United States: Federal Circuit Upholds Board's Use Of Control Standard Of Privity To Assess Time Bar

Last Updated: August 22 2018
Article by Marshall Gerstein

This blog post was written by Marshall Gerstein summer associate Catharina Casper.

It is undisputed that institution of an inter partes review (IPR) is time-barred under 35 U.S.C. § 315(b) if the petition is "filed more than 1 year after the date on which the petitioner, the real party in interest, or a privy of the petitioner is served with a complaint alleging infringement of the patent. The Court of Appeals for the Federal Circuit recently determined that the Patent Trial and Appeal Board's time bar determinations are appealable. Since that decision, whether a party is considered "a privy of the petitioner" has been the source of recent dispute.

A recent petition for rehearing asked the Federal Circuit to clarify the legal standard for determining whether one is "a privy of the petitioner" within the meaning of § 315(b). This petition concerns the court's recent decision in WesternGeco LLC v. ION Geophysical Corp. upholding the PTAB's application of a "control standard" in determining whether a party is "a privy of the petitioner." The "control standard" of determining privity originates with the Supreme Court's decision in Taylor v. Sturgell, 128 S. Ct. 2161 (2008). There the Court explained that a non-party is bound to a litigation judgment where it assumed control over the litigation. Id. at 2173.

WesternGeco concerns patents on technology for searching oil and gas under the ocean. WesternGeco sued ION in 2009 alleging infringement of these patents. After a jury found that ION infringed, see WesternGeco LLC v. ION Geophysical Corp., 837 F.3d 1358 (2016), WesternGeco sued Petroleum Geo-Services, Inc. (PGS) in 2015 for alleged infringement of the same patents. Instead of litigating the validity of the patents in federal court, however, PGS successfully challenged patentability in several IPRs. WesternGeco maintained that the IPRs were time-barred and should not have been instituted because ION and PGS were "privies," and PGS filed its IPR petitions more than one year after the date on which WesternGeco served ION with its infringement complaint.

In the decision, the Federal Circuit laid out that the privity analysis hinges on whether the relationship between the purported privy and the relevant other partner is "sufficiently close" such that both should be bound by the trial outcome. Whether two parties are "sufficiently close" is a "highly fact-dependent question" that should be answered through "flexible" analysis on a "case-by-case basis." Referring again to the Supreme Court's Taylor decision, the Federal Circuit listed considerations when performing a "sufficiently close" analysis: (1) an agreement to be bound; (2) pre-existing substantive legal relationships between the person to be bound and a party to the judgment (e.g. "preceding and succeeding owners of property"); (3) adequate representation by someone with the same interests who was a party (e.g. "class action" and "suits brought by trustees, guardians and other fiduciaries"); (4) assumption of control over litigation in which the judgment was rendered; (5) where the non-party to an earlier litigation acts as a proxy for the named party to re-litigate the same issues; and (6) a special statutory scheme expressly foreclosing successive litigation by non-litigants.

The Federal Circuit found no substantial evidence that ION controlled PGS's decisions or used PGS as a proxy in the IPRs that PGS initiated. The litigation history suggested, according to the court, that PGS filed the IPRs as a defensive measure against WesternGeco's lawsuit, rather than at ION's instruction. Moreover, when ION tried to join the IPRs, PGS actively opposed the attempted joinder. Regarding the pre-existing legal relationship between PGS and ION, the Federal Circuit found that relationship to be "cordial, but arm-length" and hence insufficient to support the alleged privity. Previous business agreements between ION and PGS were found to be "ambiguous and undefined" and did not sufficiently support WesternGeco's contention that ION was obligated to indemnify PGS by protecting PGS from infringement suits and thus was a privy of PGS. The Federal Circuit thus upheld the Board's earlier decisions that the IPRs were not time-barred.

We agree with WesternGeco that 'control' is not the exclusive analytical pathway for analyzing privity; as described above, it is but one of a variety of considerations. However, we disagree with WesternGeco's assertion that the Board applied an unduly-restrictive test and focused only on control.

In the petition for rehearing, WesternGeco argued that the applied "control standard" was too restrictive and "erroneously fails to account for the complexities of the marketplace and the infinite number of business forms and relationships that entities assume to achieve common purpose." In other words, WesternGeco proposes a wider standard according to which two parties can be privies even though neither of the parties controls the litigation of the other. The Federal Circuit denied WesternGeco's petition in a per curiam order dated July 16, 2018. The court refused to broaden the standard of privity to include cases in which no pre-existing substantive legal relationship or control relationship between the two alleged privies can be proven. The bar for successfully proving that an IPR should have been time barred continues to be high.

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