United States: Federal Circuit Rules That Assignor Estoppel Does Not Apply To IPR Petitions

Arista Networks, Inc. v. Cisco Systems, Inc., Case No. 2017-1525 (Fed. Cir. Nov. 9, 2018)

The Federal Circuit recently ruled that a petition for inter partes review is not barred by assignor estoppel when the petitioner is in privity with a co-inventor who had assigned his rights to the current patent owner. The court adopted a broad interpretation of 35 U.S.C. § 311(a), finding a congressional intent to make IPR petitions available to all persons except the patent owner. The court's analysis suggests that legal and equitable barriers to challenging patents through declaratory judgment actions, such as no-challenge or arbitration clauses, may not bar a party from challenging patents by filing an IPR petition.


Arista Networks, Inc. filed an IPR petition against claims in U.S. Patent No. 7,340,597, owned by Cisco Systems, Inc. Cisco moved to dismiss the IPR because one co-inventor of the '597 patent was a former employee of Cisco who assigned his rights in the inventions to Cisco, then left Cisco to be a founder and director of Arista. Cisco argued that the petition was barred by assignor estoppel, a doctrine that prevents a party that assigns an interest in a patent from subsequently challenging the patent's validity. See, e.g., Diamond Sci. Co. v. Ambico, Inc., 848 F.2d 1220 (Fed. Cir. 1988). The Patent Trial and Appeal Board ruled that assignor estoppel did not apply and ruled that some, but not all, challenged claims in the '597 patent were invalid. Arista appealed the PTAB's final written decision to the Federal Circuit, and Cisco cross-appealed on the assignor estoppel issue.

Assignor Estoppel Inapplicable to IPR Proceedings

In a panel decision written by Chief Judge Prost, the Federal Circuit reversed the PTAB's decision on the unpatentability of some '597 patent claims, holding that PTAB applied an incorrect claim construction, but the Federal Circuit affirmed the Board's decision that assignor estoppel did not bar Arista's IPR petition.

The Federal Circuit noted that assignor estoppel often applies in cases, such as the one presented on appeal, where an employee assigns an interest in a patent to an employer and later challenges the validity of the patent in federal court litigation. See, e.g., MAG Aerospace Indus., Inc. v. B/E Aerospace, Inc., 816 F.3d 1374 (Fed. Cir. 2016). In the IPR context, the Federal Circuit noted that, "The question before us, as is often the case, is one of congressional intent: did Congress intend for assignor estoppel to apply in IPR proceedings?" Slip op. at 18.

The court acknowledged that assignor estoppel is "a rule well settled by 45 years of judicial consideration and conclusion in the district and circuit courts, reaching back as early as 1880." Slip op. at 19, quoting Westinghouse Elec. & Mfg. Co. v. Formica Insulation Co., 266 U.S. 342 (1924). It concluded, however, that 35 U.S.C. § 311(a) unambiguously provides that virtually anyone who is not the patent owner may file an IPR petition: "Subject to the provisions of this chapter, a person who is not the owner of a patent may file with the Office a petition to institute an inter partes review of the patent." The Federal Circuit reasoned:

Arista contends that § 311(a) unambiguously leaves no room for assignor estoppel in the IPR context, given that the statute allows any person "who is not the owner of a patent" to file an IPR. We agree. Where the statutory language is plain, we must enforce it according to its terms. In our view, the plain language of this statutory provision is unambiguous.

. . .

The plain language of § 311(a) demonstrates that an assignor, who is no longer the owner of a patent, may file an IPR petition as to that patent.

Slip op. at 21-22. The court noted that Congress was aware of the common law principle of assignor estoppel when it drafted § 311(a), yet unambiguously permitted all non-patent owners to file IPR petitions, leaving no room for assignor estoppel exceptions. Thus, the Federal Circuit ruled that assignor estoppel does not prevent a former owner of a patent from filing an IPR petition.

Practical Significance

Although limited to assignor estoppel, the Federal Circuit's reasoning in Arista suggests that petitioners may seek IPR review even when legal or equitable defenses would block efforts to challenge patents in federal court litigation, such as by filing a declaratory judgment action seeking a determination that a patent is invalid.

For example, assignor estoppel is a bar to filing a declaratory judgment action alleging invalidity of an assigned patent. See Mentor Graphics Corp. v. Quickturn Design Sys., Inc., 150 F.3d 1374 (Fed. Cir. 1998) (DJ plaintiff in privity with assignor or patent barred from filing action for invalidity). In addition, a "no challenge" clause in a settlement agreement may be enforceable to bar a party from challenging the validity of a patent after the issue of validity has been the subject of meaningful pre-settlement discovery. Rates Tech. Inc. v. Speakeasy, Inc., 685 F.3d 163 (2d Cir. 2012). Similarly, courts have held that a declaratory judgment plaintiff may be barred by an arbitration agreement in a prior commercial agreement covering patent rights. See Deprenyl Animal Health, Inc. v. Univ. of Toronto Innovations Found., 297 F.3d 1343 (Fed. Cir. 2002). One district court recently held that a forum selection clause could be used to thwart an IPR petition when an agreement required disputes to be decided in specific courts. Dodocase VR, Inc. v. MerchSource, LLC, 2018 WL 1475289 (N.D. Cal. Mar. 26, 2018) ("no challenge" clause not enforceable to bar IPR petition under Lear doctrine, but forum selection clause requiring disputes to be litigated in San Francisco County, California barred IPR proceedings).

If, as the Artista court has held, virtually any person not a patent owner may file an IPR petition, the legal and equitable barriers applied in the above declaratory judgment cases may not apply when the same challengers file IPR petitions. As a result, patent owners entering into agreements with no-challenge or arbitration clauses should be aware that those provisions may be ineffective if the other contracting party decides to file an IPR petition, and should consider alternative provisions to discourage challenges. Although the Supreme Court declined to grant certiorari this term in a case involving assignor estoppel, Mentor Graphics Corp. v. EVE-USA, Inc., 851 F.3d 1275 (Fed. Cir. 2017), cert. dismissed, 2018 WL 3978434 (U.S. Aug. 17, 2018), a Federal Circuit appeal is pending in Dodocase VR, Inc. v. MerchSource. Future decisions by the Federal Circuit are likely to provide more guidance on whether these legal and equitable restrictions are effective to bar IPR petitions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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