Posts Tagged ‘patent’

PTAB Dismisses Three IPR Petitions Based on Sovereign Immunity

Saturday, January 28th, 2017

Covidien LP had a license to U.S. Patent 7,062,251, owned by the University of Florida Research Foundation (UFRF, Patent Owner).  UFRF alleged breach of contract by Covidien, and sued Covidien in Florida state court for breach of license.  Covidien counterclaimed for a declaratory judgment that it does not infringe the ’251 patent, and removed the action to federal court.

In June of 2016, Covidien (Petitioner) filed three petitions seeking inter partes review (IPR) of the ’251 patent.  After the IPRs were filed, UFRF sought to dismiss the federal court action on the ground it was entitled to Eleventh Amendment immunity from Covidien’s declaratory judgment counterclaim.  The District Court agreed with UFRF and remanded the action back to state court.  Covidien’s appeal of this decision is pending in the Federal Circuit (Appeal No. 16-2422).

UFRF requested a conference call with the Board to ask for permission to file a motion to dismiss the IPR petitions on the basis of sovereign immunity.  The Board authorized UFRF to file its Motion to Dismiss, Covidien to file its opposition, and for UFRF to file a reply.

The Board went through a lengthy analysis of administrative precedent relating to sovereign immunity and comparisons of IPR practice with litigation.  On January 25, 2017, the Board dismissed the three IPRs finding “Eleventh Amendment immunity bars the institution of an inter partes review against an unconsenting state that has not waived sovereign immunity.”

The Board went through another lengthy analysis to determine that the UFRF is an arm of the State of Florida.

The Board concluded sovereign immunity applies:

For the foregoing reasons, we conclude that Eleventh Amendment immunity applies to inter partes review proceedings, and that UFRF, having shown it is an arm of the State of Florida, is entitled to assert its sovereign immunity as a defense to the institution of an inter partes review of the ’251 patent. Accordingly, the Petitions in IPR2016-01274, -01275, and -01276 are dismissed.

The Board went through great lengths and 39 pages to analyze and document UFRF’s sovereign immunity claim.  One has to wonder if the District Court decision remanding the case to state court weighed heavily on the Board’s decision to find sovereign immunity and dismiss the IPRs.  It will be interesting to see whether the appeal of the District Court remand is maintained and if this Board decision is appealed.  But at least for now, it appears that a state-owned patent will not be subject to IPR unless it has waived sovereign immunity.

New PTAB Trial Practice Rules Effective May 2, 2016

Monday, May 23rd, 2016

On April 1, 2016 the PTO published its final rule on Amendments to the Rules of Practice for Trials Before the Patent Trial and Appeal Board.  A small correction to these Amendments was published on April 27.  I presented a summary of these rule changes at the AIPLA Spring Meeting in Minneapolis, MN on May 18, 2016.  The slides from my presentation are attached.

The comments in the final rule make it clear that the PTAB will be publishing an updated Office Patent Trial Practice Guide to address these new rules and changes in practice since publication of the first Office Patent Trial Practice Guide.

Unified Patents’ Institution Decision Gives Insight to PTAB’s Real Party in Interest Analysis

Monday, February 16th, 2015

Those watching decisions from the Patent Trial and Appeal Board (PTAB or Board) have observed a trend where a patent owner challenges an IPR petition based on alleged defects in the petition’s identification of real parties in interest (RPI) to the petitioner.  As seen in earlier posts, improper identification of RPIs can result in denial of the petition, and the one-year bar imposed by 35 U.S.C. § 315(b) can preclude submission of a corrected IPR petition, resulting in a loss of the right to IPR for that petitioner.  (See my earlier post on First Data Corporation v. Cardsoft, LLC, IPR2014-00715, Paper 9, October 17, 2014.)

Identify RPIs Early in the Proceedings

The prompt identification of RPIs in post-grant proceedings is important as a mandatory notice for a number of added reasons.  An RPI that is barred under § 315(b) would bar a petitioner from institution. (35 U.S.C. § 315(b): “An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent. . . .”)  The Board does not want to invest time and energy in petitions that are legally barred from institution, nor does it want to impose responses to them on patent owners.

Another reason to properly name RPIs is that any estoppel that may attach to a petitioner of the proceeding will likewise attach to the RPI as well.  35 U.S.C. § 315(e) states (underlining for emphasis):

(e) ESTOPPEL.—

(1) PROCEEDINGS BEFORE THE OFFICE.—The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.

(2) CIVIL ACTIONS AND OTHER PROCEEDINGS.—The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not assert either in a civil action arising in whole or in part under section 1338 of title 28 or in a proceeding before the International Trade Commission under section 337 of the Tariff Act of 1930 that the claim is invalid on any H. R. 1249—19 ground that the petitioner raised or reasonably could have raised during that inter partes review.

The proper naming of RPIs becomes more complicated when a petitioner receives compensation, prior art, suggestions, and/or instructions from others.  The analysis is especially important for petitioners that challenge patents for others, such as in the case of a trade industry association that challenges patents on behalf of its membership.  Those petitioners must carefully follow the Board’s determinations of what constitutes an RPI.  The stakes for petitioners representing a group are high because they represent a number of interested parties.  Therefore, one petition fail is a failure for each party.

