IP News

Next, the majority gleaned two insights into Congress's intent regarding the scope of Section 315(b) from the text of the statute itself: first, Congress' use of both the term “real party in interest” and the term “privy of the petitioner” makes clear that Congress intended the provision to apply broadly, and second, Congress chose language that allows for more than one interested party in each case. Id. at 17-18. The majority explained that while “real party and interest” and “privy of the petitioner” are not defined in the AIA, the fact that they are familiar common law terms indicates that Congress intended to adopt common law principles to govern the scope of the Section. Id. at 18. The relevant common law principles are broad, and are codified in Federal Rule of Civil Procedure 17(a). Id. at 19. The majority also found particularly relevant two examples of legal relationships that appear in discussions of “real party in interest” in treatises: first, a person who is an attorney-in-fact or an agent for the purpose of bringing suit is viewed as a nominal rather than a real party in interest and is required to litigate in the name of the principal, and second, an association is not the appropriate party for bringing suit to assert the personal rights of its members. Id. at 22-23. The common law, according to the majority, thus seeks to ascertain who, from a practical and equitable standpoint, will benefit from the redress that the chosen tribunal might provide. Id. at 20, 23.

Turning to the legislative history, the majority found nothing that to suggest that Congress intended “real party in interest” to have a meaning that departs from its common-law origins. Id. at 24. To the contrary, the majority found the history to reveal Congress's intent for the term to have an expansive meaning. Id.

The majority then determined that the PTAB had made several critical errors: first, it made factual findings that are not supported by substantial evidence and it failed to consider the entirety of the record, and second, it failed to adhere to the expansive meaning of “real party in interest” dictated by the facts discussed above. Id. at 26. The majority found that the PTAB did not meaningfully examine Salesforce's relationship with RPX and the nature of RPX as an entity. Id. The evidence revealed that RPX is a for-profit company whose clients, of which Salesforce is one, pay for “patent risk solutions,” which include helping members “extricate themselves from NPE [non-practicing entity] lawsuits.” Id. at 27. But the PTAB did not consider these facts, which imply that RPX files IPRs to serve its clients' financial interests, and that clients pay RPX to benefit from this practice in the event they are sued by an NPE. Id. Indeed, the majority noted, RPX did not point to any clients other than Salesforce whom it believed might be at risk of infringement claims arising out of the patents on which IPR was instituted, and it conceded that no one else would likely have an incentive to challenge these particular patents. Id. at 30.

The majority found that the PTAB erred in emphasizing Mr. Chuang's testimony regarding RPX's independent reasons for filing the IPRs, namely, preventing future lawsuits against clients and providing significant reputational benefits to RPX. Id. at 31. Such facts, the majority found, were hardly probative of the extent to which Salesforce, as RPX's client, had an interest in and would benefit from RPX's actions, and whether RPX could be said to be representing that interest. Id. The benefit to Salesforce — which, by then, was time-barred from filing IPR petitions — was noteworthy. Id. at 30. Another relevant fact the majority noted was that Salesforce and RPX have overlapping members on their respective boards of directors. Id. at 33. Further, although Mr. Chuang averred that RPX had neither a contractual obligation to file IPRs on Salesforce's behalf nor an understanding that it would do so, the majority found that the evidence might actually indicate that RPX worked to ascertain its client's desires while taking last-minute efforts to avoid obtaining an express statement of such desires, which constitutes “willful blindness.” Id. at 34-35. In sum, the majority found the insufficiency of the Board's findings and reasoning to be especially important because RPX bore the burden of persuasion on this issue. Id. at 36.

The majority further determined that the PTAB failed to consider other legal theories implicated by arguments raised by AIT, for example, whether RPX acted as Salesforce's attorney-in-fact or its express or implied litigating agent or whether RPX is barred from maintaining the IPRs due to its representation of Salesforce's interests. Id. at 38-39. Facts that the majority found to be relevant to such alternative legal theories include that RPX publicly stated its “interests are 100% aligned with those of [its] clients” and that Salesforce made substantial payments to RPX, including a very significant payment shortly before RPX filed the IPR petitions. Id. at 8, 10, 39-40. Relatedly, Judge Reyna's concurrence noted that since AIT had argued to the PTAB that RPX was a “proxy” for Salesforce, the PTAB should have also separately considered whether Salesforce is a “privy” of RPX under Section 315(b).

