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Unified Patents' Institution Decision Gives Insight to PTAB's Real Party in Interest Analysis

Those watching decisions from the Patent Trial and Appeal Board (PTAB or Board) have observed a trend where a patent owner challenges an IPR petition based on alleged defects in the petition’s identification of real parties in interest (RPI) to the petitioner.  As seen in earlier posts, improper identification of RPIs can result in denial of the petition, and the one-year bar imposed by 35 U.S.C. § 315(b) can preclude submission of a corrected IPR petition, resulting in a loss of the right to IPR for that petitioner.  (See my earlier post on First Data Corporation v. Cardsoft, LLC, IPR2014-00715, Paper 9, October 17, 2014.)

Identify RPIs Early in the Proceedings

The prompt identification of RPIs in post-grant proceedings is important as a mandatory notice for a number of added reasons.  An RPI that is barred under § 315(b) would bar a petitioner from institution. (35 U.S.C. § 315(b): “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 Board does not want to invest time and energy in petitions that are legally barred from institution, nor does it want to impose responses to them on patent owners.

Another reason to properly name RPIs is that any estoppel that may attach to a petitioner of the proceeding will likewise attach to the RPI as well.  35 U.S.C. § 315(e) states (underlining for emphasis):

(e) ESTOPPEL.—

(1) PROCEEDINGS BEFORE THE OFFICE.—The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not request or maintain a proceeding before the Office with respect to that claim on any ground that the petitioner raised or reasonably could have raised during that inter partes review.

(2) CIVIL ACTIONS AND OTHER PROCEEDINGS.—The petitioner in an inter partes review of a claim in a patent under this chapter that results in a final written decision under section 318(a), or the real party in interest or privy of the petitioner, may not assert either in a civil action arising in whole or in part under section 1338 of title 28 or in a proceeding before the International Trade Commission under section 337 of the Tariff Act of 1930 that the claim is invalid on any H. R. 1249—19 ground that the petitioner raised or reasonably could have raised during that inter partes review.

The proper naming of RPIs becomes more complicated when a petitioner receives compensation, prior art, suggestions, and/or instructions from others.  The analysis is especially important for petitioners that challenge patents for others, such as in the case of a trade industry association that challenges patents on behalf of its membership.  Those petitioners must carefully follow the Board’s determinations of what constitutes an RPI.  The stakes for petitioners representing a group are high because they represent a number of interested parties.  Therefore, one petition fail is a failure for each party.

The PTAB Trial Practice Guide provides some considerations for performing an RPI analysis.  Office Patent Trial Practice Guide, 77 FR 48756 (Aug. 14, 2012) (see pp. 48759-48760).  Funding of the post-grant activities is one factor.  Another factor is whether a party controls the proceeding, but the Trial Practice Guide notes that there is no simple test based on control:

There are multiple factors relevant to the question of whether a non-party may be recognized as a ‘‘real party in interest’’ or ‘‘privy.’’ [. . .]  A common consideration is whether the non-party exercised or could have exercised control over a party’s participation in a proceeding. See, e.g., id. at 895; see generally Wright & Miller section 4451. The concept of control generally means that ‘‘it should be enough that the nonparty has the actual measure of control or opportunity to control that might reasonably be expected between two formal coparties.’’ Wright & Miller § 4451. Courts and commentators agree, however, that 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’’ based on the control concept. [Cites omitted.] Accordingly, the rules do not enumerate particular factors regarding a ‘‘control’’ theory of ‘‘real party-in-interest’’ or ‘‘privy’’ under the statute.

The Trial Practice Guide also discusses res judicata and other estoppel considerations:

Additionally, many of the same considerations that apply in the context of ‘‘res judicata’’ will likely apply in the ‘‘real party-in-interest’’ or ‘‘privy’’ contexts.