The PTAB Trial Practice Guide provides some considerations for performing an RPI analysis.  Office Patent Trial Practice Guide, 77 FR 48756 (Aug. 14, 2012) (see pp. 48759-48760).  Funding of the post-grant activities is one factor.  Another factor is whether a party controls the proceeding, but the Trial Practice Guide notes that there is no simple test based on control:

There are multiple factors relevant to the question of whether a non-party may be recognized as a ‘‘real party in interest’’ or ‘‘privy.’’ [. . .]  A common consideration is whether the non-party exercised or could have exercised control over a party’s participation in a proceeding. See, e.g., id. at 895; see generally Wright & Miller section 4451. The concept of control generally means that ‘‘it should be enough that the nonparty has the actual measure of control or opportunity to control that might reasonably be expected between two formal coparties.’’ Wright & Miller § 4451. Courts and commentators agree, however, that there is no ‘‘bright-line test’’ for determining the necessary quantity or degree of participation to qualify as a ‘‘real party-in-interest’’ or ‘‘privy’’ based on the control concept. [Cites omitted.] Accordingly, the rules do not enumerate particular factors regarding a ‘‘control’’ theory of ‘‘real party-in-interest’’ or ‘‘privy’’ under the statute.

The Trial Practice Guide also discusses res judicata and other estoppel considerations:

Additionally, many of the same considerations that apply in the context of ‘‘res judicata’’ will likely apply in the ‘‘real party-in-interest’’ or ‘‘privy’’ contexts.

The test is fact dependent:

The Office has received requests to state whether particular facts will qualify a party as a ‘‘real party-ininterest’’ or ‘‘privy.’’ Some fact combinations will generally justify applying the ‘‘real party-in-interest’’ or ‘‘privy’’ label. For example, a party that funds and directs and controls an IPR or PGR petition or proceeding constitutes a ‘‘real party-in-interest,’’ even if that party is not a ‘‘privy’’ of the petitioner. But whether something less than complete funding and control suffices to justify similarly treating the party requires consideration of the pertinent facts. See, e.g., Cal. Physicians, 163 Cal.App.4th at 1523–25 (discussing the role of control in the ‘‘privy’’ analysis, and observing that ‘‘preclusion can apply even in the absence of such control’’). The Office will handle such questions on a case-by-case basis taking into consideration how courts have viewed the terms.

The Trial Practice Guide does recognize that mere membership in an industry association does not make a member an RPI of an association that files a petition.  The facts must be considered on a case-by-case basis.

Unified Patents Inc. v. Dragon Intellectual Property, LLC

This brings us to the IPR petition that Unified Patents filed requesting review of claims 1, 2, 7, 8, 10, 13 and 14 of Dragon Intellectual Property, LLC’s (Dragon’s) U.S. Patent No. 5,930,444 (the ’444 patent).  (Unified Patents Inc. v. Dragon Intellectual Property, LLC, IPR2014-01252.) The ’444 patent covers streaming media recording and playback.  Unified Patents named no additional RPI in its petition, stating:

Pursuant to 37 C.F.R. § 42.8(b)(1), Petitioner certifies that Unified Patents is the real party-in-interest, and further certifies that no other party exercised control or could exercise control over Unified Patents’ participation in this proceeding, the filing of this petition, or the conduct of any ensuing trial.

Unified Patents was founded by intellectual property professionals over concerns with the increasing risk of non-practicing entities (NPEs) asserting poor quality patents against strategic technologies and industries. The founders thus created a first-of-its-kind company whose sole purpose is to deter NPE litigation by protecting technology sectors, like content delivery, the technology at issue in the ‘444 Patent. Companies in a technology sector subscribe to Unified’s technology specific deterrence, and in turn, Unified performs many NPE-deterrent activities, such as analyzing the technology sector, monitoring patent activity (including patent ownership and sales, NPE demand letters and litigation, and industry companies), conducting prior art research and invalidity analysis, providing a range of NPE advisory services to its subscribers, sometimes acquiring patents, and sometimes challenging patents at the United States Patent and Trademark Office (USPTO). Since its founding, Unified is 100% owned by its employees; subscribers have absolutely no ownership interest.

Unified has sole and absolute discretion over its decision to contest patents through the USPTO’s post-grant proceedings. Should Unified decide to challenge a patent in a post-grant proceeding, it controls every aspect of such a challenge, including controlling which patent and claims to challenge, which prior art to apply and the grounds raised in the challenge, and when to bring any challenge. Subscribers receive no prior notice of Unified’s patent challenges. After filing a post-grant proceeding, Unified retains sole and absolute discretion and control over all strategy decisions (including any decision to continue or terminate Unified’s participation). Unified is also solely responsible for paying for the preparation, filing, and prosecution of any post-grant proceeding, including any expenses associated with the proceeding.

In the instant proceeding, Unified exercised its sole discretion and control in deciding to file this petition against the ‘444 Patent, including paying for all fees and expenses. Unified shall exercise sole and absolute control and discretion of the continued prosecution of this proceeding (including any decision to terminate Unified’s participation) and shall bear all subsequent costs related to this proceeding. Unified is therefore the sole real-party-in-interest in this proceeding.

(Pet. 2-4.)

In its Patent Owner Preliminary Response (which included redacted portions), the Patent Owner asserted:

As explained below, an inter partes review proceeding should not be instituted in this matter because Unified Patents has failed to establish that it is the “real party-ininterest,” and failed to identify the real party-in-interest when it filed its petition for inter partes review.

Unified Patents is an organization formed in 2012 for the purpose of filing and conducting inter partes review proceedings on behalf of its members so that the members can seek to avoid the estoppel provisions of 35 U.S.C. § 315. The primary value offered by Unified Patents’ to its members is the challenging through inter partes review and similar proceedings of patents asserted in litigation by non-practicing entities against Unified Patents’ members. Indeed, Unified Patents [text redacted]. Since its founding less than three years ago, Unified Patents has collected [redacted] from its members.

