Overturning prior PTAB precedent, the Federal Circuit has now held that post-facto business mergers that create a new real-party-in-interest (“RPI”) trigger the one-year bar date for filing IPR petitions on patents asserted in litigation against the new RPI.
It is well-known that 35 U.S.C. § 315(b) precludes institution when an IPR petition is filed more than one year after the petitioner, an RPI, or a privy has been served with an infringement complaint. The PTAB had held that this prohibition is only triggered when the sued party is an RPI or privy as of the date the petition is filed. ARRIS Grp., Inc. v. TQ Delta LLC, No. IPR2016-00430, Paper 9 at 6 (P.T.A.B. July 1, 2016) (“§ 315(b) is concerned with privity relationships up until the time a petition is filed.”); Synopsys, Inc. v. Mentor Graphics Corp., No. IPR2012-00042, Paper 60 at 12 (P.T.A.B. Feb. 19, 2014) (“This rule makes clear that it is only privity relationships up until the time a petition is filed that matter; any later-acquired privies are irrelevant.”).
In its recent ruling in Power Integrations, Inc. v. Semiconductor Components, No. 2018-1607, slip op. at 13-19 (Fed. Cir. June 13, 2019), however, the Federal Circuit reversed PTAB precedent and held that events occurring after the filing of the petition must be considered in analyzing the preclusions of § 315(b). By way of background, Semiconductor Components filed its IPR petition after having entered into a merger agreement with Fairchild Semiconductor Corp., but the merger did not close until many months later. Although Fairchild had been sued on the subject patent more than one year before the petition filing date, and even though the merger formally closed before the institution decision, the PTAB declined to apply § 315(b). The PTAB found the merger agreement alone insufficient to establish privity at the time of filing, and found post-filing-date mergers irrelevant to § 315(b), consistent with prior PTAB decisions. Even when apprised of the formal closing of the merger, the panel maintained its position in the final written decision.
In reversing the PTAB’s interpretation and application of the statute, the Federal Circuit determined that the statutory language is unambiguous1, and precludes institution if “a time-barred party (a party that has been served with a complaint alleging infringement of the patent more than one year before the IPR was filed) is the petitioner, real party in interest, or privy of the petitioner”—at the time of institution. Slip op. at 14. The Federal Circuit thus determined that the time period for identifying the “pool” of time-barred parties includes at least the time up until an institution decision is made, even though the condition barring institution under § 315(b) is whether any such entity had been served with a complaint more than a year before the filing of the petition. Under the Court’s view, a post-filing-date merger that creates a new RPI triggers § 315(b) where the new RPI would have been time-barred at the time the petition was filed.
The Court’s decision is curious in a few respects. First, the opinion states that § 315(b) “focuses” on institution. Slip op. at 14. Yet, the statute itself does not expressly state when RPIs and privies fall under the purview of § 315(b). Based on its plain language, one could argue that § 315(b) equally focuses on the filing date of the petition—which is perhaps the basis of the PTAB’s prior decisions interpreting this statute. That the statute might potentially be construed more than one way suggests that the statutory language is perhaps something less than clear and unambiguous, as the opinion seems to conclude.
The Court supports its interpretation of the statute by noting consistency with common law preclusion principles, in particular common law definitions of the terms “privy” and “real party in interest.” Slip op. at 15-17. The Court finds support for its interpretation of § 315(b) based on common law preclusion cases finding that “preclusion can apply based on privity arising after a complaint is filed.” Slip op. at 16. However, the opinion does not explain why common law preclusion principles should apply to a statutory preclusion based solely on the time period between the filing dates of a complaint and petition, nor why those principles favor one date for making the RPI/privy determination over the other.
Lastly, the Court relies on the purpose of statute as barring petitions where “proxies or privies would benefit from an instituted IPR.” Slip op. at 17 (italics in original). However, proxies or privies ostensibly only benefit from final written decisions finding claims invalid; it is not readily apparent why this supports a conclusion that § 315(b) should be interpreted as defining the pool of time-barred parties as of the institution date versus the petition filing date, given that each is somewhat arbitrary.
The Court’s opinion in Power Integration leaves several questions unanswered. For example, the Court expressly notes that it is not deciding “the impact of a change in RPI, privity, or ownership occurring after institution.” Id. at 14 n.8. However, given the Court’s reliance on common law preclusion principles, as well as the intent behind § 315(b) of preventing proxies or privies from benefitting from an IPR, one wonders whether the Court’s reasoning might similarly justify retroactively negating institution later in a proceeding2. Then again, the Court’s emphasis that § 315(b) focuses on institution might be read to suggest that post-institution events are outside the statute’s preclusive effects.
The decision also does not reach the issue of whether a merger agreement alone rises to the level of creating a privy or real-party-in-interest relationship. While the PTAB found that the merger agreement did not create a privy relationship under the circumstances of Power Integrations, it is not clear under what circumstances such a relationship might be found,3 nor whether the Federal Circuit will agree with the PTAB’s determinations on this issue.
Thus, several questions remain unanswered regarding the scope and temporal applicability of § 315(b)’s time bar. Moreover, the Federal Circuit’s ability to continue to address these issues may be in jeopardy given the Supreme Court’s June 24th agreement to consider whether the Federal Circuit can even review PTAB decisions about the timeliness of IPR challenges.4 A Supreme Court finding in the negative could preclude the Federal Circuit from further addressing § 315(b) issues, and might even call into question the authority of the Power Integrations decision itself.
Clearly, the interpretation and application of § 315(b) remains an area of active interest among IPR practitioners.
1 This point distinguishes Power Integrations from another recent Federal Circuit decision, Mayne Pharma Int’l Pty. v. Merck Sharp & Dohme Corp., Case 2018-1593, Slip op. at 11-14 (Fed. Cir. June 21, 2019), where the Court deferred to the PTAB’s interpretation and implementation of its own rules on whether correcting a petition to add a new RPI required that a new filing date be accorded, presumably because the statutory framework there did not clearly and unambiguously speak to this issue. A discussion of other aspects of the Mayne decision can be found here.
2 Indeed, in Power Integrations, the merger became final only four days before the institution decision. Because a petitioner has three weeks to update its mandatory notices, it is unlikely the PTAB would have been made aware of the merger closing before its institution decision. Under the Federal Circuit’s new decision, presumably the PTAB would have been forced to retroactively cancel institution and cancel the proceeding. This then raises the question of whether a proceeding can be cancelled at any time a new RPI or privy implicates § 315(b).
3 The potential complexities of this inquiry are highlighted, for example, in IPR2015-00410, where Patent Owner asked the PTAB to find an RPI relationship based on a “scheme of arrangement” under Indian law. See Paper 10 and Ex. 2002. Corporate counsel may often been needed to accurately assess the legal relationships between parties to various types of merger agreements.
4 Dex Media Inc. v. Click-to-Call Technologies, Case 18-916.