MVS Filewrapper® Blog: The Role of DVRs in Copyright Infringement

In Fox Broadcasting v. Dish Network, Fox Broadcasting Company ("Fox") appealed a ruling by the District Court of Central District of California that Fox did not demonstrate a likelihood of success on most of its copyright infringement and breach of contract claims, and that Fox was not entitled to a preliminary injunction against Dish Network.  The United States Court of Appeals for the Ninth Circuit affirmed the district court's ruling.

Fox owns copyrights to such television shows as Glee, Bones, The Simpsons, and Family Guy.  Fox contracts with cable and satellite television providers to retransmit these shows for customer viewing.  Fox also separately licenses its shows to companies such as Hulu, Apple, Netflix, and Amazon, which then sell or stream the shows over the internet.

In 2002, Fox and Dish Network entered into a contract that allowed Dish Network to retransmit Fox's shows to their customers.  The contract provides that Dish Network shall not "distribute" Fox programs on an "interactive, time-delayed, video-on-demand or similar basis."  It also provided that Dish Network will not "record, copy, duplicate and/or authorize the recording, copying, duplication or retransmission" of any part of Fox's signal.  An amended version of the 2002 contract stated that Dish Network could provide Fox Video-on-Demand to its subscribers, but Dish Network had to disable the fast forward function during all advertisements.

Dish Network offers two devices that Fox claims constitute copyright infringement:  the "Hopper" and "Joey."  In pertinent part, the Hopper allows the customer to "hop" over commercials.  The Hopper has a feature called PrimeTime Anytime, which allows the user to record prime time shows on their Hopper.  Another added feature to the Hopper is the Autohop that allows users to automatically skip commercials.  Autohop is only available online, and the morning after the prime time show had aired.  To create the Autohop function, Dish Network has technicians manually watch the program each night and mark the beginning and end of each commercial.

Fox sued Dish Network alleging copyright infringement and seeking a preliminary injunction.  The district court denied the preliminary injunction, concluding that Fox did not demonstrate a likelihood of success on either its copyright claims or its breach of contract claims. 

To establish direct copyright infringement by reproduction, "the plaintiff must show ownership of the copyright and copying by the defendant."  The district court concluded, and the parties did not dispute, that Fox did own the copyrights to the programs.  The focus of the court was on the second prong, "copying by the defendant."  The court noted that the user is "the most significant and important cause of the copy."   

On appeal, the United States Court of Appeals for the Ninth Circuit affirmed the district court.

The Ninth Circuit explained that infringement of the right of reproduction required copying by the defendant.  Thus, the court dismissed Fox’s assertion that Dish was responsible for infringement because Dish’s program creates recordings only in response to the user’s command.  The court concluded that "operating a system used to make copies at the user's command does not mean that the system operator, rather than the user, caused copies to be made."  Thus, Fox failed to show that it had established direct copyright infringement.

Next the appellate court addressed the district court’s conclusion that Fox was unlikely to succeed in its contention regarding secondary liability.  To establish secondary liability the party must first establish direct infringement by a third party.   Fox established a prima facie case of direct infringement by Dish Network customers because Fox owns the copyrights to its shows and the users make copies.  Dish Network had to rebut this by showing that their customers' copying was a "fair use."  In affirming the district court, the Ninth Circuit stated "if recording an entire copyrighted program is a fair use, the fact that viewers do not watch the [commercials] not copyrighted by Fox cannot transform the recording into a copyright violation."  Thus, any analysis of harm to Fox should exclude consideration of Autohop because ad-skipping does not implicate Fox's copyright interests.  Since the alleged harm to Fox is from the automatic commercial skipping and not copying the programs, Fox failed to established secondary liability.

Finally, the Ninth Circuit addressed whether Fox could get a preliminary injunction based upon Dish Network allegedly breaching the 2002 and amended 2002 contract.  The appellate court again affirmed the lower court's decision that a preliminary injunction was improper because the district court had not abused its discretion.  