As a non-practicing entity itself, Unified Patents has no independent reason to challenge any patents in inter partes review, outside of Unified Patents’ interest in providing litigation “deterrence” services to members. [redacted]

Unified Patents [redacted] which include challenging patents in inter partes review proceedings. There can be no dispute that the money used to prepare and file the Petition, and the money that will be used to pay for prosecution of this proceeding, is sourced from [redacted]. Unified Patents has not identified the real parties-in-interest to this proceeding in its Petition, as it failed to identify the parties who provided the funding for Unified Patents to file this proceeding. The Board should not permit Unified Patents and its members the ‘”second bite at the apple”‘ the real party-in-interest requirement is intended to guard against. The Petition should be denied, and no trial should be instituted on the Unified Patents Petition.

(Patent Owner Preliminary Response, Paper 14, pp. 1-2.)

In its institution order, the Board rejected the Patent Owner’s challenge of the named RPIs:

Patent Owner is correct that the inquiry regarding real parties-ininterest is not limited to determining who directed or controlled a proceeding. On the record at this stage of the proceeding, however, we are not persuaded by Patent Owner’s contention that one or more other organizations paid Petitioner to file the Petition in this IPR. Patent Owner does not allege to have any direct evidence of any organization giving funds to Petitioner for the purpose of filing the Petition in this case. Additionally, even if we assume to be accurate all of Patent Owner’s allegations about circumstances related to the conduct of Petitioner’s business and the filing of the Petition in this case, they do not demonstrate that another entity paid Petitioner for the purpose of conducting this IPR proceeding. For example, even if we accept Patent Owner’s allegations that Petitioner engages in no activity of practical significance other than filing IPR petitions with money received from its members, this does not demonstrate that any member paid, directed, or suggested to Petitioner to challenge the ’444 patent, specifically. See, e.g., Prelim. Resp. 10. Nor do Patent Owner’s other circumstantial allegations, even if accurate, demonstrate as much.

(Decision on Institution of Inter Partes Review, Paper 37, p. 12.)

The Board then distinguished the present case over a collection of earlier proceedings between RPX and VirnetX that Patent Owner asserted (RPX Corp. v. VirnetX Inc.: IPR2014-00171, IPR2014-00172, IPR2014-00173, IPR2014- 00174, IPR2014-00175, IPR2014-00176, and IPR2014-00177 (“the RPX cases”)):

By contrast, in the RPX cases, the evidence demonstrated that the actions of RPX and Apple were like certain prohibited behavior discussed in In re Guan, Reexamination Control No. 95/001,045 (Aug. 25, 2008) (Decision Vacating Filing Date), which stated that

[a]n entity named as the sole real party in interest may not receive a suggestion from another party that a particular patent should be the subject of a request for inter partes reexamination and be compensated by that party for the filing of the request for inter partes reexamination of that patent without naming the party [as a real party-in-interest] who suggested and compensated the entity for the filing of a request for inter partes reexamination of the patent.

Guan at 7–8 (emphasis added); see, e.g., IPR2014-00171, Paper 57, 7. Here, the present record does not demonstrate that any of Petitioner’s members suggested or compensated Petitioner for the filing of the Petition challenging the ’444 patent.

Given this, the alleged similarities between RPX and Petitioner do not persuade us that the result here should be the same as in the RPX cases. That Petitioner likens itself to a trade association does not persuade us that its members constitute real parties-in-interest. As the Office Trial Practice Guide (“Practice Guide”) explains, membership in a trade association does not make an entity automatically a real party-in-interest to a petition filed by the trade association. 77 Fed. Reg. 48,756, 48,760 (Aug. 14, 2012); see also Paper 20, 4. Additionally, without more compelling accompanying allegations, Patent Owner’s assertion that Petitioner faces no risk of having the ’444 patent asserted against it is unremarkable, as the filing of or threat of a lawsuit is not a prerequisite for a Petition for an IPR proceeding. See 77 Fed. Reg. at 47,459.

For the foregoing reasons, on this record, we are persuaded that Petitioner did not fail to name all real parties-in-interest in the Petition. We note, however, that this Decision does not foreclose Patent Owner from continuing to argue the real party-in-interest issue in the Patent Owner Response. If the record should evolve in favor of Patent Owner on this issue, we would take appropriate action at that time.

(Decision on Institution of Inter Partes Review, Paper 37, pp. 12-14.)

In its analysis, the Board applied In re Guan to clarify that RPX v. VirnetX involved suggestion of the review proceeding and compensation to the petitioner by the RPI.  The Board found that Dragon failed to show that the members of Unified Patents suggested an IPR to Unified Patents and compensated Unified Patents for the IPR.  However, the Board did not prevent Dragon from arguing the RPI issue in its Patent Owner Response.

Trade associations and other associations desiring to petition for review of patents will be monitoring this case closely in the months to come to learn more about how the Board handles real party in interest issues.

Target Wins Rehearing of IPR Joinder Decision with Expanded Panel

Friday, February 13th, 2015

Last fall, the Patent Trial and Appeal Board (PTAB or Board) interpreted the IPR joinder provision, 35 U.S.C. § 315(c), to require joinder requests by a non-party to an ongoing proceeding.  (Target Corp. v. Destination Maternity Corp., IPR2014-00508 and IPR2014-00509.)  Prior to that decision,  the Board had interpreted § 315(c) to allow for issue joinder by the petitioner of the original proceeding (see, for example Microsoft v. Proxyconn, IPR2013- 00109).  Of course, joinder was decided on a case-by-case basis, but had not previously been denied because the request was made by the petitioner of the original proceeding.

Target Corp. filed rehearing requests in both affected IPR proceedings in an effort to have the Board reconsider its interpretation of  35 U.S.C. § 315(c) with an expanded panel.  Target’s arguments are quite clearly stated in its Motion for Rehearing.  The Board granted Target’s rehearing request.  In a 4:3 decision,  the majority agreed that § 315(c) had been overly narrowly interpreted in the prior decision:

Turning now to the merits of the Request for Rehearing, the contention at the heart of Petitioner’s request for rehearing is that the denial of its Motion for Joinder was “based on an erroneously narrow interpretation of 35 U.S.C. § 315(c).” Paper 22, 1. We agree with Petitioner.

