PTAB Will Not Review Contract Issues Even if They Relate to Standing

14118600_sWhether a Petitioner breached a contract, that limited its ability to challenge a patent, is an issue outside the purview of the PTAB, per a recent decision in Ford Motor Company v. Paice LLC & The Abell Foundation, Inc., IPR2014-00570, involving US Pat. No. 8,214,097. Patent Owner had sought the denial of an IPR petition based on lack of standing.

Patent Owner argued that Petitioner was barred from filing the subject Petition because such action breached an arbitration agreement between the parties which limited Petitioner’s ability to challenge the claims of the ‘097 patent.  Patent Owner argued that, because Petitioner was in breach of the contract by filing for inter partes review, Petitioner lacked standing to file the instant Petition. Decision at 5.

The Board’s hands were tied, however, because the disputed contractual matter raised by Patent Owner was outside the purview of the PTAB under authority granted by the AIA. Whether Petitioner had breached the arbitration agreement by filing for inter partes review of the ‘097 patent is for the district courts to decide (indeed, there was a co-pending action that will decide this issue). Since this question of breach had not been settled at the time of the Board’s decision, the Board rejected Patent Owner’s argument that Petitioner should be barred or estopped from filing the instant petition.  Id. at 6.

IPR Petition Time-Barred Even Where First Lawsuit “Dismissed” and Folded Into Later Lawsuit

hourglassThe PTAB has been presented, of late, several cases that call upon the Board to consider whether a complaint served on a defendant is sufficient to trigger the a time-bar pursuant to 35 U.S.C. § 315(b). For example, as discussed HERE, a complaint that is served, but then later dismissed without prejudice, does not trigger the § 315(b) time bar. In eBay, Inc. v. Advanced Auctions LLC, IPR2014-00806, the Board addressed a factual situation in which a first lawsuit is later folded into a second lawsuit, purportedly because of a defect in the patent assignment raised an issue of whether standing was appropriate. The Board determined that there was no evidence that the assignment was defective and, as such, Patent Owner had standing to file and serve the first complaint. Even though that first complaint was later “dismissed” and folded into a second lawsuit, such an occurrence does not negate service of the first complaint.

On February 13, 2013, Petitioner was served with a first complaint for infringement, resulting in a first district court action. Thereafter, Patent Owner executed an assignment of the patent rights and, on July 11, 2013, Petitioner was served with a second complaint for infringement, resulting in a second district court action.  On May 23, 2014, more than one year after the first complaint was served, but within one year from when the second complaint was served, Petitioner filed the Petition at issue. On July 14, 2014, the court granted a motion to dismiss the first litigation, and effectively folded that action into the second action, allowing work from the first action to carry over to the second action.  Decision at 3. Because the IPR Petition was filed more than one year after service of the first complaint, if service of the first complaint was effective, such service would result in a time-bar of the instant petition under 35 U.S.C. § 315(b).  Id. at 4.

Petitioner argued that Patent Owner did not have rights in the ‘000 patent as of the filing and service of the first action as a result of a late and defective assignment. As such, per Petitioner, Patent Owner lacked standing to assert the subject patent, the first action had no legal effect, and the time-bar of 35 U.S.C. § 315(b) did not apply.

The Board disagreed, finding that Petitioner failed to identify any specific defects in the assignment documents or provide further explanation why the assignments were defective. Id. at 5. As proof that the assignment was defective, Petitioner relied solely on the fact that Patent Owner executed a second assignment after Petitioner had raised the standing issue in the first action. Patent Owner responded that the second assignment was initiated in response to an unrelated case and further that the second assignment expressly stated the belief that the first assignments were valid.  Id. at 6.

With Petitioner pointing out no specific defects in the assignment and the Board finding none, the Board rejected Petitioner’s argument that Patent Owner lacked standing. The Board agreed with Patent Owner, stating that the mere existence of a second assignment was not enough to convince the Board that the first assignment was defective.  Id. at 6. Accordingly, the Board found that Patent Owner did have standing in the first action, service was effectuated, and the instant Petition was time-barred. Further, despite the fact that the first action was “dismissed” as part of a procedural move to fold it into the second action, because the work from the first action carried over to the second action, this situation is not akin to a dismissal without prejudice, wherein the parties were left in the same legal position as if the underlying complaint had never been served. Order at 6-7. Thus, with the complaint in the first action served more than a year prior to the filing date of the instant petition, the Board denied the petition as time-barred under 35 U.S.C. § 315(b).