MVS Filewrapper® Blog: Federal Circuit Confirms Invalidity for Overbroad Written Description

Novozymes v. DuPont Nutrition Biosciences involved patent 7,713,723 directed toward recombinant Bacillus alpha-amylase enzymes engineered to have enhanced acid tolerance and heat tolerance.  The patent owner, Plaintiffs-Appellants Novozymes, sued DuPont for infringement.  DuPont defended on grounds of non-infringement and invalidity and countersued for a declaratory judgment that the '723 patent was invalid for failing to satisfying the enablement and written description requirements of 35 U.S.C. § 112.

Novozymes had identified thirty-three Bacillus alpha-amylase amino acid positions as targets for mutagenesis.  Novozymes filed a patent in 2000 for these variants with enhanced stability, specifying that any of the positions could be altered by deletion, addition, or substitution to create variants with improved stability.  Ultimately, the application included a wide range of potential variants without identifying any of the mutations as being preferred. Instead, it only offered two examples including one for the S239W mutation, which was found to be inoperable.

In 2006, DuPont began work on similar alpha-amylase variants and came up with mutations which overlapped with six of the amino acid positions identified in Novozymes' 2000 application.  This included position 239, but the Novozymes application did not disclose the particular substation used by DuPont, S239Q. DuPont obtained a patent (7,541,026) on the variant in 2009.

           

Shortly thereafter, Novozymes filed a continuation application with claims drawn specifically to variants substituted at position 239, which issued in 2009.  The specification of the continuation was essentially the same as the 2000 application.  The day the patent issued, Novozymes sued DuPont for infringement.

The main issue in this case was whether Novozymes satisfied the written description requirement for the claims at issue.  The Court quoted Ariad, which required that the written description "clearly allow person of ordinary skill in the art to recognize that [the invention] invented what is claimed."  The Court also noted that often in cases where a patent's written description disclosed an invention in terms of a broad genus but the claims were directed toward a specific species, there must be some indication to guide a reader towards preferred possibilities out of the group.

Novozyme cited Union Oil, a Federal Circuit case involving a gasoline composition claimed in terms of various chemical and physical properties instead of describing the individual components.  In that case it was decided that anyone having ordinary skill in the art would have produced a composition with those properties which performed the claimed invention and so the written description showed that the inventors possessed the claimed invention at the time of filing.

In contrast, while Novozyme's specification included a number of possible variants and offered some limitations, it did not point out any particular characteristics which would guide a reader to the claimed variant.  The Court determined that the 2000 application did not disclose any variant that satisfied the claims and the specification failed to show that Novozymes possessed such a variant at the time of filing.  The Court ultimately held that no reasonable jury could find that the claims of the '723 patent met the written description requirement of 35 U.S.C. § 112 and the district court properly invalidated the claims.

Chief Judge Radar dissented, stating that he would reverse the grant of judgment as a matter of law and reinstate the jury's verdict.  He noted that the jury had found that a skilled artisan would know how to arrive at the claimed invention by substituting amino acids.  Their decision was based on expert testimony which suggested that finding the claimed variants based on the specification was routine and would only take a week if you had a team of ten scientists making and testing all nineteen amino acid substitutions at each of the thirty-three amino acid positions.

Given the Federal Circuit's recent decision in Wyeth v. Abbott Laboratories, it seems that providing a large number of options of a genus in a patent description could lead to trouble, even if one with skill in the art could arrive at the claimed invention with routine experimentation.  The specification needs to provide some guidance to narrow down the possibilities and enable the reader to arrive at the claimed species without undue experimentation.

           

MVS Filewrapper® Blog: Contract Enforceability Beyond Patent Term

In Kimble v. Marvel Enterprises, the plaintiff patent owner appealed the United States District Court for the District of Arizona's decision to not extend royalty payments beyond the life of a licensed patent.  The United States Court of Appeals for the Ninth Circuit affirmed the lower court's decision.

