United States: Return Mail May Make COFC More Attractive To Patent Holders

In 2011 the Leahy-Smith America Invents Act created three new types of post-issuance proceedings to challenge patent validity: inter partes review,1 post-grant review2 and covered-business-method review.3 These proceedings have proven to be popular avenues to challenge patent validity among accused infringers and, correspondingly, unpopular among patent holders.

The popularity of these proceedings among accused infringers can be attributed to several factors: (1) the lower burden of proof (preponderance of evidence) needed to prove invalidity, (2) the higher success rates attributed to AIA proceedings, (3) the relative speed of AIA proceedings and (4) the likelihood that related litigation will be stayed.

Last week in Return Mail Inc. v. United States Postal Service, the U.S. Supreme Court held that the federal government cannot avail itself of any of the three post-issuance proceedings created by the AIA. This article examines the effect of the Return Mail decision on future patent-infringement claims against the government.

Claims Against the Government in the Court of Federal Claims

The U.S. Court of Federal Claims was established in 1855 under Article I of the Constitution to hear claims against the federal government. All of its trials are bench trials, and its nickname, "the People's Court," is reflected by a quote from President Abraham Lincoln displayed in the lobby of the courthouse: "It is as much the duty of government to render prompt justice against itself, in favor of citizens, as it is to administer the same, between private individuals." The federal government is a defendant in every case, and it is represented by the U.S. Department of Justice. All appeals from actions in the COFC are taken to the U.S. Court of Appeals for the Federal Circuit.

Pursuant to 28 U.S.C. § 1498(a), the COFC has exclusive jurisdiction to hear claims against the United States for the unauthorized manufacture or use of a patented invention.4 This jurisdiction extends to infringing acts committed by government contractors and subcontractors if they are acting with the authorization or consent of the United States.5 As the dissent in the Return Mail case noted, the cases can be complex and can potentially lead to large damages awards because of the large procurements of accused items made by the federal government.6

On its surface, the holding of the Return Mail case would appear to make the COFC an attractive place for patentees to enforce their rights, as it may be the only court in the country in which a patentee could bring suit without fear of the defendant’s requesting an IPR, PGR or CBM review — or possibly even an ex parte reexamination — of the patent(s)-in-suit and subsequently filing a motion to stay the litigation pending that review.7

For example, even in cases before the U.S. International Trade Commission, which generally does not stay its proceedings, a patentee may still have to contend with the effects of co-pending IPRs that respondents may file.8 As in to district court patent infringement actions, the government must prove patent invalidity in COFC cases under the clear and convincing standard.9

On the other hand, cases filed in the COFC are limited to claims against the United States, and since the government's unauthorized use of a patented invention is in the nature of an act of eminent domain rather than a tort, the COFC will not enjoin the government nor award enhanced damages against it for willful infringement, as noted by the Return Mail court.10

Government Contractor Intervention and Use of America Invents Act Proceedings

One factor complicating the effect of the Return Mail decision is that government contractors often intervene in COFC patent cases pursuant to Court of Federal Claims Rule 14, to protect their interests. Under Rule 14 the government may formally notify contractors of COFC litigation affecting the contractor's interests, and in response the contractor can intervene in the action to protect those interests.

Such an interest could arise if the government contract under which the accused items were purchased included a patent indemnity clause, such as Federal Acquisition Regulation 52.227-3 on patent indemnity. This potentially makes the contractor liable for any infringement, which then provides the contractor with incentive to challenge any asserted patents using the AIA proceedings.

Government contractors involved in COFC patent cases have already challenged patents asserted against the United States in AIA proceedings, and obtained stays of the COFC litigation, over the objections of the patentees.11 Questions have arisen in these cases relating to the requirement that a petition requesting IPR proceedings correctly identify "all real parties in interest" pursuant to Section 312(a)(2) of the Patent Act and whether a government contractor is subject to the one-year time bar contained in Section 315(b).

If a petition fails to correctly identify all real parties in interest, it may be denied pursuant to the requirements of Section 312(a)(2), and under Section 315(b), "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."

