Annulment of Damages Awards when a Patent Subsequently Found Invalid or Partially Invalid by a Different Tribunal.
Recent cases on each side of the Atlantic have highlighted the issues that can occur when consideration of validity is separated from that of infringement and a final determination of infringement is reached by one tribunal while another is still grappling with the question of validity. In the United States in Fresnius USA Inc. v Baxter International Inc., the tribunals were the federal courts and the United States Patent and Trademark Office. In Virgin Atlantic Airways v. Zodiac Seats UK Ltd., the tribunals were the English courts and the European Patent Office. In both cases, following the decisions by the relevant patent office, the prior court awards of damages were annulled.
In the United States, re-examination was carried out on a patent involved in a law suit in the federal courts between Baxter International Inc. and Fresnius USA Inc. notwithstanding that the patent had been held not to be invalid by the district court, which decision had been affirmed on appeal to the Court of Appeals of the Federal Circuit, but the case remanded to the district court for reconsideration of other issues, including the question of the amount of damages and whether an injunction was appropriate.1 The ordering of a re-examination was held to be justified on the basis that the differing standards of proof applying in court cases where a patent is presumed valid and clear and convincing evidence of invalidity is required and in re-examination proceedings where the challenger need only show that the patent is invalid on the balance of probabilities to succeed justified re-examination after the court’s decision if a substantial new question of patentability was presented.2 The re-examination held the claims to be invalid. This decision was affirmed by the Federal Circuit in In re Baxter International Inc.3 In the meantime, proceedings in the district court had continued and had led to an appeal and cross appeal of the district court’s final judgment on damages. Following the holding of invalidity of the relevant claims in the re-examination, the defendant Fresnius moved for dismissal of the action against it. In Fresnius USA Inc. v. Baxter International,4 the Federal Circuit held that because the case was still pending on other issues, the court still had jurisdiction over it and that in view of the cancellation of the claims in re-examination, the case should be dismissed and a damages award made previously quashed.5
In England, in Virgin v. Zodiac,6 infringement proceedings had been commenced prior to completion of an opposition in the European Patent Office. On November 11, 2013, the UK Supreme Court decision addressed the question of what to do about damages when English proceedings found a European (UK) patent valid and infringed, but because there had been no stay of the English proceedings while the EPO was considering an opposition, the EPO eventually found the broad claims as originally granted invalid and the patent survived the EPO proceedings only with claims that were not infringed. The normal practice in English proceedings is that issues of liability and assessment of damages are bifurcated and that once liability is determined an inquiry into damages is ordered. Normally the parties reach an agreement and it is rare for damages issues to come before the court. In the present case a final determination of damages had not yet been determined when the EPO made its final decision that the claims needed amendment.
Amendments to claims effected in EPO proceedings are deemed to be effective retroactively to the European patent and are therefore effective in all designated countries.
Lord Sumption, with whom three other members of the Court agreed, held that at least when the enquiry into damages is not complete:
· where judgment is given in an English court that a patent (whether English or European) is valid and infringed, and the patent is subsequently retrospectively revoked or amended (whether in England or at the EPO), the defendant is entitled to rely on the revocation or amendment on the enquiry as to damages.
· Once the enquiry is concluded, different considerations will arise. There will then be a final judgment for a liquidated sum. At common law, that judgment could be challenged on the ground that the patent had later been revoked or amended only by way of appeal, and then only if an appeal is still open. I doubt whether an implied statutory right to reopen it could be derived from the scheme of the Patents Act 1977, but that is a question which will have to await a case in which it arises.
Lord Neuberger reached a similar conclusion.
Both Lord Sumption and Lord Neuberger noted that had the inquiry into damages been completed before the EPO’s decision, problems of res judicata would have arisen which would not have been easy to resolve and suggested that the current Court of Appeal guidelines that English proceedings should not be stayed in situations where a parallel opposition proceeding was pending in the EPO should be reconsidered. (The guidelines were issued in 2008 in part as a result of frustration about the length of time oppositions took in the EPO, although the EPO claims that if a judge in a national court proceeding requests expedition of EPO opposition proceedings, the EPO will try to expedite them.)
192 USPQ2d 1163
2The re-examination commenced prior to September 16, 2011, and so the pre-AIA law threshold question applied.
3102 USPQ2d 1925 (Fed. Cir. 2012). Newman J dissented strongly taking the view that the prior Federal Circuit decision constituted the law of the case.
4107 USPQ2d 1365 (Fed. Cir. 2013)
5Rehearing en banc was denied. 108 USPQ2d 1773 (Fed. Cir., 2013). O’Malley J, Raber CJ, and Wallach J dissented from denial of a rehearing on the basis that in the factual situation of the present case, the prior Federal Circuit decision which had confirmed prejudgment damages should be treated as final and enforced. Newman J dissented because of her continued concerns about the constitutionality and practical effects of allowing an executive agency to nullify the judgment of an Article III court.
6 UKSC 46.