 

In December 1990, Kimble met with an officer Marvel to discuss licensing his patent for a device that allowed a user to sling web like Spider-Man.  Marvel initially decided not to license the patent, but instead chose to manufacture an infringing product.  Kimble subsequently filed a patent infringement suit against Marvel and won a reasonable royalty of 3.5 percent.  Both parties appealed this verdict, but during the appeals process the two sides decided to settle the case, agreeing that Marvel would pay Kimble "3% of "net product sales",[which] include product sales that would infringe the Patent… [as well as] sales of the Web Blaster product that was the subject of the [initial] action."  The agreement between the two parties had no expiration date and did not include any specific time limit on Marvel's obligation to pay the royalty fee.

 

In 2006, Marvel entered into a licensing agreement with another company that would create products that infringed the patent in the initial suit.  Kimble filed another suit against Marvel, but this time for breach of contract and related claims, contending he was owed a reasonably royalty for the infringing products.  Marvel counter sued taking the position that they were not obligated to pay any royalties because the patent had expired.  The District Court granted Marvel’s motion for summary judgment, concluding that the settlement agreement between the parties was a “hybrid” and that the royalties had to end when the patent expired.  Kimble appealed the decision to the United States Court of Appeals for the Ninth Circuit.

 

In deciding the case, the Ninth Circuit focused primarily upon two Supreme Court cases: Brulotte v. Thys Co. and Aronson v. Quick Point Pencil Co., with Brulottei bearing a strong factual similarity to the present case.  In Brulottei, a patent owner licensed his patent to a company, but the license was extended beyond the life of the patent.  The company eventually stopped paying royalties and the licensor brought suit to collect the unpaid portion.  The Supreme Court held that "a patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se."  The Supreme Court reasoned that a patent is the legal right to exclude.  That right has a finite term, and "[a]fter the relevant period expires… 'these rights become public property.'"  Any attempt to extend the right to exclude would "run[] counter to the policy and purpose of the patent laws."

 

The Supreme Court in Aronson decided that "patent law did not preclude the enforcement of an agreement to provide royalty payments indefinitely where no patent had issued."  In Aronson, the petitioner licensed his product to a company.  In the agreement there was a contingency clause that stated if the petitioners patent did not issue, the company would pay a reduced royalty rather than the higher rate had the patent issued.  Because of the contingency, the Supreme Court concluded that "patent law was not a 'barrier' to the contract" in the case.

In the case at hand, Ninth Circuit explained "the rule that follows . . . is that a license for inseparable patent and non-patent rights involving royalty payments that extends beyond a patent term is unenforceable for the post-expiration period unless the agreement provides a discount for the non-patent rights from the patent-protected rate."  The agreement between Kimble and Marvel had "one royalty rate for both patent and Web Blaster rights, with no discount or other clear indication that the Web Blaster royalties were not subject to patent leverage."  The agreement contemplated "one royalty for patents" and other non-patent rights and was thus invalid per se.  As a result, the Ninth Circuit affirmed the district court's judgment.

MVS Filewrapper® Blog: New and Useful - July 10, 2013

·         In Convolve v. Compaq Computer the Federal Circuit affirmed in part the United States District Court for the Southern District of New York ruling that Compaq Computer Corp., Seagate Technology, LLC., and Seagate Technology, Inc. did not misappropriate 11 of 15 alleged trade secrets from Convolve, Inc.  In addition, the Federal Circuit affirmed the district court’s judgment that 8 claims of U.S. Patent No. 4,916,635 (“the ’635 patent”) are invalid.  However, the Federal Circuit vacated the district court’s ruling that Compaq did not infringe several claims of U.S. Patent No. 6,314,473 (“the ’473 patent”), and remanded the case for further proceedings relating to that patent. 