The test is fact dependent:

The Office has received requests to state whether particular facts will qualify a party as a ‘‘real party-ininterest’’ or ‘‘privy.’’ Some fact combinations will generally justify applying the ‘‘real party-in-interest’’ or ‘‘privy’’ label. For example, 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. But whether something less than complete funding and control suffices to justify similarly treating the party requires consideration of the pertinent facts. See, e.g., Cal. Physicians, 163 Cal.App.4th at 1523–25 (discussing the role of control in the ‘‘privy’’ analysis, and observing that ‘‘preclusion can apply even in the absence of such control’’). The Office will handle such questions on a case-by-case basis taking into consideration how courts have viewed the terms.

The Trial Practice Guide does recognize that mere membership in an industry association does not make a member an RPI of an association that files a petition.  The facts must be considered on a case-by-case basis.

Unified Patents Inc. v. Dragon Intellectual Property, LLC

This brings us to the IPR petition that Unified Patents filed requesting review of claims 1, 2, 7, 8, 10, 13 and 14 of Dragon Intellectual Property, LLC’s (Dragon’s) U.S. Patent No. 5,930,444 (the ’444 patent).  (Unified Patents Inc. v. Dragon Intellectual Property, LLC, IPR2014-01252.) The ’444 patent covers streaming media recording and playback.  Unified Patents named no additional RPI in its petition, stating:

Pursuant to 37 C.F.R. § 42.8(b)(1), Petitioner certifies that Unified Patents is the real party-in-interest, and further certifies that no other party exercised control or could exercise control over Unified Patents’ participation in this proceeding, the filing of this petition, or the conduct of any ensuing trial.

Unified Patents was founded by intellectual property professionals over concerns with the increasing risk of non-practicing entities (NPEs) asserting poor quality patents against strategic technologies and industries. The founders thus created a first-of-its-kind company whose sole purpose is to deter NPE litigation by protecting technology sectors, like content delivery, the technology at issue in the ‘444 Patent. Companies in a technology sector subscribe to Unified’s technology specific deterrence, and in turn, Unified performs many NPE-deterrent activities, such as analyzing the technology sector, monitoring patent activity (including patent ownership and sales, NPE demand letters and litigation, and industry companies), conducting prior art research and invalidity analysis, providing a range of NPE advisory services to its subscribers, sometimes acquiring patents, and sometimes challenging patents at the United States Patent and Trademark Office (USPTO). Since its founding, Unified is 100% owned by its employees; subscribers have absolutely no ownership interest.

Unified has sole and absolute discretion over its decision to contest patents through the USPTO’s post-grant proceedings. Should Unified decide to challenge a patent in a post-grant proceeding, it controls every aspect of such a challenge, including controlling which patent and claims to challenge, which prior art to apply and the grounds raised in the challenge, and when to bring any challenge. Subscribers receive no prior notice of Unified’s patent challenges. After filing a post-grant proceeding, Unified retains sole and absolute discretion and control over all strategy decisions (including any decision to continue or terminate Unified’s participation). Unified is also solely responsible for paying for the preparation, filing, and prosecution of any post-grant proceeding, including any expenses associated with the proceeding.

In the instant proceeding, Unified exercised its sole discretion and control in deciding to file this petition against the ‘444 Patent, including paying for all fees and expenses. Unified shall exercise sole and absolute control and discretion of the continued prosecution of this proceeding (including any decision to terminate Unified’s participation) and shall bear all subsequent costs related to this proceeding. Unified is therefore the sole real-party-in-interest in this proceeding.

(Pet. 2-4.)

In its Patent Owner Preliminary Response (which included redacted portions), the Patent Owner asserted:

As explained below, an inter partes review proceeding should not be instituted in this matter because Unified Patents has failed to establish that it is the “real party-ininterest,” and failed to identify the real party-in-interest when it filed its petition for inter partes review.

Unified Patents is an organization formed in 2012 for the purpose of filing and conducting inter partes review proceedings on behalf of its members so that the members can seek to avoid the estoppel provisions of 35 U.S.C. § 315. The primary value offered by Unified Patents’ to its members is the challenging through inter partes review and similar proceedings of patents asserted in litigation by non-practicing entities against Unified Patents’ members. Indeed, Unified Patents [text redacted]. Since its founding less than three years ago, Unified Patents has collected [redacted] from its members.

