News & Events

September 14, 2018

Fed. Circ. Redefines “Real Party in Interest” in USPTO Reviews

By Craig Countryman. This article originally appeared at Law360.

The Federal Circuit’s decision in Applications in Internet Time LLC v. RPX Corporation[1] creates new hurdles for companies that ask the U.S. Patent and Trademark Office to institute an inter partes or post-grant review. The decision expansively interprets the term “real party in interest,” which appears in multiple statutes that restrict review. Section 315(b) precludes review where the petitioner, a “real party in interest, or privy of the petitioner” is served with a patent infringement complaint more than a year before the petition. Section 312(a)(2) requires that the petition “may be considered only if” it “identifies all real parties in interest.” Applications in Internet Time dealt with the first provision, vacating the USPTO’s determination that the one-year time bar didn’t apply.

What did Applications in Internet Time Hold?

Applications in Internet Time dealt with the increasingly common situation where a patent defendant (in this case Salesforce.com Inc.) uses a patent risk management company like RPX. The patentee sued Salesforce for infringement. Salesforce responded by seeking patent office review, which was denied. RPX subsequently sought review over a year after the complaint. RPX didn’t have any other clients that had been threatened on the patents, nor was RPX itself at risk of being sued. The patent office instituted review and invalidated the patents. It thought Salesforce wasn’t a real party in interest or privy of RPX because RPX had independent reasons for seeking review and didn’t have any agreement with Salesforce that required it to do so.

The Federal Circuit vacated the patent office’s decision. The court held that the analysis should focus on whether the alleged real party in interest “is a clear beneficiary” of invalidating the patent and “has a preexisting, established relationship with the petitioner.” The court quoted the USPTO’s “Trial Practice Guide,” which asks if another party “desires review” of the patent and whether the petition was filed at that entity’s “behest.” The latter formulation is narrower. Not every “established relationship” entails one party acting at the other’s “behest.” It’s not clear if the court intended to adopt a “behest” requirement or simply thought it an exemplary “relationship.”

Either way, the court identified several errors in the patent office’s analysis. An entity likely qualifies as a real party in interest when it has paid the petitioner with the expectation the petitioner will challenge validity. An entity is also likely a real party in interest where the petitioner takes its interests “into account” and files the petition for that entity’s “benefit.”

The court suggested that these factors were present here. RPX files IPR petitions “to serve its clients’ financial interests,” and a “key reason” why clients like Salesforce pay RPX is “to benefit” from that practice. It was not enough that RPX could articulate “an independent interest in pursuing the IPRs.” The appropriate question was instead whether Salesforce also had an interest, and, if so, whether RPX was pursuing that interest. Salesforce could be a real party in interest even though there was no “express or implied agreement” between it and RPX to seek inter partes review. Parties can’t avoid a real party in interest relationship by allowing the IPR petitioner to remain willfully blind to the other’s intentions.

The decision will obviously impact how the USPTO analyzes RPX’s relationships with clients. The court’s directives, however, will apply more widely and could shift how the patent office treats other relationships.

Does Indemnity Create a Real Party in Interest Relationship?

The patent office’s treatment of indemnification agreements is a prime candidate for reconsideration after Applications in Internet Time. The prior rule was that an indemnitee was usually not a real party in interest. An indemnitor’s intervention in a district court infringement suit against its indemnitee also cut against a real party in interest relationship by showing the indemnitor has an independent interest.

But that might all change. One entity doesn’t indemnify another out of altruism. It receives payment for that protection, albeit perhaps as part of a broader relationship where a customer pays for goods and receives indemnity as part of the deal. Payment for indemnity comes with the expectation that the indemnitor will rationally defend the suit. And, these days, any rational patent defense strategy involves consideration of an IPR petition. So indemnification may be a situation where the indemnitee pays with the implicit understanding the indemnitor will file an IPR. And it will no longer be an answer for the indemnitor to point to its own interest in invalidating the patent, if it’s also acting to protect its indemnitee’s interest. Nor will it be an answer to say that the indemnification agreement doesn’t specifically mention IPR.

What About Other Supplier/Customer Relationships?

By contrast, Applications in Internet Time shouldn’t have any impact on situations where there is a customer/supplier relationship but no other ties. Mere purchase of products doesn’t create a real party in interest relationship. “[A] manufacturer or seller of a product who is sued for patent infringement typically is not in privity with a party, otherwise unrelated, who does no more than purchase and use the product.”[2] The privity standard is broader, so if parties aren’t in privity, there isn’t be a real party in interest relationship either. This rule makes sense. In the absence of any other agreements, the customer is just buying products, not protection from a patent suit. Any supplier who files an IPR is likely concerned solely with its own liability, not the duplicative liability of its customer.

