The Court of Appeals for the Federal Circuit waded into a convoluted case involving patents directed to X-Y chromosome sorting techniques for selective breeding in livestock. This case is XY, LLC v. Trans Ova Genetics, L.C.,[1] and the opinion was issued on May 23, 2018. Topically, the case deals with breach of contract, antitrust, and invalidity issues. However, the underlying issue was whether an invalidity finding of patent claims in a co-pending administrative IPR decision collaterally estopped assertion of those claims in a co-pending judicial case. This is the focus of this posting. XY is a recent example of the continuing tensions at the Fed Circuit to amalgamate the recent U.S. Supreme Court decision in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC.
The facts are as follows.
XY owns several groups of patents related to X-Y sorting techniques mentioned above. The group are broken down as follows:
- Fluid Patents: U.S. Patent Nos. 6,149,867 (‘867), entitled “Sheath fluids and collection systems for sex-specific cytometer sorting of sperm,” and 6,524,860 (‘860), entitled “Methods for improving sheath fluids and collection systems for sex-specific cytometer sorting of sperm”;
- Freezing Patent: U.S. Patent No. 7,820,425, entitled “Method for cryopreserving selected sperm cells”;
- In-Vitro Patent: U.S. Patent No. 8,569,053, entitled “In-vitro fertilization systems with spermatozoa separated into X-chromosome and Y-chromosome bearing populations”; and
- Reverse Sort Patents: U.S. Patent Nos. 7,713,687 and 7,771,921, both entitled “System to separate frozen-thawed spermatozoa into X-chromosome bearing and Y-chromosome bearing populations.”
Trans Ova provides bovine embryonic and in-vitro fertilization. Trans Ova and Inguran, LLC, engaged in a licensing agreement for purchase of sorted semen; the licensor was XY. After some time, Trans Ova became dissatisfied with Inguran, and licensed directly from XY. Trans Ova and XY then entered into a licensing agreement in 2004 using XY’s breeding technology. The agreement was subject to automatic renewal unless there was material breach on the part of Trans Ova. In 2007, Inguran acquired XY, and XY subsequently terminated its agreement with Trans Ova, citing material breach. Negotiations continued for several years, unsuccessfully. In 2012, XY sued Trans Ova for patent infringement. Trans Ova countered with patent invalidity, antitrust, and breach of contract. This posting will only really delve into the invalidity issues.
At trial, the jury found both parties breached their agreement: Trans Ova by failing to cure prior to the 2009 renewal date, and XY for acting in bad faith for attempting to terminate the agreement in 2007. The jury found Trans Ova infringed XY’s patents and awarded $1.48 million to XY; because of XY’s material breach, the jury awarded $528,000 to Trans Ova. Further, the jury found none of the asserted patents were invalid.
Post-trial, Trans Ova filed a motion for new trial based on invalidity of the patents. However, XY argued that Trans Ova was only relitigating the trial because Trans Ova was only criticizing the testimony of XY’s expert witness. The district court denied the motion. Trans Ova appealed the decision to the Fed Circuit.
The Fed Circuit panel, composed of Judges Newman, Dyk, and Chen, with Judge Chen writing for the majority. Judge Chen, noted as to patent invalidity that Trans Ova stipulated prior to the district court trial as to XY’s expert witness’ testimony. He then goes on to summarily note that the court did not need to address Trans Ova’s invalidity arguments as to the Freezing Patent because the Fed Circuit, in a contemporaneously decided Rule 36 per curiam order, affirmed the PTAB’s final decision to invalidate the ‘425 patent (there were two XY decisions affirmed by the Fed Circuit; the other Rule 36 order is here). Earlier, the PTAB had heard an IPR and rendered a final decision on the ‘425 patent (as well as an IPR on XY’s other Freezing Patent that was not subject to this litigation, U.S. Patent No. 7,195,920).[2] As a result of the decision to affirm the PTAB, Judge Chen believed collateral estoppel principles attached.
That affirmance rendered final a judgment on the invalidity of the Freezing Patent, and has an immediate issue-preclusive effect on any pending or co-pending actions involving the patent. This court has previously applied collateral estoppel to such co-pending cases because “a patentee, having been afforded the opportunity to exhaust his remedy of appeal from a holding of invalidity, has “had his day in court,” and a defendant should not have to continue defending a suit for infringement.”[3]
Judge Chen further determined:
We do not find, as the Dissent states, that “in the event of conflict the administrative agency’s decision ‘moots’ the district court’s decision.” Rather, we find that an affirmance of an invalidity finding, whether from a district court or the Board [PTAB], has a collateral estoppel effect on all pending or co-pending actions. This court has long applied the Supreme Court’s holding in Blonder-Tongue [4] to apply collateral estoppel in mooting pending district court findings of no invalidity based on intervening final decision of patent invalidity[5] . . . This court also recently applied the Supreme Court’s holding in B&B Hardware, Inc. [6] to apply to such estoppel to Board decisions.[7]
Judge Chen noted that both precedent and the parties’ positions allowed for disposing of case issues with collateral estoppel sua sponte. The panel’s majority then dismissed Trans Ova’s invalidity arguments as to the Freezing Patent, and affirmed to district court’s decision as moot.