The majority read § 315(c)’s reference to “any person who properly files a petition under section 311” in conjunction with § 311’s requirement that the petition filer not be the patent owner, to broadly interpret § 315(c) to include any person except the patent owner.  This interpretation is at odds with the dissent’s analysis, which reads § 315(c)’s reference to “may join as a party” to literally require a new party for joinder:

The statute under which Petitioner seeks relief provides:

(c) JOINDER.—If the Director institutes an inter partes review, the Director, in his or her discretion, may join as a party to that inter partes review any person who properly files a petition under section 311 that the Director, after receiving a preliminary response under section 313 or the expiration of the time for filing such a response, determines warrants the institution of an inter partes review under section 314.

35 U.S.C. § 315(c) (emphasis added). The statute does not refer to the joining of a petition or new patentability challenges presented therein. Rather, it refers to the joining of a petitioner (i.e., “any person who properly files a petition”). Id. Further, it refers to the joining of that petitioner “as a party to [the instituted] inter partes review.” Id. Because Target is already a party to the proceeding in IPR2013-00531, Target cannot be joined to IPR2013-00531.

While the majority decision does align with panel decisions on joinder prior to Target, one must ask whether this issue is finally resolved by this expanded panel decision.  For example, what happens if another panel does not follow this interpretation § 315(c)?  Or suppose this decision is appealed; would the Federal Circuit reverse a Board decision on joinder as it relates to institution given its recent interpretation of 35 U.S.C. § 314(d) in In re Cuozzo Speed Technologies? (“We conclude that § 314(d) prohibits review of the decision to institute IPR even after a final decision. . . . Section 314(d) provides that the decision is both ‘nonappealable’ and ‘final,’ i.e., not subject to further review. 35 U.S.C. § 314(d).”)  Would a Federal Circuit appeal have to be in the form of a petition for writ of mandamus?  If so, how would that square with the mandamus decisions in In re Dominion Dealer Solutions, LLC, 749 F.3d 1379, 1381 (Fed. Cir. 2014)(mandamus relief not available to challenge the denial of a petition for IPR) and in In re Proctor & Gamble Co., 749 F.3d 1376, 1378–79 (Fed. Cir. 2014)(mandamus relief not available to provide immediate review of a decision to institute IPR)?

 

 

In re Cuozzo Speed Technologies: Federal Circuit Affirms Board Finding of Unpatentability in First IPR

Thursday, February 5th, 2015

The Federal Circuit affirmed the final determination of the Board in the first inter partes review under the Leahy-Smith America Invents Act (AIA).   Garmin petitioned for IPR of claims 10, 14 and 17 of U.S. Patent No. 6,778,074 owned by Cuozzo Speed Technologies.  The Board found these claims obvious and denied Cuozzo’s motion to amend the ’074 patent by substituting new claims 21, 22, and 23 for issued claims 10, 14, and 17.  The Federal Circuit affirmed the Board’s final determination of obviousness, upheld the Board’s application of the broadest reasonable interpretation standard (BRI), and the Board’s denial of Cuozzo’s motion to amend.

One irony of this case is that Cuozzo challenges the Board’s adoption of BRI as an interpretive standard, yet Cuozzo asserts a construction of the phrase “integrally attached” that is broader than the definition adopted by the Board in the IPR:

Claim 10 includes the following limitation: “a speedometer integrally attached to said colored display.” ’074 patent col. 7 l. 10. Cuozzo argues that the board improper-ly construed the phrase “integrally attached.” The Board construed “integrally attached” as meaning “discrete parts physically joined together as a unit without each part losing its own separate identity.” J.A. 9. Cuozzo contends that the correct construction of “integrally attached” should be broader—“joined or combined to work as a complete unit.” Appellant’s Br. 33. Before the Board, Cuozzo stated that its construction would cover “a display that both functionally and structurally integrates the speedometer and the colored display, such that there only is a single display.” J.A. 10. Cuozzo argues that the Board’s claim construction improperly excludes a single-LCD embodiment of the invention wherein the speedometer and the speed limit indicator are on the same LCD.

Some may be confused by a patent owner who complains of the USPTO’s use of a broader interpretative standard, but simultaneously asserts a broader construction than the USPTO for a phrase.  Cuozzo needed the broader interpretation to argue that its amended claims should have been entered by the Board.   Cuozzo’s amended claims were directed to a particular embodiment of the invention employing a speedometer and speed limit indicator on the same LCD; however, the Board’s interpretation of “integrally attached” excluded that particular embodiment.  The Board relied on its claim construction to deny Cuozzo’s amended claims and the Federal Circuit upheld the Board’s narrower claim construction:

We see no error in the Board’s interpretation. The word “attached” must be given some meaning. As the Board explained, it would “be illogical to regard one unit as being ‘attached’ to itself.” J.A. 9. The specification further supports the Board’s construction that the speedometer and the speed limit are independent—it repeatedly refers to a speed limit indicator independent of any speedometer and states that “the present invention essen-tially comprises a speed limit indicator comprising a speed limit display and an attached speedometer.” ’074 patent col. 2 ll. 52–54. The Board did not err in its claim construction.

The majority opinion (filed by Judge Dyk, and joined by Judge Clevenger) and the dissent (by Judge Newman) reach several additional post-grant topics, which will be discussed in future posts.

The Settlement Effect of PTAB Proceedings and Recent Patent Office Trial Statistics

Monday, December 29th, 2014

December 29, 2014

The Patent Trial and Appeal Board (PTAB) released statistics for AIA Patent Office trials as of Dec. 18, 2014.  Different commentators have recently reported that the institution rate for these proceedings has dropped to about 60-70 percent, depending on how you calculate it.  Those familiar with PTAB trial practice (IPR, CBM, PGR and derivation proceedings) understand that the trial statistics are moving targets, but they do provide some insight to interesting trends.