Are Joint Defense Groups at Risk?

Joint defense relationships raise difficult questions after Applications in Internet Time. The patent office’s “Trial Practice Guide” says that an IPR petitioner’s mere membership in a joint defense group doesn’t automatically make all other members real parties in interest. That still seems right. But the patent office had also largely refused to find a real party in interest relationship between joint defendants where there was no showing that the other defendant “assisted in preparation or financing of the Petition or exerted any control over its filing or content.”[3] It’s less certain whether that is still the standard. Control is certainly still a consideration. However, broad language in Applications in Internet Time suggests caution: a joint defendant is a “clear beneficiary” of an IPR win, and a joint defense agreement is “a preexisting, established relationship.”

There are plenty of ways in which co-defendants differ from the RPX/Salesforce relationship. One defendant typically doesn’t pay another for patent protection. Each defendant acts in its own self-interest. Other defendants might benefit from an IPR win, but the typical defendant doesn’t care about that. That’s much different from RPX, whose first priority is keeping its clients happy.

Given those realities, the inquiry should still focus on whether a co-defendant is actually involved in planning or preparing the IPR petition — i.e., whether one defendant is acting at another’s “behest.” Yet it remains to be seen if the patent office will take that view.

Corporate Affiliates Must Be Cautious

Applications in Internet Time also signaled a more expansive approach to determining whether a corporate affiliate or acquired company counts as a real party in interest. Such an entity certainly qualifies when it exercises control over the petition. Some patent office decisions have been reluctant to find a real party in interest (or privity) relationship absent control.[4] But Applications in Internet Time endorsed finding a real party in interest relationship even in the absence of control or funding, where the petitioner is a “proxy” that pursues the related entity’s interest instead of its own.

The court discussed with approval Cisco Systems Inc. v. Hewlett Packard Co.,[5] where the Patent Trial and Appeal Board found that Springboard, a company acquired by Cisco, was a real party in interest. Although the merger had not been completed when the petition was filed, Cisco had invested $34 million and had a board seat. Only Springboard had been sued for infringement. Cisco’s own products were not at risk. So Cisco filed the petition to protect Springboard, not just itself.

Looking Forward

Time will tell how much of a shift Applications in Internet Time turns out to be. The patent office’s “Trial Practice Guide” had previously set parameters for assessing the real party in interest issue, and the court stressed its agreement with much of that guidance. It said the guide was “a thoughtful and useful resource” that is “consistent” with the court’s statutory interpretation and stressed that the problem was with “this particular [PTAB] panel’s” application of the law. That may mean the patent office’s approach to many prior cases was fine. But some issues will need to be revisited.

Petitioners should also remember that the one-year bar applies not just to real parties in interest, but also to those privies. Privity is a broader concept, and one concurring judge in Applications in Internet Time wrote to identify several additional errors in the patent office’s privity analysis, including its failure to consider if RPX and Salesforce were in a “substantive legal relationship” with “a high degree of commonality of proprietary or financial interest.” The Federal Circuit has, so far, upheld the patent office’s finding of no privity in other cases.[6] The law is still evolving, though, and privity may nevertheless ensnare an entity that isn’t a real party in interest.

 

[1] Applications in Internet Time, LLC v. RPX Corporation, No. 2017-1698 (Fed. Cir. July 9, 2018)

[2] Transclean Corp. v. Jiffy Lube Int’l, Inc., 474 F.3d 1298, 1306 (Fed. Cir. 2007).

[3] Vizio, Inc. v. Nichia Corp., 2017 WL 2901317, at *3 (P.T.A.B. July 6, 2017).

[4] See, e.g., Analytics for Life, Inc. v. 8825319 Canada Ltd., 2018 WL 801656 (P.T.A.B. Jan. 31, 2018); Arris Group, Inc. v. TQ Delta, LLC , 2016 WL 5105589 (P.T.A.B. June 30, 2016).

[5] Cisco Sys., Inc. v. Hewlett Packard Co., No. IPR2017-01933 (P.T.A.B. Mar. 16, 2018) (Paper No. 9)

[6] See WesternGeco LLC v. ION Geophysical Corp., 889 F.3d 1308 (Fed. Cir. 2018); Wi-Fi One, LLC v. Broadcom Corp., 887 F.3d 1329 (Fed. Cir. 2018).

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