United States: AIA Post-Grant Proceedings: Uncertainty Regarding The Scope Of "Privy" And "Real Parties-In-Interest" In AIA Proceedings Remains

Last Updated: November 9 2013
Article by Mike Fox, Stephanie Schonewald and Amanda K. Streff

Parties, even tangentially, involved in patent litigation should be aware of recent developments in the Inter Partes Review (IPR) proceedings so that they are not adversely affected by the actions or inactions of others at the US Patent and Trademark Office (USPTO).  Similar considerations are likely to apply in Post Grant Review proceedings.  Under the America Invents Act (AIA), a non-party to a proceeding may be affected by the actions of a petitioner in a proceeding.  For example, under 35 U.S.C. §§ 315(e) and 325(e), a petitioner, a privy to a petitioner, or a real party-in-interest is estopped from raising any ground for invalidity that was raised or could have been raised by the petitioner during an AIA proceeding in future proceedings before the USPTO, the International Trade Commission, or a district court.   Conversely, a petitioner may be affected by actions involving a non-party to an AIA proceeding.  Most notably, an IPR may not be instituted if the petition requesting the proceeding is filed more than one (1) year after the date on a privy of the petitioner or a real party-in-interest is served with a complaint alleging infringement of the patent-at-issue.  With such significant limitations in play, the uncertainty surrounding the scope of terms "privy" and "real parties-in-interest" has raised concerns about the exact threshold at which a non-party is considered a "privy" or "real party-in-interest."     

 The Patent Trial and Appeal Board (PTAB) assuaged some of these concerns in the Trial Practice Guidelines, stating that "[s]uch questions will be handled by the Office on a case-by-case basis taking into consideration how courts have viewed the terms "real party-in-interest" and "privy."  Trial Practice Guidelines, Vol. 77, No. 157, 78756 (Aug. 14, 2012).  The PTAB cited to Taylor v. Sturgell, the seminal Supreme Court case that outlines six factors that provide the familiar framework for determining if a non-party is in "privy" with a party to an action: 1) the existence of an agreement that the non-party be bound by a determination of issues in an action between the parties, 2) the existence of a pre-existing substantive legal relationship between the non-party and a party, 3) representation in an action by someone with the same interests as the non-party, 4) the assumption of control over an action by the non-party, 5) re-litigation of issues through a proxy, and 6) the existence of a special statutory scheme. 

Over the last year, it has become clear that the PTAB's interpretation of Taylor relies heavily on the fourth Taylor factor, and it appears that a non-party must have "exercised or could have exercised control over a party's participation in a proceeding" (the fourth Taylor factor) in order to be considered a "privy" or a "real party-in-interest" at the PTAB.  As a case in point, Chimei Innolux Corp. v. Semiconductor Energy Lab. Co., Ltd., IPR2013-000681 exemplifies the dominance of the fourth Taylor factor in the PTAB's analysis.  In Chimei Innolux, the PTAB determined that co-defendants in the related litigation were not "real parties-in-interest" because the patent owner "has failed to provide persuasive evidence that each of the co-defendants in the [case] provided funding for the instant Petition, let alone exercised control and funding."  This conclusion is particularly instructive because, while Chimei Innolux Corp. was listed as the single petitioner, all of the co-defendants agreed to be bound by the outcome of the IPR.  In other words, it seems the PTAB relied on the lack of the fourth Taylor factor, "the exercise of control," in finding the co-defendants were not real parties-in-interest, and disregarded the presence of the first Taylor factor, an agreement to be bound by a determination of issues in an action between the parties. 

While the PTAB's reliance on the fourth Taylor factor has offered some level of comfort to potential "privies" and "real parties-in-interest", this comfort may be short lived.  On October 21, 2013, MCM Portfolio LLC filed a petition for writ of mandamus with the Court of Appeals for the Federal Circuit, arguing that, among other things, the PTAB's interpretation of the term "privy" (and tangentially, the PTAB's interpretation of "real parties-in-interest") under Taylor is incorrect.  Specifically, MCM Portfolio contends that the PTAB afforded the fourth Taylor factor a predominant position in its analysis of "privy."  Although the petition may be denied on procedural issues, it seems likely that the scope of the terms "privy" and "real parties-in-interest" may be broadened if the Federal Circuit addresses when a non-party is considered a "privy" or "real party-in-interest."  As the ultimate scope remains in question, patent owners involved in AIA proceedings should raise challenges in their responses submitted to the PTAB based on "privy" and "real parties-in-interest," where applicable, to preserve their arguments in the event the Federal Circuit interprets these terms more broadly than the PTAB.  Petitioners, potential "privies" to petitioners, and potential "real parties-in-interest" should continue to evaluate their respective positions both under the PTAB's current interpretation and under a broad interpretation within the Taylor framework.

1 A similar analysis was also found in Chimei Innolux Corp. v. Semiconductor Energy Lab. Co., Ltd., IPR2013-0028, IPR2013-0038, IPR2013-00060, IPR2013-0064, IPR2013-0065 and IPR2013-0066.

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Amanda K. Streff
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