Based on the Dec. 18, 2014 data provided by the PTAB, it appears that the rate of denied petitions is approaching the rate of party settlements.  If the denial and settlement data are normalized to the number of filed trials (excluding the filings prior to decision on institution), the statistics show about a 20:20:60 percent relationship between settlements, denied proceedings, and instituted proceedings (ones that do not settle), respectively.  That means for every five petition filings, approximately one proceeding will be denied, one will settle early, and three will complete their trials.

But the filing of a petition is not always required to reach settlement between parties — the threat of a petition can provide all the impetus needed for settlement between parties.  This settlement effect of PTAB proceedings provides another opportunity for parties to attempt to settle their differences prior to the formal filing of an IPR, CBM, PGR or DER petition.  Frequently, the petition will be prepared to posture the matter for final discussion prior to its filing.  Once filed, the petition serves as valuable information for all other stakeholders interested in defeating the Patent Owner and its patent.  So a Patent Owner with some concern about the patentability of its patent has an incentive to settle with the prospective Petitioner before any petition is filed.

Of course, the PTO statistics cannot account for the cases where parties settle without filing a petition (“non-filed settlements”), so if the number of non-filed settlements is significant, then the PTO statistics underestimate the overall efficacy of post-grant proceedings for settlement of disputes between parties.

If you poll attorneys actively filing these petitions about the number of non-filed settlements they have accomplished compared to the number of petitions actually filed, you will get very different anecdotal responses.  Depending on that number, the impact on settlements of disputes in general (both formal proceedings and prior to formal proceedings) can be significant.

The following table shows how the settlement ratios change using different percentages of the number of matters that settle without any petition filing (percentage of non-filing settlements to that of post-filing settlements).  For example, if you estimate that for every 5 filed petitions, about 1 settlement occurs without a filed petition, refer to the 20% entry in the table below to find the aggregate percentage of disputes settled (including both pre-filing and post-filing disputes).  Using this 20% estimate, the aggregate percentage of disputes settled rises to roughly 33%, the percentage of denied cases drops to roughly 15%, and the percentage of matters going through full trial drops to roughly 48%.  This means for every six disputes, roughly two will settle (one with and one without a petition), one will be denied, and three will complete their trials.  Thus, by viewing disputes from a settlement perspective, including settlements obtained without filing a petition, the aggregate denial and institution rates necessarily fall and the efficacy of the challenges from an overall dispute perspective is enhanced, regardless of the win:loss ratio experienced by the parties at trial.

Of course, this is only a crude first approximation of settlement dynamics.  More information is needed to know the magnitude of the settlement effect of patent office trials on party settlements.  That information will be difficult to ascertain due to the confidential nature of such settlements, but each stakeholder can make its own approximation based on its experience.  Regardless, these settlements amplify the efficacy of the PTAB proceedings and their effect can be as significant as the known settlements arising from the PTAB proceedings themselves.

Table 1

Patent Board Denies First Data Corp. IPR Petitions Based on Real Party In Interest and One-Year Bar

Tuesday, October 21st, 2014

October 21, 2014

In 2013, Cardsoft, LLC (Patent Owner) sued First Data Corp. (Petitioner) and First Data Merchant Services Corp. for patent infringement in the Eastern District of Texas, serving its complaint on May 2, 2013.  (Cardsoft (Assignment for the Benefit of Creditors) LLC v. First Data Corp., Civil Action No. 2:13-cv-290 (E.D. Tex.).)  The complaint alleged infringement of U.S. 6,934,945 and U.S. 7,302,683, relating to sending and receiving information over a network.

On April 30, 2014, Petitioner filed IPR petitions requesting review of the ‘945 and ‘683 patents (IPR2014-00715 and IPR2014-00720, respectively).  An issue arose in the IPRs because VeriFone had a duty of indemnification to First Data Corporation. But VeriFone had been sued in 2008 by Cardsoft LLC for patent infringement of the same patents, and therefore was statutorily barred under 35 U.S.C. § 315(b).  (Cardsoft, Inc. v. VeriFone Systems, Inc., Civil Action No. 2:08-cv-00098 (E.D. Tex.).)

The Mandatory Notices of the ‘945 IPR Petition state:

The real party in interest is First Data Corporation []. We believe that VeriFone is NOT a real party in interest. VeriFone, per an indemnity with First Data, is providing the funding for this petition. However, the sole and exclusive control over this petition rests entirely with First Data. To the extent that the VeriFone indemnity agreement provided for any ability to assume control of any litigation, VeriFone has disclaimed any right to such control (see Ex. 1011 ). First Data determined which counsel to use, and is using its normal patent counsel for this petition, not counsel for VeriFone. The prior art used in this petition was discovered from the Cardsoft v. VeriFone litigation records, but First Data decided which references to use. Copies of some prior art were obtained from VeriFone, and VeriFone counsel indicated certain references which it believed rendered the subject patent invalid, but First Data counsel exercised independent judgment in determining which prior art to use and in fact selected different prior art references than those which VeriFone believed were the strongest.

It should be noted that First Data was sued after Cardsoft obtained a jury verdict victory against VeriFone. Instead of suing VeriFone for willful infringement for post-verdict sales, Cardsoft elected to sue First Data, likely with knowledge of the indemnity which provides indemnification for some although not all of the accused devices. It would be contrary to the reasons for establishing Inter Partes Reviews to deny First Data the opportunity for an IPR challenge in such a situation.