Convolve and Massachusetts Institute of Technology (“MIT”) sued Compaq and Seagate for both trade secret misappropriation and patent infringement, all related to technology developed by Dr. Neil Singer while a graduate student at MIT.  The technology involves seeks in computer hard drives, and minimizing the vibrations created by those seeks—the ’635 patent discloses a method “for generating an input to a system to minimize unwanted dynamics in the system response and to reduce energy consumed by the system during moves,” and an apparatus for shaping commands to a system “to reduce endpoint vibration.” The ’473 patent covers the same type of technology, but relating specifically to data storage devices such as computer disk drives.  The ’473 patent is owned by Convolve, a company owned by Dr. Singer, and the ’635 patent is owned by MIT.  Convolve is the exclusive licensee of MIT software motion control technology called Input Shaping, which Convolve alleges is covered by the trade secrets and patents involved in the case. 

Convolve entered into licensing discussions with Compaq, which included a non-disclosure agreement (NDA) signed by both parties and covering confidential information disclosed between August 13, 1998 and October 15, 2000, but explicitly excluding any information that: (1) the recipient possessed prior to disclosure; (2) was a matter of public knowledge; (3) was received from a third party without a duty of confidentiality attached; (4) was independently developed by the recipient; (5) was disclosed under operation of law; or (6) was disclosed by the recipient with the discloser’s prior written approval.  The NDA further stated that any confidential material or presentations must be particularly identified as confidential.  Compaq sought to include Seagate as the potential designer and manufacturer of hard disk drives incorporating Convolve’s technology to include in Compaq’s computers.  Convolve then disclosed its technology to Compaq and Seagate, but Convolve and Compaq/Seagate never entered into a licensing agreement.

Convolve filed suit alleging breach of contract, misappropriation of trade secrets, patent infringement of the ’473 patent, ’635 patent and breach of good faith and fair dealing.  The district court granted Compaq and Seagate’s motions for summary judgment, dismissing Convolve’s claims of breach of contract, infringement of the asserted claims of the ’473 and ’635 patents, and misappropriation of a subset of the trade secrets asserted against Compaq and Seagate; and granting Seagate’s motion for summary judgment for invalidity of the ’635 patent.  

Regarding the alleged trade secrets, the Federal Circuit upheld the district courts findings and judgment that Compaq and Seagate had not misappropriated 7 of the asserted trade secrets because Convolve disclosed the information in the absence of a written confidentiality follow-up memorandum mandated by the NDA.  The Federal Circuit also affirmed the district court’s ruling that 6 of the asserted trade secrets were either generally known before any disclosure by Convolve or were not used by Seagate following any disclosure by Convolve.  Further, the court rejected Convolves argument that Seagate’s actions constituted trade secret misappropriation under the California Uniform Trade Secret Act notwithstanding the NDA, concluding that where the parties have contracted the limits of their confidential relationship regarding a particular subject matter, one party should not be able to circumvent its contractual obligations or impose new ones over the other via some implied duty of confidentiality.

The Federal Circuit vacated the district court’s grant of summary judgment to Seagate and Compaq for non-infringement of the asserted claims of the ’473 patent, concluding that there were material issues of fact that precluded a grant of summary judgment  as to direct or indirect infringement.  The court also concluded that there was sufficient evidence to preclude summary judgment for induced infringement on the basis of the court’s recent holding in Toshiba Corp. v. Imation Corp. that when an alleged infringer instructs users to use a product in an infringing way, there is sufficient evidence for a jury to find direct infringement.

·         The Federal Circuit in Wyeth v. Abbott Laboratories upheld the U.S. District Court for the District of New Jersey's grant of summary judgment that claims 1 and 2 of U.S. Patent No. 5,516,781 and claim 1 of U.S. Patent No. 5,563,146 are invalid for nonenablement.  The patents relate to the use of rapamycin for the treatment of restenosis.  The patents disclosed use of the rapamycin species sirolimus to reduce thickening of arterial walls.  Wyeth sued the defendants for patent infringement for their products that elute everolimus and zotarolimus.  These compounds fall under the umbrella of rapamycin, but are not mentioned in the specification of the Wyeth patents.

