Automated Merchandising v. Michelle Lee raises yet another separation of powers issue between the courts and the patent office.  Originally AMS sued Crane for infringing its U.S. Patent Nos. 6,384,402, 6,794,634, 7,191,915, and 7,343,220.  In response, Crane filed (pre-AIA) inter partes reexamination requests against the patents.  Then the lawsuit settled and the court issued a consent decree (final judgment) dismissing the case with prejudice and stating that the parties stipulate that the patent claims are valid.  AMS took that decree to the USPTO who refused to terminate the reexamination because the final judgment was not a “decision” on the merits of validity.  In response, AMS filed suit in the Eastern District of Virginia alleging violations of the Administrative Procedures Act (APA).  Section 704 of the APA provides for review of agency actions:

Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review.

However, the statute is clear that a non-final agency action is not reviewable.

According to the court’s judgment here the PTO’s refusal-to-terminate was an interlocutory order.  Even though the PTO originally identified it as “final,” that designation alone is insufficient to meet the final action requirement of the statute.  On remand, the inter partes review will continue and, if the patentee loses on the merits, may then have a chance to appeal the refusal-to-terminate.

This case adds further weight to the argument that we need a more comprehensive approach to the various pathways for enforcing and challenging patent rights.

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In B&B, the Supreme Court held that decisions by the PTO can have preclusive effect when the same issue is raised in a parallel litigation. In dicta, the court also indicated that preclusion also operates in the opposite direction — federal court decisions also have preclusive impact on PTO decision making.  B&B is focused on the doctrine of issue preclusion that is also known as collateral estoppel.

Because issue preclusion requires that the issue be actually litigated, it does not apply to the AMS. However, the parallel doctrine of claim preclusion (res judicata) may indeed apply – that doctrine typically applies when a second dispute involves a a prior final judgment of a claim sharing a “common nucleus of operative fact” and (roughly) identical parties.

A complicating factor here is that – as to inter partes reexaminations – the Patent Act had a particular statute that could be seen as redefining the scope of issue and claim preclusion for patent cases.

Once a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of title 28, that the party has not sustained its burden of proving the invalidity of any patent claim in suit . . . , then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in such civil action . . . , and an inter partes reexamination requested by that party or its privies on the basis of such issues may not thereafter be maintained by the Office . . . .

35 U.S.C. 317(b).  The major question for this statute is whether it reflects an alteration of traditional rules of preclusion or instead offer an additional layer of preclusion when the traditional rules do not apply.