(‘945 Petition, pp. 1-2 (IPR2014-00715).)  The Petition summarized different PTAB decisions which declined to find a real party in interest based on funding and sharing of prior art.  It also referenced PTAB Chief Judge James Smith:

Chief Judge James Donald Smith of the BPAI explained that the Proposed Rules from February of 2012 deliberately declined to promulgate particular factors as the future Patent Trial and Appeal Board (PTAB) intends to consider each case on its specific facts. [Explanation of Real Party in Interest Requirement provided by Chief Judge James Donald Smith, Board of Patent and Appeals and interferences (“BPAI”). Available at http:/ /www.uspto.gov/aia implementation/smith-blogextravaganza. j sp#heading-2.]

(Id., p. 3.)  The ‘683 Petition in the -00720 proceeding includes similar Mandatory Notices.

But in parallel Decisions dated October 17, 2014, the Board disagreed with the Petitioner and found VeriFone to be a real party in interest in both proceedings.  The Board also decided that each petition was barred under 35 U.S.C. § 315(b), based on the following factors:

Petitioner’s Control and Funding:

The evidence demonstrates that VeriFone desires an inter partes review of the ’945 patent and has controlled, and/or has had an opportunity to control, the events leading up to the filing of the Petition. Petitioner acknowledges that “VeriFone, per an indemnity with [Petitioner], is providing the funding for this petition.” Corr. Pet. 1. Per the Letter Addendum, we understand this “funding” to include Petitioner’s attorney fees and at least the nearly $24,000 petition fees associated with filing the Petition. Ex. 1011, 1; Master Engagement Agreement, Section 6.1. We find that per this same indemnity agreement VeriFone had an opportunity to control all of the events leading up to the filing of the Petition. In particular, Section 6.1.3 of the Master Engagement Agreement indicates that VeriFone “shall have the right at its expense to employ counsel . . . to defend against Claims that VeriFone is responsible for . . . and to compromise, settle and otherwise dispose of such Claims.” Id., 3. The Letter Addendum indicates that “VeriFone has agreed to this associated indemnification as to the IPR.” Id., 1. Thus, up to April 28, 2014 (i.e., two days prior to the Petition being filed), VeriFone had every opportunity and right, per the indemnification agreement, to control the filing of the Petition and pursue an inter partes review of the challenged patent. That the opportunity to control ended just two days prior to filing the Petition, does not negate the control or opportunity to control the events leading up to the filing of the Petition. By Petitioner’s own admission, and during the period leading up to the filing of the Petition, counsel for VeriFone communicated with counsel for Petitioner about initiating an IPR, including discussing what prior art to assert. Corr. Pet. 2. Moreover, VeriFone agreed to, and did, pay for all costs associated with the filing of the Petition. We have considered Petitioner’s arguments that it alone decided to use different prior art for this proceeding compared to the prior art that VeriFone asserted in the 2008 Litigation. See id. Petitioner, however, does not provide sufficient evidence that would support this assertion, and in any event, even if true, that alone would not outweigh the other evidence of record that tends to show that VeriFone controlled and/or had the opportunity to control the filing of the Petition.

Decision Denying Institution, IPR2014-00715, Paper 9, Oct. 17, 2014, pp. 7-8.

VeriFone’s Current Interest in the Proceeding:

The Board found that VeriFone had an interest in the outcome of these IPR proceedings:

Moreover, we find that VeriFone has an interest in the review of the ’945 patent in this proceeding. VeriFone was found to have infringed the ’945 patent in the 2008 Litigation and was unable to invalidate the ’945 patent in that proceeding. See Ex. 1007 ¶ 8. VeriFone also must defend and indemnify Petitioner in the 2013 Litigation for Petitioner’s alleged willful infringement of the ’945 patent from the sale of VeriFone products that were found to have infringed the ’945 patent in the 2008 Litigation. Invalidity of the ’945 patent has been asserted in the 2013 Litigation that VeriFone is defending under its indemnity agreement with First Data Merchant Services. Ex. 2003, 3 (second affirmative defense). VeriFone has an interest in an inter partes review of the ’945 patent at least equal to that of Petitioner. The record evidence establishes, however, that VeriFone could not have pursued an inter partes review on its own or in conjunction with the Petitioner, because VeriFone would have been barred from doing so pursuant to 35 U.S.C. § 315(b).

Id., pp. 8-9.

Petitioner’s Failure to Name RPI Within One Year Bar

The Board also found that the Petition itself lacked a proper statement of the real parties in interest, and therefore was barred under § 315(b) because Petitioner’s correction would have occurred after the one year bar date:

Moreover, because VeriFone is a real party-in-interest, the Petition does not identify “all real parties in interest” as required by 35 U.S.C. § 312(a). As a result, the Board determines that the Petition is incomplete.

Section 42.106(b) of Title 37 of the Code of Federal Regulations provides:

(b) Incomplete petition. Where a party files an incomplete petition, no filing date will be accorded, and the Office will dismiss the petition if the deficiency in the petition is not corrected within one month from the notice of an incomplete petition.

Ordinarily, because the Petition is incomplete, the Board would give Petitioner one month from the date of this decision to correct the deficiency and list VeriFone as a real party-in-interest. In this instance, however, curing the omission of VeriFone as a real party-in-interest would be futile because, even if corrected, the earliest filing date that could be accorded to the Petition that identifies VeriFone as a real party-in-interest would not fall within the one-year period specified by 35 U.S.C. § 315(b).

Id., p. 10.

So the Board seems to have denied these IPR petitions on the grounds that: (1) a real party in interest (e.g., VeriFone) would have been barred due to the 2008 litigation, and (2) because, procedurally, any correction of the petition would also fall necessarily outside of the statutory one-year bar of the 2013 litigation.  This case provides another example of how the Board interprets facts relating to real parties in interest and an example of the Board’s decision to apply the one-year IPR bar under 35 U.S.C. 315(b) to corrections of real parties in interest in IPR petitions.