The main issue on appeal was whether practicing the full scope of the claims requires excessive experimentation.  The specification describes assays used to determine whether a potential rapamycin compound exhibits the desired characteristics of immunosuppressive and antirestenotic effects.  Wyeth argued that even though millions of compounds would meet these criteria, one of skill in the art would know that an effective compound had to be small enough to permeate cell membranes.  However, that still leaves tens of thousands of compounds to test and the specification gave no indication of which types of rapamycin compounds would be preferable over others, leaving scientists to synthesize and screen each and every compound. 

While synthesizing and screening compounds is considered routine experimentation, the Court noted in Cephalon, Inc. v. Watson Pharm., Inc. that routine experimentation is "not without bounds."  One indication of excessive experimentation is length of time that would be spent to do the experiments.  Wyeth's expert admitted that it would take technicians weeks to complete each of the assays. 

A final indicator that the invention is not enabled is the unpredictability of the field.  Simply offering a starting point for further research in field like organic chemistry does not properly enable an invention.  Due to the uncertainty, there needs to be more concrete guidance given in the specification in order to avoid undue experimentation.

Ultimately, the Federal Circuit determined that synthesizing and screening tens of thousands of candidate compounds constituted undue experimentation.  While they did not draw a definitive line between routine experimentation and undue experimentation, the Court did provide some guidance on what could be considered excessive experimentation in organic chemistry.

·         In Commil USA v. Cisco Systems, Cisco Systems appealed a district court final judgment in favor of Commil, asserting that the district court gave erroneous jury instructions, improperly precluded Cisco from presenting evidence of good-faith belief of invalidity, and abused its discretion by granting a new partial trial.  On appeal, the Federal Circuit found that the district court gave erroneous instructions to the jury with respect to indirect infringement and that evidence of a good-faith belief of invalidity may negate the intent required to show induced infringement.  The Court determined that the district court did not err in granting the partial new trial.

In regard to the issue of indirect or induced infringement, the jury had been instructed in part that to show induced infringement, "Cisco knew or should have known that its actions would induce actual infringement."  In light of the Supreme Court's decision in Global-Tech Applicances, Inc. v. SEB S.A., which held that induced infringement "requires knowledge that the induced acts constitute patent infringement," a finding of induced infringement may no longer be based on recklessness or negligence.  As such, the Federal Circuit concluded that the jury instructions were erroneous as a matter of law.  The Court found that this erroneous instruction could have changed the result of the trial.  Due to the prejudicial effect of the jury instruction, the Court vacated the verdict of induced infringement and remanded for a new trial. 

With respect to invalidity, Cisco had provided evidence to support its good-faith belief that the patent at issue was invalid.  However, the district court granted Commil's motion in limine to exclude that evidence.  Federal Circuit case law has shown that evidence of a good-faith belief of non-infringement tends to show that an accused inducer of infringement lacked the requisite intent.  Similarly, the Court in this case found that a good-faith belief of invalidity serves the same purpose as a good-faith belief of non-infringement as far as specific intent is concerned.  The Court noted that "one could be aware of a patent and induce another to perform the steps of the patent claim, but have a good-faith belief that the patent is not valid.  Under those circumstances, it can hardly be said that the alleged inducer intended to induce infringement."  The Federal Circuit ultimately held that a good-faith belief of invalidity can negate the specific intent required for induced infringement.

Judge Newman dissented with regard to this portion of the ruling, finding that the Court had changed the law of induced infringement.  She stated that a good-faith belief in invalidity does not avoid liability for infringement because infringement in fact does not depend on the belief of the accused infringer.  Judge Newman relied on tort theory to support her position that "A mistake of law, even if made in good faith, does not absolve a tortfeasor."