Federal Circuit Holds that Common Law Tribal Sovereign Immunity Cannot Shield a Patent in IPR Proceedings

On July 20, 2018, a Federal Circuit panel of Judges Dyk, Moore, and Reyna issued a unanimous opinion, authored by Judge Moore, in Saint Regis Mohawk Tribe v. Mylan Pharm., Case Nos. 2018-1638, -1639, -1640, -1641, -1642, and -1643. The panel affirmed PTAB's denial of Saint Regis Mohawk Tribe's (the Tribe) motion to terminate IPR proceedings on the basis of sovereign immunity stemming from the transfer of title of the patents to the Tribe.

Allergan, Inc. (Allergan) markets and sells Restasis, a prescription eye drop product, and owned patents related to that product (the Restasis patents). Slip op. at 4. In 2015, Allergan sued Mylan Pharmaceuticals, Inc., Teva Pharmaceuticals USA, Inc., and Akorn, Inc. (collectively, Appellees) in the U.S. District Court for the Eastern District of Texas, alleging infringement of the Restasis patents based on the Appellee's filings of Abbreviated New Drug Applications. Id. On June 3, 2016, Mylan petitioned the PTAB for IPR of the Restasis patents, and Teva and Akorn subsequently filed similar petitions. Id. The PTAB instituted IPR and scheduled a consolidated oral hearing for Sept. 15, 2017. Id. Before the hearing, Allergan and the Tribe entered into an assignment agreement transferring the Restasis patents from Allergan to the Tribe. Id. The Tribe moved to terminate the IPRs, asserting tribal sovereign immunity, and Allergan moved to withdraw. The PTAB denied both motions, and Allergan and the Tribe appealed. Id.

The panel explained that under common law, Indian tribes possess sovereign immunity and suits against them are generally barred absent a clear waiver or congressional abrogation. Id. at 5. Immunity does not extend to actions brought by the federal government, but there is not a blanket rule that immunity does not apply in federal agency proceedings. Id. IPR is neither clearly a judicial proceeding instituted by a private party nor clearly an enforcement action brought by the federal government, the panel noted. Id. at 7. Rather, it is a hybrid proceeding with adjudicatory characteristics similar to court proceeding as well as other characteristics that make it similar to a specialized agency proceeding. Id. The panel further noted that in two recent decisions that the Supreme Court of the United States issued on the same day, the Court recognized both that IPR is simply a reconsideration of the USPTO's grant of a public franchise and that IPR is an adversarial process which mimics civil litigation and in which the petitioner defines the contours of the proceeding and the PTAB is given only the choice of whether to institute IPR. Id. (comparing Oil States Energy Services v. Greene's Energy Group, LLC, 138 S. Ct. 1365 (2018) with SAS Institute Inc. v. Iancu, 138 S. Ct. 1348 (2018)).

The panel discussed several factors relating to the differences between an IPR proceeding a civil suit brought by a private party. Id. at 8. First, the PTAB is given broad discretion in deciding whether to institute review. Id. Second, the PTAB may choose to continue review even if the private challengers decide not to participate, which reinforces the view that IPR is an act by the agency in reconsidering its grant of a public franchise. Id. at 9. Third, the USPTO procedures do not mirror the Federal Rules of Civil Procedure, for example: while a civil complaint may be substantively amended, an IPR petition may not; a patent owner may amend its claims during IPR, but cannot do so in civil litigation; IPR lacks many of the preliminary proceedings that exist in civil litigation. In civil litigation, parties have many discovery options, but in IPR, discovery is limited; and an IPR argument is nothing like a district court patent trial. Id. at 9-10. The panel was ultimately convinced by these factors that IPR is more like a federal agency enforcement action than a civil suit brought by a private party, id. at 8, which led to its ultimate conclusion that tribal sovereign immunity is not implicated by IPR, id. at 11. In his concurring opinion, Judge Dyk described in greater detail the history of IPR, which he opined confirms that IPR does not provide an adjudication between private parties.

Federal Circuit Holds that an Unsuccessful IPR Petitioner Must Show 'Concrete Plans' for Future Potentially-Infringing Activity in Order to Demonstrate Article III Standing to Appeal PTAB's IPR Decision

On Aug. 3, 2018, a Federal Circuit panel of Judges Prost, Dyk, and O'Malley issued a unanimous opinion, authored by Judge Dyk, in JTEKT Corp. v. GKN Automotive Ltd., Case Nos. 2017-1828. The panel dismissed the appeal of a final written decision of the PTAB's, because the petitioner in the IPR lacked standing to appeal.