 

Target Corp. Requests Rehearing of Denied IPRs by Expanded PTAB Panel

Friday, October 17th, 2014

October 17, 2014

Last month, the Patent Trial and Appeal Board (PTAB or Board) interpreted the IPR joinder provision, 35 U.S.C. § 315(c), to preclude joinder requests by an existing party to an ongoing proceeding.  (Target Corp. v. Destination Maternity Corp., IPR2014-00508 and IPR2014-00509.)  In these recent decisions, the Board decided that § 315(c) requires “party joinder” and not only “issue joinder.”  Interestingly, before this interpretation was announced the Board had allowed “issue joinder” without requiring joinder of a new party to the proceeding (Microsoft v. Proxyconn, IPR2013- 00109), and after this interpretation was announced at least one panel of the Board applied an analysis that did not appear to adopt this new interpretation (Microsoft Corp. v. Enfish LLC, IPRs 2014-00574, -00575, -00576, and -00577).

Last week, Target Corp. filed rehearing requests in both affected IPR proceedings in an effort to have the Board reconsider its interpretation of  35 U.S.C. § 315(c) with an expanded panel.  Target’s arguments are quite clearly stated in its Motion for Rehearing, some of which include:

  • The AIA was implemented for broad remedial purposes to improve patent quality and to provide a more efficient system for challenging patents that should not have issued.
  • These broad remedial purposes of the AIA empower the PTO to administer IPR proceedings in a way to reduce duplication of efforts and costs.
  • Laws pertaining to patent quality which are “remedial in nature, based on fundamental principles of equity and fairness” can be construed liberally.
  • The PTAB should interpret the joinder provision liberally to allow for consistency of prior decisions, and reduce gamesmanship in parallel district court litigation.

On that last point Target’s motion states:

Target’s Joinder Motion sets forth the unique facts of this case, which reveal that a significant prior art reference long known to the patent owner was withheld from Target in the parties’ parallel district court litigation until several weeks after Target’s one-year deadline under 35 U.S.C. § 315(b). (Paper 3, at 1-6.) Under the Board’s decision here, a patent owner in parallel litigation with a petitioner can readily subvert the purposes of the AIA, see supra Part II.A, and the IPR process by withholding any significant prior art it may be uniquely aware of, or additional asserted claims, until after the petitioner’s one-year deadline under § 315(b).

Of course, joinder motions cannot be filed any time after institution of the prior proceeding — they must be filed within a month after the date of institution of the IPR for which joinder is requested:

§ 42.122 Multiple proceedings and Joinder.

(b) Request for Joinder. Joinder may be requested by a patent owner or petitioner. Any request for joinder must be filed, as a motion under § 42.22, no later than one month after the institution date of any inter partes review for which joinder is requested. The time period set forth in § 42.101(b) shall not apply when the petition is accompanied by a request for joinder.

However, in many cases the possibility of joinder of issues to a petitioner about a year after service of the lawsuit is still quite valuable to the petitioner and has been used to assert improved grounds and to attack newly asserted claims. (Microsoft v. Proxyconn, IPR2013- 00109.)

It will be interesting to see what the PTAB decides to do in Target’s IPR proceedings.  More importantly, it would be a great thing if this rehearing would result in  consistent joinder practice across panels in the future.

Board Proposes Solution for Petitioner if Expert Witness Not Available for Deposition in Patent Office Trial

Sunday, January 26th, 2014

In current post-grant practice, most petitions are accompanied by an expert declaration to support the assertions made by the petitioner.  If the petitioner successfully obtains institution of a patent office trial (inter partes review, covered business method patent review, or post-grant review), each declarant making a declaration for the petition must be made available for deposition.  But what happens if the declarant is not available?  One example is provided in Corning Gilbert Inc. v. PPC Broadband, Inc., IPR2013-00347.

In the Corning IPR, the Petitioner’s expert, Dr. Mroczkowski, signed a declaration that was submitted to support the IPR petition.  After institution of the IPR, the Board was informed that Dr. Mroczkowski had become ill with cancer and had to undergo surgery.  He was also undergoing weekly chemotherapy and daily radiation treatment during late December and scheduled for therapy up to early February.  Counsel for Petitioner requested a twelve week extension in order for Dr. Mroczkowski to recover and be available for deposition, noting that 35 U.S.C. § 316(a)(11) provides an additional  time (up to 6 months) to complete the IPR.

The Board declined a twelve week extension, and instead suggested that Petitioner attempt to locate another expert who would be willing to present the same testimony as Dr. Mroczkowski:

The Board considers reasonable an extension of approximately five weeks for Petitioner to locate and substitute, for Dr. Mroczkowski, another expert witness who would be willing to execute the same declaration executed by Dr. Mroczkowski, excluding the credentials and qualifications of Dr. Mroczkowski. Counsel for Petitioner expressed that obtaining another expert at this time would add to Petitioner’s cost, perhaps unnecessarily, because Dr. Mroczkowski may recover in time to be cross-examined.

The Board explained that five weeks will be provided to Petitioner to make an effort to resolve the difficulty presented by the illness of Petitioner’s original expert witness. Petitioner is free to forego that opportunity, and to depend on Dr. Mroczkowski’s getting well enough to be cross-examined at an appropriate time according to a revised schedule including the five-week extension. In that case, however, Petitioner will have made a litigation choice, and assumed the risk of events not proceeding according to plan.

(IPR2013-00347, Paper 18 at p. 3, December 23, 2013.)