As to the remaining patents, Judge Chen wrote that the district court jury did not err when it found XY’s expert testimony compelling and found XY’s patents not invalid. The majority therefore affirmed the district court’s denial of Trans Ova’s motion for new trial.
Judge Newman dissented in part, specifically as to the dismissal as moot the invalidity of the Freezing Patent (she concurred as to the validity of Fluid, In-Vitro, and Reverse Sort Patents). She wrote:
My concern is with the holding that the district court’s judgment of validity of the Freezing Patent is “moot” on the ground of collateral estoppel. This holding of estoppel is based on a PTAB ruling in a separate case involving non-mutual parties, and contravenes not only the AIA’s estoppel provision, but also the general law of collateral estoppel. Of further concern, this holding that judicial authority is stopped by an administrative agency ruling between non-mutual parties warrants attention to the constitutional balance among the branches of government . . .
I respectfully dissent from the panel majority’s holding of collateral estoppel and ensuing invalidity as to the Freezing Patent.[8]
Judge Newman was concerned about the fact that invalidity is determined by a jury, and at the district court trial, a jury already determined the Freezing Patent was valid. Inasmuch as the PTAB then determined the same Freezing Patent was invalid on other grounds, she was troubled that the Fed Circuit would overturn precedence and jury findings in favor of an administrative agency decision.
She took the majority to task by countering the majority’s contention that estoppel is routine. In the case the majority cited, Blonder-Tongue, the Supreme Court held that collateral estoppel attaches only when the defendant can show the issue is identical to the one presented in a case finally decided against a patentee in a previous litigation.[9] Further, she was deeply troubled about the process in which collateral estoppel was used.
The imposition of estoppel by my colleagues contravenes the America Invents Act, §315(e)(2), as well as the Supreme Court’s rulings. My colleagues rely on Dana Corp. v. NOK, Inc.,[10] to support depriving XY of the opportunity to contest the appellate application of collateral estoppel. Yet in Dana Corp. the parties had opportunity to debate the issue; it was not an appellate surprise.[11]
She further noted that even though Congress gave authority to PTAB to invalidate patents through the Supreme Court decision in Oil States,[12] it should not be inferred that Congress intended that PTAB could also override Article III courts. The opportunity for rebuttal is an essential aspect of collateral estoppel principles, as well as court precedence, both of which were disregarded, according to Judge Newman, in this decision.
Judge Newman’s dissent presents very logical concerns, and admittedly, has the stronger argument. PTAB, although part of the USPTO and tasked with determining prosecution appeals of pending patent applications, as well as invalidity issues concerning issued patents, is still an administrative agency. The concern is to give higher credence a PTAB decision over that of a federal district court, which has already gone through a fully discovered trial process and all of the evidentiary support that it requires. PTAB trials are not jury trials, rather decided by a three-judge panel; the discovery is not as rigorous nor subject to the same rules of federal procedure. As such, Judge Newman, in this respect, is correct in having concerns about this decision placing administrative decision-making for collateral estoppel purposes over that of a federal court.
There is a highly likelihood this case will have a petition for rehearing en banc or potentially a petition for writ of certiorari made before the Supreme Court. We will continue to monitor events and report them on the blog.
[1] ___F.3d___ (Fed. Cir. 2018) (slip op.), aff’g-in-part, dismissing-in-part, vacating-in-part, and remanding, Case No. 13-cv-0876-WJM-NYW (D. Colo. Apr. 8, 2016).
[2] See XY, LLC v. ABS Globs., Inc., ___Fed. App’x___ (Fed. Cir. 2018) and ___Fed. App’x___ (Fed. Cir. 2018), aff’g ABS Global, Inc. v. XY, LLC, Case No. IPR2014-01550 (P.T.A.B. Apr. 15, 2016), and ABS Global, Inc. v. XY, LLC, IPR2014-01161 (P.T.A.B. Jan. 11, 2016).
[3] See XY, supra (slip op. at 19).
[4] See Blonder-Tongue Labs., Inc. v. Univ. of Illinois Found., 402 U.S. 313 (1971).
[5] See XY, supra (slip op. at 19). See also Mendenhall v. Barber-Greene Co., 26 F.3d 1573, 1576 (Fed. Cir. 1994).
[6] See B&B Hardware Inc. v. Hargis Inds., Inc., 575 U.S.___, 135 S. Ct. 1293, 1303 (2015).
[7] See MaxLinear, Inc. v. CF CRESPE LLC, 880 F.3d 1373 (Fed. Cir. 2018).
[8] See XY, supra (slip op. at 2) (Newman, J., dissenting).
[9] See Blonder-Tongue, 402 U.S. at 332-33.
[10] 882 F.2d 505 (Fed. Cir. 1989).
[11] See XY, supra (slip op. at 6) (Newman, J., dissenting).
[12] See Oil States Energy Servs., LLC v. Greene’s Energy Grp., LLC, 584 U.S.___, Case No. 16-712 (Apr. 24, 2018).