GKN Automotive LTD (GKN) owns U.S. Patent No. 8,215,440 (the '440 patent), which describes a drivetrain for a four-wheel drive vehicle that is made up of primary and secondary drivetrains. Slip op. at 2. JTEKT petitioned for IPR of the patentability of claims 1-7 of the '440 patent. Id. The PTAB instituted IPR on all challenged claims. Id. GKN then disclaimed claims 1, 4, and 5. Id. In its final written decision, the PTAB held that claims 6 and 7 would have been obvious over the prior art, but that JTEKT had not shown that claims 2 and 3 would have been obvious. Id. GKN did not appeal the PTAB's decision, but JTEKT appealed the decision regarding claims 2 and 3. Id. at 3. GKN moved to dismiss the appeal based on a lack of standing, and the motion was denied by a Federal Circuit panel, which deemed it the better course for the parties to address the standing issue in their briefs. Id.

The panel noted at the outset of its discussion that under 35 U.S.C. §311(a), any person or entity may petition the PTAB to institute IPR, and there is no requirement of Article III standing. Id. The panel also noted that an unsuccessful petitioner may appeal an adverse final written decision under 35 U.S.C. §141(c). Id. However, the panel explained, the statute does not dispense with the Article III injury-in-fact requirement for appeal to the Federal Circuit. Id. Supreme Court cases, the panel further explained, establish that the injury-in-fact must be both concrete and particularized, and an injury that is conjectural or hypothetical will not provide standing. Id. at 4-5. In a prior decision, Phigenix, Inc. v. Immunogen, Inc., 845 F.3d 1168 (Fed. Cir. 2017), an unsuccessful IPR petitioner argued on appeal that it had not planned to take an action that would implicate the patent, but rather, that it suffered an actual economic injury because the patent at issue increases competition for the appellant. Id. at 3-4. The Federal Circuit found this insufficient to establish Article III standing. Id. at 4. The panel summed up its precedent as establishing that typically in order to demonstrate the requisite injury in an IPR appeal, the petitioner-appellant must show that it is engaged or will likely engage in an activity that would give rise to a possible infringement suit, or that it has contractual rights that are affected by a determination of patent validity. Id. at 5. If the record from the PTAB proceeding does not establish standing, the appellant must supplement the record in order to carry its burden of establishing that it possesses the requisite injury. Id.

Turning to the facts at hand, the panel stated that JTEKT need not have a product on the market at present to have Article III standing to appeal an IPR decision, just as it would not need to have a product on the market to initiate a declaratory judgment action. Id. The panel confirmed that such proceedings can be used to secure a judicial determination prior to any actual, liability-creating injury. Id. But, the panel continued, “where a party relies on potential infringement liability as a basis for injury in fact, [and] is not currently engaging in infringing activity, it must establish that it has concrete plans for future activity that creates a substantial risk of future infringement or likely [will] cause the patentee to assert a claim of infringement.” Id. at 5-6.

JTEKT submitted two declarations in support of its standing. Id. at 6. JTEKT's chief engineer admitted that the company was still validating its product design and the concept would continue to evolve and may change until it is completely finalized. Id. JTEKT's patent engineer similarly admitted that because the product was not finalized, JTEKT could not definitively state whether it would infringe the '440 patent and the risk of infringement was impossible to quantify. Id. In support of standing, the two declarations merely conveyed that the general features of the current product design concepts were similar enough to the features of the '440 patent and that the patent posed a risk to future development. Id. at 6-7. The panel found this evidence insufficient to establish that JTEKT's planned product would create a substantial risk of infringement, or likely lead to charges of infringement, of claims 2 or 3 of the '440 patent. Id.

The panel also quickly dismissed JTEKT's theory that the creation of estoppel based on its participation in the IPR constitutes a separate and independent injury-in-fact, noting that the Federal Circuit already rejected this theory in its decision in Phigenix. Id. at 7.

*****

Jeffrey S. Ginsberg is an editor of this newsletter and a partner at Patterson Belknap Webb & Tyler LLP. Abhishek Bapna is an associate at Patterson Belknap Webb & Tyler LLP.