Perilous parallel proceedings in patent cases

While patent infringement claims and remedies are only litigated in district court proceedings (or at the International Trade Commission), patent litigants have long been accustomed to litigating patent validity in multiple fora in parallel. These parallel proceedings can result in conflicting decisions, whereby an invalidity decision from the United States Patent and Trademark Office (PTO) can wipe out a successful infringement, validity, and damages result from district court trial.

For example, patent defendants can challenge the validity in both the district court and in a PTO proceeding known as an ex parte reexamination. It is difficult, however, for ex parte proceedings to derail district court litigation unless the case is stayed pending reexamination because there are no time limits on when a final decision must be issued, meaning they can go on for years. Increased availability and popularity of fast patent litigation venues, which are generally disinclined to stay a case pending reexamination, further blunts any potential impact of ex parte reexamination, even one that ultimately cancels all claims because such a result may not occur until long after a final district court judgment is paid.

In 2012, inter partes review (IPR) became a new procedure for challenging patent validity in the PTO. Unlike ex parte reexamination, this new proceeding has strict time limits. An IPR must be filed within one year of service of an infringement complaint, and once an IPR is instituted, it must be completed within one year. This means it has become more common for there to be conflicting results close in time. This has forced the Federal Circuit to decide between conflicting results multiple times in recent years and has produced outcomes that patentees find to be draconian. The recent outcome in VirnetX Inc. v. Apple Inc., No. 21-1672 (Fed. Cir. Mar. 31, 2023) is illustrative on both fronts.

The VirnetX versus Apple saga began in 2010, before IPRs existed. VirnetX sued Apple alleging that Apple's VPN on Demand and FaceTime infringed its patents. A jury awarded VirnetX damages of $368 million. The verdict was as to validity and infringement as to VPN on Demand, but it vacated infringement as to FaceTime and damages, and remanded.

In 2012, VirnetX sued Apple again asserting that Apple's redesigned versions of VPN on Demand and FaceTime infringed the same patents asserted in the 417 case.

Apple filed IPRs in 2013 that were denied as time barred.

In 2015, the district court consolidated two cases. The consolidated case proceeded to trial. The jury found for VirnetX, but the district court vacated the verdict, severed the cases, and set both for new trials.

In 2015, an unrelated party, Mangrove, filed IPRs challenging the patents. Despite its prior untimely IPRs, Apple was permitted to file identical IPRs and join the Mangrove IPRs. When this decision was appealed, the Federal Circuit declined to decide whether Apple's joinder was proper because it found that VirnetX had not been prejudiced by Apple's joinder.

In 2016, a jury awarded VirnetX $302 million in the original case. Apple appealed, but judgment was affirmed on all issues.

In 2018, the jury found that Apple's redesigned products also infringed the same patents and awarded VirnetX $502 million. On appeal, the Federal Circuit vacated the damages award and remanded. In 2020, the district court held a new trial on damages; VirnetX was awarded $502.8 million in damages. Apple appealed, but the appeal was never resolved. Instead, the Federal Circuit vacated the $500M verdict as moot because in the intervening period the patents were invalidated in the IPRs filed in 2015 and the result was affirmed.

The Federal Circuit's decision relied on Fresenius USA, Inc. v. Baxter Int'l, Inc., 721 F.3d 1330, 1347 (Fed. Cir. 2013). In Fresenius, while the appeal of the district court's judgment was pending, all claims were invalidated in an ex parte reexamination. The Federal Circuit affirmed the reexamination result and vacated the district court judgment, holding that the PTO's final decision canceled the relevant claims.

But this is not always the outcome. In WesternGeco L.L.C. v. ION Geophysical Corporation, also a decade-long case, the parties entered a stipulation resolving all issues except for the lost profits award, including ION's liability for reasonable royalties and enhanced damages. The Federal Circuit held that the subsequent invalidation of the asserted patent claims did not support reopening of the final judgment regarding reasonable royalty award because ION had assented to the judgment in the stipulation. 913 F.3d 1067, 1072 (Fed. Cir. 2019).

In Chrimar Systems, Inc. v. ALE USA Inc., determined shortly thereafter, the Federal Circuit held that its affirmance of PTO unpatentability decisions had immediate issue-preclusive effect on any pending or co-pending actions involving patents, distinguishing the WesternGeco case as involving a "fully satisfied and unappealable final judgment." 785 Fed. Appx. 854, 856 (Fed. Cir. 2019).

On the other hand, a PTO finding is generally not binding on a district court if the finding is pending on appeal. See e.g., Tinnus Enterprises, LLC v. Telebrands Corp., 846 F.3d 1190, 1202 n.7 (Fed. Cir. 2017) (upholding a preliminary injunction even though, in the interim, the patents were invalidated in the PTO).

Recent decisions about "finality" have not been without controversy. In Fresenius, for example, four judges dissented to the denial of the rehearing en banc, asserting that the past damages award was final and should not be disturbed. 733 F.3d 1369 (Fed. Cir. 2013). Similarly, in ePlus, Inc. v. Lawson Software, Inc., five judges opposed the Court's finality ruling. 790 F.3d 1307 (Fed. Cir. 2015). In her dissent, Judge Moore noted that "Congress intended the IPR/CBM/reexam route to be an alternative to district court litigation of certain validity issues, not duplicative of them" and that "there are problems with a system which permits defendants to snatch victory from the already closed jaws of defeat." Id. at 1315. With new judges on the bench, the Federal Circuit may review this issue again.

Denise De Mory is managing partner, and Li Guo is counsel at Bunsow De Mory LLP.