The Board provided more guidance in its next order (Paper 20, January 2, 2014).  Counsel for Petitioner suggested that it file a declaration by a second expert “simply declaring that the second expert agrees with the opinions set forth in Dr. Mroczkowski’s declaration.”  The Board indicated that the proposed approach would still ultimately rely on the testimony of Dr. Mroczkowksi, “which is inappropriate if he cannot be cross-examined.”  (Paper 20 at p. 2.)  The Board offered another approach:

The Board inquired why the new expert could not execute a declaration literally having the same wording as in Dr. Mroczkowski’s declaration. Counsel for Corning replied that because the two experts will have different qualifications, paragraph numbers as referenced in Corning’s petition, directed to Dr. Mroczkowski’s declaration, likely will not match paragraph numbers in the declaration executed by the second expert witness.

To maintain the same paragraph numbers in the second declaration, however, Corning may present qualifications of its second expert witness in a separate exhibit or in later paragraphs, and then use blank spaces to occupy the paragraphs which, in the first expert declaration, express the qualifications of Dr. Mroczkowski. If such a substitute expert declaration is filed, however, Corning also should file a substitute petition that refers to the declaration by the substitute expert witness, and not the declaration of Dr. Mroczkowski.

The Board asked the parties to try to reach agreement as to the various specifics about Corning’s potentially filing of a substitute declaration from another expert witness, to replace that of Dr. Mroczkowski, before contacting the Board with a proposal.

The parties appear to have agreed to new dates, as set forth in a Notice of Stipulation to Extend Due Dates 1-3 (Paper 21, January 14, 2014).  However, there is nothing further in the record to reflect whether agreement was reached as to the possible filing of a substitute declaration as of the date of this post.

It remains to be seen if this approach is employed in other contested proceedings, since it is inevitable that an expert witness will occasionally be unable to testify after institution of a proceeding.

[Editor’s Note:   All of us who have had friends or family touched by cancer empathize with Dr. Mroczkowski’s situation, and we wish him a full and speedy recovery.]

Joint Motions to Terminate Patent Reviews Late in Trial Proceedings

Friday, December 13th, 2013

One of the advantages of patent reviews under the America Invents Act is that the parties may settle before completion of the proceedings and file a joint motion to terminate these proceedings.  The Patent Trial and Appeal Board (PTAB or Board) may consider the joint motion and terminate the entire proceeding.  It has done so in several instances.

But the Board has made it clear that when settlement results in a joint motion to terminate,  it has the power to terminate the proceedings with respect to the Petitioner and maintain the proceedings with respect to the Patent Owner.  The statute governing settlement in inter partes reviews is 35 U.S.C. § 317 (a parallel one for post-grant reviews is found in 35 U.S.C. § 327):

§ 317. Settlement

(a) IN GENERAL.—An inter partes review instituted under this chapter shall be terminated with respect to any petitioner upon the joint request of the petitioner and the patent owner, unless the Office has decided the merits of the proceeding before the request for termination is filed. If the inter partes review is terminated with respect to a petitioner under this section, no estoppel under section 315(e) shall attach to the petitioner, or to the real party in interest or privy of the petitioner, on the basis of that petitioner’s institution of that inter partes review. If no petitioner remains in the inter partes review, the Office may terminate the review or proceed to a final written decision under section 318(a).

(b) AGREEMENTS IN WRITING.—Any agreement or understanding between the patent owner and a petitioner, including any collateral agreements referred to in such agreement or understanding, made in connection with, or in contemplation of, the termination of an inter partes review under this section shall be in writing and a true copy of such agreement or understanding shall be filed in the Office before the termination of the inter partes review as between the parties. At the request of a party to the proceeding, the agreement or understanding shall be treated as business confidential information, shall be kept separate from the file of the involved patents, and shall be made available only to Federal Government agencies on written request, or to any person on a showing of good cause.

The emphasized language of the statute refers to termination with respect to a petitioner, and contemplates a situation where no petitioner remains in an inter partes review.  The corresponding PTAB rule governing settlement is 37 C.F.R. § 42.74:

§ 42.74 Settlement.

  • (a) Board role. The parties may agree to settle any issue in a proceeding, but the Board is not a party to the settlement and may independently determine any question of jurisdiction, patentability, or Office practice.
  • (b) Agreements in writing. Any agreement or understanding between the parties made in connection with, or in contemplation of, the termination of a proceeding shall be in writing and a true copy shall be filed with the Board before the termination of the trial.
  • (c) Request to keep separate. A party to a settlement may request that the settlement be treated as business confidential information and be kept separate from the files of an involved patent or application. The request must be filed with the settlement. If a timely request is filed, the settlement shall only be available: (1) To a Government agency on written request to the Board; or (2) To any other person upon written request to the Board to make the settlement agreement available, along with the fee specified in § 42.15(d) and on a showing of good cause.

The emphasized language of the rule is often cited in decisions to terminate where the Board maintains the proceedings with the Patent Owner.

Two recent decisions provide examples where the Board has terminated the proceedings with respect to the Petitioner, but not with the Patent Owner:

  • In CBM2012-00007 the Board decided to maintain the proceedings with the  Patent Owner despite terminating the Petitioner’s involvement.  Interthinx, Inc. v. Corelogic Solutions, LLC, CBM2012-00007, Paper 47 (November 12, 2013).  In this CBM, the matter was “fully briefed” and ready for oral hearing when the parties informed the Board of impending settlement.  The Patent Owner also identified ongoing litigation.
  • In IPR2013-00016 the Board terminated the Petitioner’s involvement, but maintained the proceeding with the Patent Owner.   Blackberry Corp. and Blackberry Limited v. MobileMedia Ideas, LLC, IPR2013-00016, Paper 31 (December 11, 2013).  In this IPR, the Patent Owner did not file a Patent Owner’s Response, but instead filed a motion to amend the challenged patent with claim amendments.  The Board found that “the trial issues had been fully briefed at the time the parties moved to terminate the proceeding.”

This aspect of PTAB practice is entirely different than reexamination practice, and can be used to the advantage of both Petitioner and Patent Owner, depending on the circumstances of each case.