Fresenius Extended: Sanctions for Injunction Contempt Vacated If Claim Held Unpatentable

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By Tony Dutra  

July 25 — A year ago, the Federal Circuit's controversial decision in Fresenius v. Baxter vacated a two-year-old damages judgment after the Patent and Trademark Office cancelled as unpatentable the allegedly infringed patent claims. On July 25, the court extended that principle beyond damages.

The court now ruled that not only was an injunction set aside by a similar PTAB ruling, but sanctions for contempt of the three-year-old injunction must be wiped out as well (ePlus, Inc. v. Lawson Software, Inc.,Fed. Cir., No. 2013-1506, 7/25/14).

The split decision—with a dissent carried over from Fresenius—vacated a district court's sanctions of over $18 million against Lawson Software Inc.

The Supreme Court denied the petition for writ of certiorari in Fresenius; the dissent here offered a host of arguments that patent owner EPlus Inc. is likely to make should it file for high court review of this decision.

Multi-Catalog Online Shopping Patents

EPlus is assignee of patents (U.S. Patent Nos. 6,023,683 and 6,505,172) related to purchasing goods online.

Lawson sells customizable computer software to large organizations for supply chain management. The companies can implement Lawson's modules in different configurations.

EPlus sued Lawson in the U.S. District Court for the Eastern District of Virginia, asserting infringement of system and method claims by five configurations of Lawson's modules.

Following is the time line for relevant events:

  •  May 23, 2011. Judge Robert E. Payne entered judgment in line with a jury verdict of infringement by three Lawson configurations. He enjoined Lawson from selling modules and assisting customers in putting the modules together in the infringing configurations.
  •  Nov. 21, 2012. The Federal Circuit determined that only method claim 26 of the '683 patent was both valid and infringed. ePlus Inc. v. Lawson Software Inc., 700 F.3d 509, 2012 BL 305821, 105 U.S.P.Q.2d 1190 (Fed. Cir. 2012). It remanded for reconsideration of the injunction, without ruling on any part of it.
  •  Aug. 16, 2013. Payne modified the injunction only to eliminate one of the configurations from being enjoined. He found Lawson in contempt of the 2011 injunction because Lawson's redesigned products were not colorably different from those that had infringed claim 26. ePlus, Inc. v. Lawson Software, Inc., 946 F. Supp. 2d 472, 2013 BL 219537 (E.D. Va. 2013).
  •  Aug. 26, 2013. Lawson added to an existing appeal, arguing that the modification to the injunction should have been more extensive because the method claim was not infringed by sales of modules.
  •  Nov. 8, 2013. The Federal Circuit affirmed without opinion the PTO's judgment that claim 26 was unpatentable. In re ePlus, Inc., 540 Fed App'x 998, 2013 BL 319775 (Fed. Cir. 2013).
  •  

    The PTO cancelled the claims in April, leaving the Federal Circuit with two questions: Can the injunction continue? Are the sanctions appropriate?

    Injunction Must End

    Judge Timothy B. Dyk wrote the opinion of the court. The court was unanimous in its answer to the first question.

    The court considered Supreme Court precedents going back to 1851. “Our court has applied these principles to an injunction barring infringement of patents later found to be invalid,” the court said, citing Mendenhall v. Barber-Greene Co., 26 F.3d 1573, 1584, 31 U.S.P.Q.2d 1001 (Fed. Cir. 1994).

    The court concluded, “Under these authorities, there is no longer any legal basis to enjoin Lawson's conduct based on rights that claim 26 of the '683 patent previously conferred as those rights have ceased to exist.”

    Contempt Sanctions Erased

    The district court found Lawson in civil contempt, which the majority distinguished from criminal contempt—for which “any resulting penalties would not be set aside.”

    In contrast, the court said, “Civil contempt sanctions must be set aside when the resolution of the case requires overturning the injunction on which those sanctions are based.”

    The majority relied primarily on Worden v. Searls, 121 U.S. 14 (1887), which held that a patent owner's right to civil sanctions “was founded on the validity of his patent.” The court distinguished cases that “involve situations where the basis for the injunction was eliminated prospectively” or that involved “penalties that were not determined to be civil.”

    The court then turned to Fresenius USA Inc. v. Baxter Int'l Inc., 721 F.3d 1330, 2013 BL 175930, 107 U.S.P.Q.2d 1365 (Fed. Cir. 2013), where “we held that a non-final money judgment of damages for infringement must be set aside where the judgment rested on a patent claim that the PTO later cancelled.”

    Key to the difference between the majority and dissent here was in the definition of a “final judgment.” In Fresenius, the court held that “where the scope of relief remains to be determined, there is no final judgment binding the parties (or the court).”

    In the instant case, the majority said, the district court's injunction was not final because “Lawson challenged the very provisions of the injunction that led to the contempt sanctions sought by ePlus—namely, the bar against sales of particular software products.”

    EPlus argued that Lawson viewed the injunction as final because Lawson had filed a motion under Fed. R. Civ. P. 60(b), on relief “from a final judgment, order, or proceeding.” The court disagreed, noting that the motion did not foreclose appeal of the injunction.

    The court thus vacated the district court's injunction and contempt orders.

    Chief Judge Sharon Prost joined the opinion.

    Dissent: Facts Different

    Judge Kathleen M. O'Malley dissented, claiming that, under the majority's view, “finality almost never exists for preclusion purposes.”

    She had dissented when the court decided not to take Fresenius en banc. Fresenius USA Inc. v. Baxter Int'l Inc., 733 F.3d 1369, 2013 BL 306937, 108 U.S.P.Q.2d 1773 (Fed. Cir. 2013). In her dissent in the instant case, she said, “if we are bound by Fresenius II on these facts, I find Fresenius II even more troubling than I initially believed.”

    The fact differences, O'Malley said, were that Lawson did not challenge the validity of claim 26 after the first district court judgment; the remand instructions in this case did not vacate the injunction; and the remedies at issue were monetary in one case and injunctive in the other.

    She summarized:

    By extending Fresenius II to these materially different circumstances, the majority assumes that any determination made during an infringement case, even if that specific issue is never appealed, can be nullified by the action of an administrative agency as long as anything—even a fully discretionary “consideration” of an intact remedy—remains available.

    The dissent closed with a claim of a purported circuit split on the finality of an injunction judgment, as well as a complaint that the Federal Circuit has itself, en banc, agreed to a different view of finality when it comes to interlocutory appeals, in Robert Bosch, LLC v. Pylon Mfg. Corp., 719 F.3d 1305, 2013 BL 157306, 107 U.S.P.Q.2d 1113 (Fed. Cir. 2013).

    “Despite the very liberal view of finality we employed in that context, we continue to declare that we must employ the stingiest view of that concept when deciding at what point parties may rely on litigated determinations of their rights,” O'Malley said in closing.

    Michael G. Strapp of Goodwin Procter, Boston, represented EPlus. Mark A. Perry of Gibson, Dunn & Crutcher LLP, Washington, D.C., represented Lawson.

    To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

    To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com

    Text is available at http://www.bloomberglaw.com/public/document/ePlus_Inc_v_Lawson_Software_Inc_Docket_No_1301506_Fed_Cir_Jul_10_.