In In re Construction Equipment Company, the majority opinion frames the issue as a simple question of whether a USPTO decision of invalidity in an ex parte reexamination proceeding was supported by substantial evidence. The majority opinion only briefly discusses its rejection of the dissent's contention that the reexamination should have been barred on constitutional grounds and principles of res judicata and collateral estoppel because the patent's validity was upheld by the Federal Circuit in a previous litigation.

The dissent frames the issue as whether a patent that has previously been held valid or invalid by a final judgment in court can be subject to an administrative redetermination of the same issue.

The key issue in this case has its basis in previous litigation between Construction Equipment Company (CEC) and Powerscreen International Distribution Ltd. (Powerscreen).

CEC sued Powerscreen for infringement of US Patent No. 5,234,564 ('564 patent). Powerscreen lost at the district court level and was enjoined from infringing CEC's patent. The Federal Circuit affirmed the district court's judgment that the '564 patent was valid. Powerscreen's petition for certiorari was denied.

Seven years later, Powerscreen submitted a request to the USPTO for ex parte reexamination of CEC's '564 patent based on at least some of the same prior art considered in the federal court litigation. The USPTO examiner rejected the claims of the '564 patent as obvious under 35 USC § 103. The Board of Patent Appeals and Interferences affirmed the examiner's rejections and further denied CEC's request for a rehearing. CEC then appealed to the Federal Circuit.

The majority's December 8, 2011 opinion affirms the USPTO's rejection of the claims, invalidating the '564 patent. In its footnote rebuttal of the dissent's arguments, the majority cites In re Swanson, 540 F.3d 1368 (Fed. Cir. 2008), which held that it was not error for the USPTO to hold that ex parte reexamination could be instituted on the strength of a reference that the requesting party had unsuccessfully asserted previously, even if the Federal Circuit had affirmed the district court's judgment of validity. The majority notes that Swanson specifically stated that a district court's judgment was not incompatible with the examiner's rejection of claims because the district court determined that the infringer failed to carry his burden to prove that the patent was invalid, not that the patent was valid per se.

As argued by the dissent, the majority's approach means that in an ex parte reexamination proceeding, the USPTO may determine a patent invalid even though the Federal Circuit previously upheld its validity. Parties that are dissatisfied with the results of previous litigation in the federal courts may therefore be able to try to obtain a more desirable result directly from the USPTO through reexamination and potentially undo the results of the earlier litigation. However, the majority expressed no opinion on whether Powerscreen may be entitled to seek to lift the ruling of infringement and injunction issued in the previous litigation.

In her dissent, Circuit Judge Newman argued that the majority's outcome violates the principles of res judicata and collateral estoppel by allowing a party who has litigated an issue and lost to demand that the issue be decided again. Further, the dissent cautioned that the majority's holding violates the principle of finality based on separation of powers by allowing an administrative agency to, in essence, reverse a Federal Circuit decision. While the dissent acknowledges that the USPTO and the federal courts use different burdens of proof, the difference cannot override an Article III court's dispositive judgment.

Given the majority's result, this opinion may be appealed. In the meantime, parties involved in patent litigation should review their strategies for contesting patent validity in light of this decision.