Ruling in Eastern District of Texas Sets the Stage for the Federal Circuit to Revisit Fresenius v. Baxter

Versata Software, Inc. et al. v. SAP America, Inc. et al., Case No. 2:07cv153-RSP (E.D. Tex.)

Versata v. SAP has been a dispute that the patent bar has followed with interest because it spawned the very first Covered Business Method (CBM) review petition under the America Invents Act.  Now the dispute is worth watching for another reason – it has set the stage for the Federal Circuit to potentially revisit the concept of "finality" in patent litigation articulated in its decision last year in Fresenius USA, Inc. et al. v. Baxter Int'l, Inc., et al., 721 F.3d 1330 (2013).  Specifically, Magistrate Judge Roy Payne issued an opinion in Versata on Monday that rejected defendant SAP's request to vacate Versata's $391 million jury award because the patent in suit had since been invalidated in CBM review by the US Patent Trials & Appeals Board (PTAB).  SAP argued that vacating the judgment was required by Fresenius. 

In Fresenius a 2-1 Federal Circuit panel overturned a jury verdict of infringement and validity that had previously been affirmed by a prior Federal Circuit panel because the USPTO had invalidated the patents in suit in a parallel ex parte reexamination and that reexam decision had been affirmed by the Federal Circuit.  The panel concluded (over a vigorous dissent by Judge Newman) that the district court-track litigation was not "final," and therefore could be overturned by the reexam-track invalidity decision.  The Fresenius panel found that the district court litigation was not "final" for the purposes of res judicata on the issue of validity because the damages and injunction issues were on appeal following a decision on remand.  As Fresenius found, so long as those issues had not yet been finally decided by the Federal Circuit, the district court litigation was "pending" and could be mooted by a final decision by the Federal Circuit in the reexam-track litigation.

The procedural posture in Versata has a number of similarities to Fresenius: 

• As in Fresenius, the district court reached a jury verdict finding infringement, and that decision had been previously appealed and affirmed by the Federal Circuit.  Interestingly, SAP did not appeal the issue of validity. 
• While the district court-track appeal was pending, SAP petitioned the PTAB for CBM review of the infringed Versata '350 Patent and that petition was granted. 
• While the PTAB proceedings were ongoing, the Federal Circuit in the district court-track litigation affirmed the jury verdict of infringement and damages in May 2013.  However, the Federal Circuit found that aspects of the district court's permanent injunction were too broad, and remanded for reconsideration by the district court. 
• Subsequently, in June 2013, the PTAB came out with a final ruling holding that the Versata patent claims were invalid under 35 U.S.C. § 101.
• Finally, after the district court-track litigation was remanded, Versata waived its claim to a permanent injunction (the only issue the Federal Circuit had reversed on appeal), and Magistrate Judge Payne entered a final judgment.

With this backdrop, Magistrate Judge Payne concluded that the district court's final judgment was "final" for res judicata purposes, and therefore could not be overturned by the PTAB decision, notwithstanding Fresenius.  Magistrate Judge Payne determined that "there are no further issues to be resolved" in the Versata cases, and therefore Fresenius is inapplicable.  Op. at 4.  Magistrate Judge Payne took note of the substantial work the parties and the courts had devoted to the district court-track litigation and further noted that the PTAB decision has not yet been reviewed by the Federal Circuit.  He concluded that "it is the finality of the judgments issued by the Federal Courts that is at stake here."  Id.

This decision raises new wrinkles in the concept of "finality" in patent litigation and highlights the risk that patent litigation can turn into a race for the Federal Circuit.  We can expect the questions on preclusion raised by this opinion to come to the fore as the Federal Circuit considers the PTAB appeal in the CBM-track litigation and appeal from the district court case.