infringer's ability to circumvent future royalties following re-examination. In Hemstreet, the settlement agreement expressly provided that the defendant remained liable for future royalties notwithstanding any subsequent invalidation of the patent. In Glasstech, the court was persuaded in part by Kyro's admission of the patent's validity within the settlement agreement.

Judgments and settlement agreements often obligate a defendant to pay future royalties for the “life of the patent,” which becomes ambiguous in the event the patent is subsequently invalidated on re-examination, rather than expiring by virtue of its granted patent term. At least one court has addressed the temporal scope of this phrase. Panduit Corp. v. Hellermanntyton Corp., 2004 U.S. Dist. LEXIS 15918, No. 03 C 8100, at *11 (N.D. Ill. Aug. 10, 2004).

In Panduit, the court held the phrase “life of the patent” means “exactly that ' until the date at which the patent ceases to have legal force. This could mean its natural expiry date, or it could mean the date in which a court or the PTO holds it partially or totally invalid.” 2004 U.S. Dist. LEXIS 15918, at *11. Notably, the court rejected the defendant's contention that in the event the patent is invalidated on re-examination, it never had any “life,” and the plaintiff would thus be required to return any collected past damages. Rather, only the plaintiff's future royalties would be uncollectable. Accordingly, settlement agreements and consent judgments should be mindful of anticipating the treatment of future royalties in the event the patent is invalidated or narrowed in the future.

Zachary Silbersher is an associate at Locke Lord Bissell & Liddell LLP specializing in patent litigation and patent prosecution. He can be reached at [email protected].