With respect to the decision to grant a partial new trial on the issues of indirect infringement and damages, the Federal Circuit determined that it did not violate the Seventh Amendment because the issues were distinct and separable.  The jury in the partial trial was asked to determine whether Cisco possessed a good-faith belief of invalidity, but not whether the patent was in fact invalid.  Cisco argued that these issues are intertwined, but the Court determined that they could be separate issues. 

Judge O'Malley disagreed with this part of the decision, believing that Cisco was deprived of its right to a jury trial under the Seventh Amendment.  She noted that because statements by Cisco's counsel were prejudicial towards the Jewish inventors of Commil, the entire trial was affected.  As a result, Commil was entitled to an entire retrial of all of the issues instead of a partial new trial.

MVS Filewrapper® Blog: New and Useful - July 8, 2013

·         The Federal Circuit in Ultramercial, Inc. v. Hulu, LLC held that the district court erred in holding that the subject matter of U.S. Patent No. 7,346,545 ('545) is not a "process" within the language and meaning of 35 U.S.C. § 101.  The Federal Circuit reversed and remanded this case stating the claims were not abstract and were patent eligible.

The '545 patent claims a method for distribution of copyrighted products over the Internet where the consumer receive the product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.  In other words, it is a method for monetizing and distributing copyrighted products over the Internet.

Ultramercial originally sued Hulu, LLC ("Hulu"), YouTube, LLC ("YouTube"), and WildTangent, Inc. ("WildTangent"), alleging infringement of the '545 patent.  Hulu and YouTube were later dismissed from the case.  WildTangent then moved to dismiss for failure to state a claim under Rule 12(b)(6).  The United States District Court for the Central District of California granted the dismissal holding that patent '545 did not claim patent-eligible subject matter.  The Federal Circuit had previously reversed the district court's holding and remanded the case, but that earlier decision was vacated by the United States Supreme Court. 

The district court’s grant of the motion to dismiss was based on its conclusion that there was no reasonable construction that would render the subject matter patent-eligible.  The Federal Circuit took issue with this approach, and explained that inquiries into patent-eligibility under § 101 would often involve factual questions, and that claim construction would often be necessary.   In this case, the Federal Circuit determined that the factual determinations were key to deciding eligibility, and that a construction most favorable to the patentee should be applied. 

In its analysis, the Federal Circuit reiterated that under the “abstract ideas” limitation to patent-eligibility of 35 U.S.C. § 101, a claim is not patent eligible only if, instead of claiming an application of an abstract idea, the claim is instead to the abstract idea itself.  A claim may be premised on an abstract idea and, indeed, the abstract idea may be of central importance to the invention—the question for patent eligibility is whether the claim contains limitations that meaningfully tie that abstract idea to an actual application of that idea through meaningful limitations.  In determining if the claim is abstract or not, the court must look at the claim as a whole and "cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims."

The Federal Circuit looked to the Supreme Court for guidance on discerning whether or not a claim is an abstraction.  First, the Supreme court in Prometheus stated that a claim is not meaningfully limited if it merely describes an abstract idea or in essence simply adds the words "apply it."  Second, a claim is invalid if the subject matter preempts all practical uses of an abstract idea.  In other words, a claim is invalid if it covers every practical application of that abstract idea.  Finally, the Supreme Court in Prometheus stated "that a claim is not meaningfully limited if its purported limitations provided no real direction, cover all possible ways to achieve the provided result, or are overly-generalized."

With this guidance in mind, the Federal Court held that the claims of '545 were patent eligible and not invalid under § 101.  The court noted that by its terms, patent '545 invokes computers and applications of computer technology.  Even without claim construction, several of the steps require that the method be performed though computers, on the internet, and in a cyber-market environment.  Further, if the products are offered for sale on the internet, they must be restricted by complex computer programming as well.  Viewing the subject matter as a whole, the invention recites a process, it does not pre-empt all use of the abstract idea, the recited steps are not all pre- or post-solution steps, and the claim is not overly generalized.  The claims also do not involve a mathematical algorithm, a series of purely mental steps, or any similarly abstract idea.  Thus the claims of patent '545 were found to be patent-eligible.  

