USPTO Addresses Meaning of “Real Party-In-Interest” for Inter Partes Review

In RPX Corp. v. VirnetX Inc., the Patent Trial and Appeal Board (“Board”) for the first time, defined a “real party-in-interest” within the meaning of 35 U.S.C. § 315(b). IPR2014-00171 (June 5, 2014). Specifically, the Board found that Apple Inc. was a “real party-in-interest” with respect to RPX’s seven petitions for the VirnetX Patents, because (among other factors) Apple (1) suggested that RPX challenge four of VirnetX’s patents (“the VirnetX Patents”), and (2) compensated RPX to (among other tasks) file inter partes reviews (“IPR”). The Board denied RPX’s petitions as time barred under 35 U.S.C. § 315(b), because Apple, a real party-in-interest, had been served with a complaint more than 1 year before RPX filed the petitions.

 An Overview Of The Time Bar Under 35 U.S.C. § 315(b)

 Congress intended through the America Invents Act (“AIA”) to enhance coordination, and to minimize “duplication of efforts and costs,” between district court litigation and an IPR. Office Patent Trial Practice Guide (”Trial Practice Guide”), 77 Fed. Reg. 48,721(Aug. 14, 2012). In this regard, Congress considered the potential for petitioners to strategically delay or expand litigation in court through the untimely filing of an IPR. Prior to the availability of IPR, it was not uncommon for defendants to wait until the end of litigation to take a second bite of the apple and seek inter partes reexamination. See, e.g., Sony Computer Entertainment America Inc. v. Dudas, Civ. No. 05-1447, 2006 WL 1472462, at *1–2 (E.D. Va. May 22, 2006) (Defendant requested (and was granted) an inter partes reexamination after the jury returned a verdict of infringement and awarded the plaintiff $82 million in damages). This tactic caused serial proceedings, duplicating the “efforts and costs” among the involved parties and consuming additional judicial and administrative resources.

The AIA includes a time bar on the filing of an IPR to counteract this potential for gamesmanship: A “petitioner, real party-in-interest, or privy of the petitioner” is barred from filing a petition for IPR more than one year after being first served with a complaint for patent infringement. 35 U.S.C. § 315(b). The requirement to institute an IPR at the commencement (rather than the conclusion) of district court litigation, combined with the one year time frame for the United States Patent and Trademark Office (“USPTO”) to complete the IPR once instituted, increases the potential to resolve invalidity questions at an early stage (by the USPTO), which could moot a concurrently pending district court litigation.

Notably, the one year time bar extends not just to the petitioner, but also to its privies and any “real party-in-interest.” Thus, even where the petitioner itself was not time-barred, a patent owner could still raise a defense under 35 U.S.C. § 315(b) if a “real party-in-interest” had been “served with a complaint for patent infringement” more than one year before the petitioner requested an IPR. RPX Corp. clarifies that certain actions by a party, namely providing the petitioner with relevant information regarding the target patent and compensating the petitioner in connection with the IPR, supported identifying that party as a “real party-in-interest” within the meaning of section 315(b).

The AIA, however, does not define a “real party-in-interest.” And the USPTO has not taken a conclusive position regarding the meaning of this term. A March 2012 message from Chief Judge James Donald Smith of the Board of Patent Appeals and Interferences confirmed it was not resolved:

Who constitutes a real party in interest or privy is a highly fact-dependent question, especially on the issue of whether a party who is not a named participant in a given proceeding nonetheless constitutes a ”real party in interest” or “privy” to that proceeding . . . there is no ”bright-line test” for determining the necessary quantity or degree of participation to qualify as a “real party in interest” or “privy.”

Shortly after this message, the USPTO released additional guidance that a “’real party in interest’ may be the petitioner itself and/or the party or parties at whose behest the petition has been filed.” Trial Practice Guide (Rule), 77 Fed. Reg. 48759-60 (Aug. 14, 2012). Because of the lack of a bright-line test, questions regarding whether a party is a “real party-in-interest” will, according to the USPTO, be handled on a case-by-case basis taking into consideration how courts have viewed the terms ‘‘real party-in-interest’’ and ‘‘privy.’’ Id. Notably, the Trial Practice Guide provides one express example of a “real party-in-interest” – “a party that funds and directs and controls an IPR or PGR petition or proceeding constitutes a ‘real party-in-interest,’ even if that party is not a ‘privy’ of the petitioner.” Id. (emphasis added).

The RPX Corp. decision is the first regarding the meaning of a “real party-in-interest” in an IPR.