Some of these questions have been answered, at least by the Patent Trial and Appeal Board, but others remain or have been created by the Return Mail case. In Department of Justice v. Discovery Patents LLC, the PTAB held that seven government contractors that had intervened in the related COFC case and that were subject to FAR patent indemnity obligations to the United States were not considered "real parties in interest" solely based on the indemnification obligation.12

In BAE Systems Information v. Cheetah Omni LLC, the PTAB held that the contractual relationship between the government and its contractor did not constitute a privity relationship that would trigger the one-year time-bar provision of Section 315(b), and the contractor was allowed to proceed with an AIA review even though the corresponding COFC case had been filed more than one year ago.13

The panel did note, however, that the petition was filed within one year of the date upon which the contractor was served with formal notice of the litigation pursuant to Court of Federal Claims Rule 14.14 The panel did not address whether this places a time limit on government contractors for filing petitions for AIA reviews, or whether there are no time limits on contractors whatsoever.

Recent decisions from the Federal Circuit have stated that the PTAB should examine the facts of each case in determining whether an entity is a real party in interest.15 Should the PTAB decide based on a particular set of facts that the federal government is a real party in interest to a patent validity challenge filed by a contractor, will that preclude the contractor's ability to challenge the patent in AIA proceedings altogether? In view of the Return Mail case it is likely that patentees will remain vigorous in their challenges to AIA proceedings brought by government contractors.

Conclusion

The Return Mail decision removes an arrow in the Department of Justice's quiver in defending patent infringement actions in the Court of Federal Claims. The effect of this may be alleviated in cases in which affected government contractors decide to file petitions for AIA proceedings on their own.

Footnotes

1 35 U.S.C. § 301

2 35 U.S.C. § 321.

3 AIA §§18(a)(1), (d)(1), 125 Stat. 329

4 Zoltek Corp. v. United States, 672 F.3d 1309, 1318 (Fed. Cir. 2012) (en banc)

5 Zoltek, at 1318; Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 343-44, (1928).

6 Return Mail Inc. v. United States Postal Service, dissent at 6-7.

7 Although the majority in Return Mail concedes that the Patent Office's Manual of Patent Examining Procedures (MPEP) permits the Government to request that a patent be reexamined in ex parte proceedings, their additional comments leave open the question of whether this procedure is still available to the Government. ("We might take account of this 'executive interpretation' if we were determining whether Congress meant to include the Government as a "person" for purposes of the ex parte reexamination procedures themselves. Here, however, the Patent Office's statement in the 1981 MPEP has no direct relevance. [citation omitted]." Slip Op. at 13-14. As the dissent further points out, ex parte reexamination is not always desirable and AIA proceedings are regarded as an easier way for parties to challenge questionable patents. Dissent at 5.

8 See Certain Three-Dimensional Cinema Systems and Components Thereof, Inv. No. 337-TA-939, Notice of Commission Determination to Extend the Target Date (April 18, 2016) (extending the target date to permit parties to brief the impact that a PTAB final written decision invalidating certain claims should have on the investigation)

9 CANVS Corp. v. United States, 114 Fed. Cl. 59, 66 (2013).

10 Decca Limited v. United States, 544 F.2d 1070, 1167 (1976); Motorola, Inc. v. United States, 729 F.2d 765, 768 (Fed. Cir. 1984).

11 E.g., Cheetah Omni, LLC v. United States, No. 1:11-cv-00255 (Ct. Fed. Cl. June 7, 2013) (order granting in part motion to stay litigation pending AIA review of patent-in-suit); BAE Sys. Info. v. Cheetah Omni, LLC, IPR2013-00175 (Paper 15)(PTAB July 3, 2013)(instituting inter partes review of patent involved in CFC litigation based on petition filed by government contractor).

12 Department of Justice v. Discovery Patents, LLC, IPR2016-01035, Slip. Op. at 3-5.

13 BAE Sys. Info. v. Cheetah Omni, LLC, IPR2013-00175, Slip. Op. at 5-6 (Paper 15) (PTAB July 3, 2013)

14 Id.

15 Applications in Internet Time v. RPX Corp, 987 F.3d 1336 (Fed. Cir. 2018); Worlds Inc. v. Bungie, Inc. 903 F.3d 1237 (Fed. Cir. 2018).

This article was first published by Law360 on June 19, 2019.

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