Non-Infringement DJ Action Does Not Preclude Inter Partes Review

As previously reported, Patent Owner in the inter partes review styled as Ariosa Diagnostics v. Isis Innovation Ltd. (IPR 2012-00022) earlier sought authorization to file a motion challenging the standing of Patent Challenger to bring the IPR petition.  The Board held that such issues could be addressed in the Patent Owner Preliminary Response and, therefore, denied Patent Owner’s request for authorization at an early stage of the IPR.

35 USC §315 – (a) Infringer’s civil action.  (1) Inter partes review barred by civile action.—An inter partes review may not be instituted if, before the date on which the petition for such review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent…(3) Treatment of counterclaim.—A counterclaim challenging the validity of a claim of a patent does not constitute a civil action challenging the validity of a claim for purposes of this subsection.

Since that ruling, however, Patent Owner made its argument that Patent Challenger lacked standing to bring the inter partes review in its Preliminary Response.  Further, on February 12th, the Board denied Patent Owner’s request and ruled that the Patent Challenger did, indeed, have standing to bring the present inter partes review proceeding.  In short, a party’s filing of a declaratory judgment action seeking judgment of non-infringement does not preclude that party from later filing a petition for inter partes review, even if the challenger later files an affirmative defense of invalidity.

More specifically, Patent Owner argued in its Preliminary Response that Patent Challenger lacked standing because the challenger filed a civil action seeking a declaration of non-infringement and then, in response to an inevitable counterclaim of infringement in the same suit, Patent Challenger asserted an affirmative defense of invalidity.  That sequence of events, per Patent Owner, was tantamount to bringing a civil action challenging the validity of a claim of the patent, contrary to the estoppel provisions of 35 USC §315.  Further, per Patent Owner, to allow this proceeding to move forward would thwart the intent of Congress.

The Board’s decision turned on the language of 35 USC §315 that “clearly defines which civil actions, when filed, bar a party from filing an inter partes review – civil actions challenging the validity of a patent.”  Order at 7.  Because a civil action for a declaratory judgment of non-infringement is not a civil action challenging the validity of a patent, there is no bar to the filing of a petition seeking inter partes review when such civil action has been filed.

Lastly, in response to the Patent Owner’s argument that the path taken by the challenger in this case thwarts Congress’s intent, the Board found persuasive the fact that the challenger cannot just file a declaratory judgment action – some action on the part of the Patent Owner creating a case or controversy is necessary.  As such, allowing a party to file both a declaratory judgment action of non-infringement and an inter partes review petition does not allow for harassment of a patent owner.

Standing in Inter Partes Review Should Be Challenged in Preliminary Response

One of the more comprehensive orders handed down by the PTAB in the first few months since the initiation of Inter Partes Review proceedings was issued in IPR2012-00022, Ariosa Diagnostics v. Isis Innovation Ltd.  There are three separate portions of the Order that we will address in three separate posts for clarity (and because they are not very closely related).[pullquote align=”left|center|right” textalign=”left|center|right” width=”30%”]”35 U.S.C. §315(a)(1) – Inter Partes Review Barred by Civil Action. –An inter partes review may not be instituted if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent.”[/pullquote]

In the first portion of the Order, the Board considered Isis’s request to file a motion challenging Ariosa’s standing to bring the IPR in the first place.  The basis of the challenge related to the fact that Ariosa had filed a declaratory judgment action seeking a finding of non-infringement in United States District Court for the Northern District of California.  Isis filed a counterclaim for infringement in response and, as an affirmative defense to that counterclaim, Ariosa asserted that the patent-in-suit was invalid.

The basis of the motion is 35 U.S.C. §315(a)(1), which bars an inter partes review when the challenger has previously filed a civil action challenging the validity of a claim (declaratory judgment counterclaims do not count).  It seems clear that Isis would have argued in its motion that the PTAB should construe the filing of a declaratory judgment action seeking non-infringement to be equivalent to these facts – wherein a later affirmative defense alleging invalidity is “a civil action challenging the validity of a claim of the patent,” as required by the statute.

But, that determination must wait for another day because the Board denied authorization to Isis to file the motion to challenge Ariosa’s standing.  The proper place to make this type of argument, per the Board, is as part of the patent owner preliminary statement.  Stay tuned.