Apple’s Previous Attempts At IPRs Against The VirnetX Patents

This was not the first time that Apple had attempted IPRs against the VirnetX Patents. Initially, Apple filed its own seven petitions for IPR of the VirnetX Patents in 2013 – more than 1 year after VirnetX served Apple with a complaint for patent infringement in 2010. The Board denied each of these petitions as time barred under section 315(b). See, e.g., Apple Inc. v. VirnetX, Inc., IPR2013-00348 (Dec. 13, 2014).

After failing in its attempt to bring its own IPR, Apple made a second attempt by moving to join an existing IPR against VirnetX. Section 315(b) permits an otherwise time barred party to join a currently pending IPR proceeding. Id. (“The time limitation set forth in the preceding sentence shall not apply to a request for joinder under subsection (c).”) Another petitioner, New Bay Capital, had also filed a petition against the VirnetX Patents. See, e.g., New Bay Capital v. VirnetX, IPR2013-00375. Apple moved to join the New Bay Capital petitions on August 21, 2013.

On November 6, 2013, however, New Bay Capital filed a motion to terminate its IPRs. The Board subsequently terminated New Bay Capital’s IPRs, thereby, according to VirnetX, “ending Apple’s hopes of joining New Bay’s petitions.” Slip. op. at p. 4.

Concurrent with its motion to join the New Bay Capital petitions, Apple pursued yet a third route to IPR of the VirnetX Patents. Apple met with RPX to discuss RPX’s “program to perform prior art searches and challenge patents of questionable quality.” Id., at p. 5. During this discussion, Apple mentioned the VirnetX Patents in the context of the New Bay Capital petitions. After this meeting, Apple and RPX entered into an agreement, where Apple paid RPX $500,000 in exchange for RPX to conduct certain patent-related activities including the filing of IPRs relating to “patents of questionable quality.” Id. The Agreement stated that RPX would have “complete control over the listed activities.” Id.

With Apple’s consent, RPX subsequently hired the same law firm that had previously prepared Apple’s seven time-barred petitions. See id. at p. 6. Apple also granted RPX access to Apple’s expert. See id. at p. 7. RPX’s IPR petitions, as filed, stated that the grounds set forth were “substantially identical to the grounds advanced” in Apple’s time-barred petitions. See id.

The Board’s Conclusion That Apple Is A Real Party-In-Interest And That RPX’s Petitions Are Time-Barred

The Board began its analysis with the premise that “a party bound by a judgment may not avoid its preclusive force by relitigating through a proxy.” Id., at p. 6 (citing Taylor v. Sturgell, 553 U.S. 880, 895 (2008).). According to the Board, because RPX was Apple’s proxy, RPX’s petitions were barred for the same reasons as Apple’s. Id., at p. 7.

The Board also considered earlier inter partes reexamination precedent precluding the sole named party from receiving both compensation and a suggestion from another party that a particular patent should be the subject of a request for inter partes reexamination. Id. (citing In re Guan, Reexamination Control No. 95/001,045 (Aug. 25, 2008)). In Guan, the Office vacated the filing date of the reexamination request for failure to identify the compensating and suggesting real party-in-interest. Id.

Applying these principles, the Board found that Apple was a real party-in-interest with respect to the RPX IPR petitions. In making this determination, the Board considered a variety of factors, but primarily relied upon the fact that Apple had both: 1) suggested that RPX challenge the VirnetX Patents using IPR; and 2) compensated RPX for doing so. See id. In particular, the Board noted that “RPX does not dispute that Apple and RPX discussed ‘VirnetX and the filing of IPRs with RPX,’ or that RPX and Apple shared counsel and Apple’s expert.” Id. The Board further supported its real party-in-interest determination in concluding that, through Apple’s arrangement with RPX, Apple impliedly authorized RPX to represent Apple. Id. at p. 8.

Apple, the Board found, had significant interests in the RPX petitions, including avoiding previously awarded damages for its infringement of the VirnetX Patents. By contrast, RPX was a “nominal plaintiff” with “no substantial interest” in the IPRs. Id. at p. 9.

As a result, the Board denied RPX’s petitions as time-barred because of Apple’s status as a real party-in-interest.

Real Party-In-Interest Going Forward

It appears from the RPX Corp. decision that the Board does not place form over substance in reviewing whether a party is a real party-in-interest. Consistent with this approach, the Board may look beyond how the petitioner and the alleged real party-in-interest hold out their relationship. This is consistent with the Trial Practice Guide, which states that the real party-in-interest analysis will be handled on “a case-by-case basis taking into consideration how courts have viewed the term[] ‘‘real party-in-interest’ ….” Because there is “no bright-line rule” to determining a real party-in-interest, prospective IPR participants should not expect the RPX Corp. decision to be the last word on this topic. It remains to be seen how the Board would respond to other situations.