Addressing a procedural issue, the U.S. Court of Appeals for the Federal Circuit, applying the law of the regional circuit, vacated the dismissal of a counterclaim to which a party was not given a fair opportunity to respond. The Court further addressed invalidity issues related to the patents-in-suit. ArthroCare Corporation and Ethicon, Inc. v. Smith & Nephew, Inc., Case Nos. 04-1323, 1487 (Fed. Cir. May 10, 2005) (Bryson, J.).

ArthroCare Corporation filed suit against Smith & Nephew, Inc. (S&N) for infringement of certain patents directed to electrical probes and their use during surgery. In response, S&N filed an antitrust counterclaim alleging a conspiracy between ArthroCare and Ethicon, Inc.

Before trial, the district court bifurcated the counterclaim. The issues of infringement, invalidity and inequitable conduct were then tried to a jury that found the patents-in-suit infringed and were not invalid. S&N moved for judgment as a matter of law and a new trial, and ArthroCare moved to dismiss the antitrust counterclaim. Before the due date for S&N’s response to the motion to dismiss, the district court stayed all proceedings on the counterclaim. The court then denied S&N’s motions and entered a permanent injunction. That same day, the district court granted ArthroCare’s motion to dismiss the antitrust counterclaim. S&N’s motion for reconsideration of the dismissal was denied.

On appeal, the Federal Circuit vacated the district court’s dismissal of the antitrust counterclaim and directed that court to permit S&N to respond to the motion to dismiss. The panel based its holding on a categorical Third Circuit rule providing that a party must be given the opportunity to meaningfully respond to a motion to dismiss. Here, the reconsideration process did not satisfy that requirement. The Federal Circuit also vacated the permanent injunction.

Turning to the judgment notwithstanding the verdict (JNOV), after a thorough analysis, the Court found that S&N had proven by clear and convincing evidence that the asserted claims of one of the patents were anticipated by two prior art references, and the Court reversed the district court’s denial of S&N’s motion for JNOV. The Court criticized the district court’s finding that certain claim limitations were not disclosed in a prior art patent, noting that the district court erroneously focused only on the preferred embodiment described in the reference. The Federal Circuit observed that the district court also erroneously thought that an anticipating reference must provide specific examples, contrary to established precedent which requires only that the reference be enabling and describe the claimed invention sufficiently "to have placed it in possession of a person of ordinary skill in the art.

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