United States: Federal Circuit Admonishes PTAB For Taking Short-Cuts

Last Updated: August 1 2018
Article by Sandip H. Patel

In Application in Internet Time v. RPX Corp., Nos. 2017-1698, -1699, -1701 (Fed. Cir. July 9, 2018), the Federal Circuit decided that the Patent Trial and Appeal Board "applied an unduly restrictive test for determining whether a person or entity is a 'real party in interest' within the meaning of [35 USC] § 315(b) and failed to consider the entirety of the evidentiary record in assessing whether § 315(b) barred" IPRs petitioned by RPX more than one year after one of its clients, Salesforce.com, Inc. (Salesforce), was served with a complaint for infringing the challenged patents. Based on these decisions, the court vacated the Board's final written decisions that canceled the challenged claims. The court's decision is important if only because it offers guidance in determining how a non-party may be a real party in interest or in privity with a petitioner.

In a lengthy opinion for the court, Judge O'Malley recounted dozens of facts underlying the court's conclusion that the Board did not properly assess whether Salesforce is a real party in interest. The patent owner, Application in Internet Time (AIT), served an infringement complaint on Salesforce in November 2013. More than a year later, RPX filed IPR petitions against the patents, identifying itself as the sole real party in interest, and certifying that it was neither barred nor estopped from challenging the patents in IPRs. An RPX principal testified about communications between RPX and Salesforce employees regarding the AIT litigation, each communication intervening the dates on which the litigation began and RPX filed its IPR petitions but none evidencing a contractual obligation or other understanding that RPX would file the petitions. RPX also produced documents stating that its interests are 100% aligned with those of its clients; and revealing Salesforce was an RPX client, RPX and Salesforce share a member on their respective board of directors, and that "Salesforce has paid RPX substantial sums as membership fees since its membership began, including a very significant payment shortly before the IPR petitions at issue here were filed."

These and other facts, according to the court, required the court to explain what the term "real party in interest" means in the context of Section 315(b), which states: "An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent." The America Invents Act does not define "real party in interest." But the court explained that the term is sufficiently familiar in common law that the statutory provision is not so ambiguous that the court must defer to the Board's interpretation. The court explained that "[d]etermining whether a non-party is a "real party in interest" demands a flexible approach that takes into account both equitable and practical considerations, with an eye toward determining whether the non-party is a clear beneficiary that has a preexisting, established relationship with the petitioner." And even though the Board seems to have understood these principles—principles the Patent Office's Trial Practice Guide incorporates—it failed, according to the court, to apply them.

The Board had instituted IPRs over AIT's real party in interest challenges, concluding that the record evidence did not support allegations that RPX filed the petitions as Salesforce's proxy, that RPX exercised a "willful blindness" strategy to filing IPR petitions—i.e., working to ascertain its client's desires yet avoid eliciting an express statement of such desires—or that RPX's business is to act as an agent or proxy for non-parties that would be barred from filing petitions. The court concluded that the Board's conclusions on the latter two allegations lacked any reasoned explanation. Slip Op. at 35. Moreover, "the Board's consideration of the evidence," according to the court, "was impermissibly shallow, both under the Trial Practice Guide and the common law it incorporates." Slip Op. at 27. The Board did not, according to the court, consider facts that "imply that RPX can and does file IPRs to serve its clients' financial interests, and that a key reason clients pay RPX is to benefit from this practice in the event they are sued by [a non-practicing entity]." The Board also failed to assess several factors RPX considers when identifying potential IPR candidates—factors that "are highly probative of whether particular individual clients would benefit from having RPX file IPR petitions challenging patents they have been accused of infringing." Slip Op. at 27–28. In a concurring opinion, Judge Reyna concluded the Board further erred by failing to fully address whether Salesforce is in privity with RPX. The court thus remanded the matters for the Board to re-determine whether Salesforce is either a real party in interest or a privy of RPX.

The court acknowledged its deferential standard of reviewing the Board's fact finding, but also noted its review "requires an examination of the record as a whole, taking into account both evidence that justifies and detracts from an agency's opinion." Slip Op. at 29 (internal citations omitted). "The Board did not," according to the court, "consider critical evidence proffered by AIT. Nor did it adequately explain why it rejected certain of AIT's common law theories, particularly where RPX bore the burden of proving its petitions were not time-barred under § 315(b)." Slip Op. at 37. The court explained (a) that the "Board's selective weighing of the record evidence does not pass muster under the [Administrative Procedure Act]," and (b) "[j]ust as it may not short-cut its legal analysis, the Board may not short-cut its consideration of the factual record before it." Id. at 29. The court's commentary on this issue has broad importance because it instills in all parties to inter partes proceedings—both patent owners and petitioners—some confidence that the court will carefully review Board decisions and reminds the Board to take no short-cuts.

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