  

·         In Authors Guild v. Google Inc., the Second Circuit vacated a class certification by the United States District Court for the Southern District of New York, and remanded the case back for further consideration, without prejudice to any renewal of the motion for class certification.

The suit commenced in 2005 when The Authors Guild, an association of authors, and several individual authors sued Google alleging copyright infringement by Google Books.  Google Books would scan and index books and make short snippets of the books available for public viewing without payment to the authors.

Following a course of discovery and settlement agreements, both parties moved for an approval of an amended proposed class settlement agreement.  After the court refused the motion, the plaintiff moved to certify a proposed class of "[a]ll persons residing in the United States who hold a United States copyright interest in one or more books reproduced by Google."  The district court allowed the certification.  Google opposed the motion for class certification and appealed the District Court's grant of class certification to the Second Circuit.  In its appeal, Google stated they intended to raise a "fair use" defense, which might moot the litigation.  Google also raised the defense that the class representatives do not adequately protect the interests of the class as a whole.

The appellate court set aside Google's second defense and chose to just focus on the fair use argument, stating "the resolution of Google's fair use defense in the first instance will necessarily inform and perhaps moot our analysis of many class certification issues."  The court believed that Google's fair use defense should be fully resolved before questions regarding class certification are decided on.  The court vacated the District Court's decision to allow certification of the proposed class and remanded the case back for consideration of the fair use issues, without prejudice to any renewal of the motion for class certification.

·         In Fresenius USA v. Baxter Inter'l, the Federal Circuit decided whether the cancellation of the asserted claims by the United States Patent and Trademark Office ("PTO"), pursuant to the agency's statutory reexamination authority, must be given effect in pending infringement litigation.  The Federal Circuit held that it did, and dismissed the district court's decision and remanded with instructions to dismiss.

The case commenced when Fresenius USA and Fresenius Medical Care Holdings (collectively, "Fresenius") brought a declaratory judgment action against Baxter International and Baxter Healthcare Corporation (collectively "Baxter") alleging that claims of U.S. Patent No. 5, 247, 434 ('434) were invalid and not infringed.  Baxter counterclaimed for infringement.  The district court found in favor of Baxter that Fresenius infringed the claims and that the claims were not invalid.  The Federal Circuit affirmed the district court's ruling, but remanded to reconsider its injunction and post-verdict damages.

While the litigation was pending on remand to the District Court, the PTO completed a reexamination of the patent and determined that all asserted claims were invalid.  After the PTO made its determination, the district court entered judgment against Fresenius in the pending infringement proceeding.  On appeal, Fresenius argued that Baxter no longer had a cause of action because the PTO gave its ruling before the district court gave theirs.

The reexamination statute of 1928 authorized the PTO to reconsider patents of "doubtful" validity, and to cancel "defectively examined and therefore erroneously granted patents."  Looking at the language and legislative history, the court noted that reexamination is supposed to occur concurrently with litigation, and that cancellation of claims during reexamination would be binding on concurrent infringement litigation.  After looking at all applicable precedent, the court concluded that if the PTO confirms the original claim in identical form, a suit based on that claim may continue, but if the original claim is cancelled or amended to cure invalidity, the patentee's cause of action is extinguished and the suit would fail.

Baxter contends that this rule does not apply to the present case because their case was conclusively decided before PTO gave their decision.  The Federal Circuit disagreed. The court stated that their original decision was not sufficiently final as to immunize it from the PTO's decision.  The court's original decision left open many aspects that still needed to be decided upon by the lower court.  The court explained "it is well-established that where the scope of relief remains to be determined, there is no final judgment binding the parties or the court."  For the PTO's decision to have no effect, a final decree must have been given, leaving nothing further to be done except the execution of it.  Since the PTO invalidated the claims before the lower court decided the injunction and post-verdict damages issues, Baxter no longer had a cause of action and the suit would fail.

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