Context: In July 2023, the United States Court of Appeals for the Federal Circuit affirmed (PDF) a district court ruling that held the defendant liable for induced infringement despite a final invalidation decision by the Patent Trial & Appeal Board (PTAB) decision. The Federal Circuit pointed to the patentee’s appeal of the PTAB ruling, which resulted in affirmance in December 2023 (PDF) and denied a petition for rehearing en banc. The defendant, named Liquidia, was granted an extension to file a petition for writ of certiorari (“cert petition”) with the Supreme Court of the United States (SCOTUS).
What’s new: The cert petition was filed on January 23 and has meanwhile become publicly accessible (PDF). It argues that the Federal Circiut erred because agency decisions, such as that of the PTAB’s sister division named TTAB (the first “T” stands for “trademark”), have preclusive effect even while an appeal is pending.
Direct impact: The petition appears to meet the criteria of raising an important issue with far-reaching consequences, but the fewest cert petitions are granted. Here, the question is whether this is even difficult to decide for the top U.S. court or whether it might just look for a shortcut to direct the Federal Circuit to reconsider.
Wider ramifications: Many U.S. patent holders and patent litigators are uncomfortable with the high invalidation rate in PTAB proceedings, while defendants in district court rarely manage to convince a jury that a patent-in-suit is invalid. If non-final PTAB invalidations are held by the SCOTUS to have preclusive effect, patentees will have to consider stipulating to extended stays of district court litigation in order to be able to pursue their appeals. A cross-jurisdictional comparision with the situation in Germany is interesting: in the U.S., alternating outcomes in an invalidation proceeding at different stages may result in unmerited wins by defendants, while the German system is designed in such a way that only patentees can score unmerited victories as a result of parallel infringement and invalidity proceedings.
In general, Liquidia’s cert petition, filed by the Cooley firm, is compelling and persuasive. What is debatable (though it shouldn’t affect the petition’s chances), is Liquidia’s reading of the Federal Circuit’s 2018 decision in XY v. Trans Ovo. Liquidia says that in XY it was merely a coincidence that the Federal Circuit affirmed a PTAB invalidity decision the same day, and not a requirement. The relevant part of XY (PDF) says this:
“That affirmance renders final a judgment on the invalidity of the Freezing Patent, and has an immediate issue-preclusive effect on any pending or co-pending actions involving the patent.”
The per curiam in XY also distanced itself from the dissent’s position that “in the event of conflict the [PTAB] decision ‘moots’ the district court’s decision.”
The question is: when is a patent invalid for the purposes of an infringement case even though there still is an appeal, or the possibility of an appeal, in a parallel validity action?
In the decision that gave rise to Liquidia’s cert petition, the Federal Circuit states that XY meant a PTAB decision is not final until all appeals have been exhausted or an appeal has been waived:
“A pending, non-final litigation does not negate an intent to infringe that is otherwise supported by evidence. And we have previously held that an IPR decision does not have collateral estoppel effect until that decision is affirmed or the parties waive their appeal rights.”
Neither Liquidia’s petition nor the Federal Circuit opinion that Liquidia’s petition relates to appear to describe the XY holding correctly:
- There is no indication in XY that the related PTAB decision would have had preclusive effect without the Federal Circuit’s affirmance. Much to the contrary, the language and the timing both suggest that the Federal Circuit deemed its own decision on the validity side indispensable.
- But the Federal Circuit’s position is also unprincipled: as its parallel decision affirming the PTAB’s invalidity holding came down the very same day, there is no way that it could have been final. The deadline for a petition for rehearing (or a cert petition) had just begun that same day. Why would a final PTAB decision not have preclusive effect, but a non-final Federal Circuit panel opinion would? It doesn’t make sense.
What makes much more sense is what Liquidia says about how to deal with the possibility of a defendant just benefiting from a limited window where a patent is deemed invalid:
“The rule is not without its drawbacks—it runs the risk of allowing judgments to rest on the preclusive effects of earlier judgments that are subsequently reversed—but courts universally accept those risks, recognizing that ‘the alternative of retrying the common claims, defenses, or issues is even worse.’ Federal Practice & Procedure, supra § 4433.”
There is a solution to that problem in situations where a patentee could stipulate to a stay until all appeals have been resolved on the validity side.
The closest international point of comparison to parallel district court and PTAB proceedings is the German bifurcation system. In Germany, the value judgment is the opposite: the German case law has no problem at all with incorrect final decisions against defendants, and just ensures that the same could never happen to a patent holder.
The “injunction gap” is not unique to Germany: the same could happen in the U.S. if a district court enters an injunction and if the appeals court also allows it to be enforced, but the patent will later be held invalid. It’s just much harder to obtain a patent injunction in the U.S. post-eBay.
What is unique to Germany, however, is the possibility of patent holders avoiding a squeeze by defending a patent on the basis of a narrower claim construction than the one applied in the infringement proceeding. And not only on a temporary basis but even as the final outcome after all appeals have been exhausted. How can judges want such erroneous final rulings? Do they simply want their jurisdiction to attract patent infringement complaints even on an intellectually dishonest and morally corrupt basis? Whatever the reason may be, there is no excuse.
Here’s how such a contradictory pair of outcomes is possible in Germany: in the Kreuzgestänge (“cross-linkage”) case, the Federal Court of Justice held that the claim construction applied in a nullity (i.e., invalidation) proceeding is absolutely not binding for the final infringement ruling, not even if there was a final validity decision by the Federal Court of Justice itself.
In a case involving a cigarette paper manufacturer, the narrower claim construction by the European Patent Office (EPO) was rejected by the Dusseldorf Higher Regional Court, but ultimately the Federal Court of Justice invalidated that patent. In that case, the harm to the defendant was temporary (though it resulted in dozens of layoffs in an economically weak region). It was also a shocking case, and there is no need to mention what U.S. law firm’s German office was responsible.
What’s even worse is that final judgments can be incorrect because the Federal Court of Justice wants it to be that way. If a narrower claim construction is applied in the infringement proceeding and the nullity ruling is final, there is no way to right that wrong. If, however, the patent is declared invalid (right or not) and that outcome is final, there won’t be any more infringement proceedings and, therefore, there won’t even be an “opportunity” for the infringement court to err.
The lesson from this comparison is that different jurisdictions present different risks of incorrect final decisions because of bifurcated validity and infringement proceedings. Liquidia is perfectly honest that there can be incorrect outcomes, but their policy argument is that letting some defendants come away unscathed is yet better than having countless duplicative proceedings and issues being relitigated over and over. It’s a pro-preclusion argument. By comparison, the German approach is that a patentee should be able to defend a patent on the basis of a narrow claim construction while winning an infringement decision on a broader basis, which is insane and immoral.