As a non-practicing entity itself, Unified Patents has no independent reason to challenge any patents in inter partes review, outside of Unified Patents’ interest in providing litigation “deterrence” services to members. [redacted]

Unified Patents [redacted] which include challenging patents in inter partes review proceedings. There can be no dispute that the money used to prepare and file the Petition, and the money that will be used to pay for prosecution of this proceeding, is sourced from [redacted]. Unified Patents has not identified the real parties-in-interest to this proceeding in its Petition, as it failed to identify the parties who provided the funding for Unified Patents to file this proceeding. The Board should not permit Unified Patents and its members the ‘”second bite at the apple”‘ the real party-in-interest requirement is intended to guard against. The Petition should be denied, and no trial should be instituted on the Unified Patents Petition.

(Patent Owner Preliminary Response, Paper 14, pp. 1-2.)

In its institution order, the Board rejected the Patent Owner’s challenge of the named RPIs:

Patent Owner is correct that the inquiry regarding real parties-ininterest is not limited to determining who directed or controlled a proceeding. On the record at this stage of the proceeding, however, we are not persuaded by Patent Owner’s contention that one or more other organizations paid Petitioner to file the Petition in this IPR. Patent Owner does not allege to have any direct evidence of any organization giving funds to Petitioner for the purpose of filing the Petition in this case. Additionally, even if we assume to be accurate all of Patent Owner’s allegations about circumstances related to the conduct of Petitioner’s business and the filing of the Petition in this case, they do not demonstrate that another entity paid Petitioner for the purpose of conducting this IPR proceeding. For example, even if we accept Patent Owner’s allegations that Petitioner engages in no activity of practical significance other than filing IPR petitions with money received from its members, this does not demonstrate that any member paid, directed, or suggested to Petitioner to challenge the ’444 patent, specifically. See, e.g., Prelim. Resp. 10. Nor do Patent Owner’s other circumstantial allegations, even if accurate, demonstrate as much.

(Decision on Institution of Inter Partes Review, Paper 37, p. 12.)

The Board then distinguished the present case over a collection of earlier proceedings between RPX and VirnetX that Patent Owner asserted (RPX Corp. v. VirnetX Inc.: IPR2014-00171, IPR2014-00172, IPR2014-00173, IPR2014- 00174, IPR2014-00175, IPR2014-00176, and IPR2014-00177 (“the RPX cases”)):

By contrast, in the RPX cases, the evidence demonstrated that the actions of RPX and Apple were like certain prohibited behavior discussed in In re Guan, Reexamination Control No. 95/001,045 (Aug. 25, 2008) (Decision Vacating Filing Date), which stated that

[a]n entity named as the sole real party in interest may not receive a suggestion from another party that a particular patent should be the subject of a request for inter partes reexamination and be compensated by that party for the filing of the request for inter partes reexamination of that patent without naming the party [as a real party-in-interest] who suggested and compensated the entity for the filing of a request for inter partes reexamination of the patent.

Guan at 7–8 (emphasis added); see, e.g., IPR2014-00171, Paper 57, 7. Here, the present record does not demonstrate that any of Petitioner’s members suggested or compensated Petitioner for the filing of the Petition challenging the ’444 patent.

Given this, the alleged similarities between RPX and Petitioner do not persuade us that the result here should be the same as in the RPX cases. That Petitioner likens itself to a trade association does not persuade us that its members constitute real parties-in-interest. As the Office Trial Practice Guide (“Practice Guide”) explains, membership in a trade association does not make an entity automatically a real party-in-interest to a petition filed by the trade association. 77 Fed. Reg. 48,756, 48,760 (Aug. 14, 2012); see also Paper 20, 4. Additionally, without more compelling accompanying allegations, Patent Owner’s assertion that Petitioner faces no risk of having the ’444 patent asserted against it is unremarkable, as the filing of or threat of a lawsuit is not a prerequisite for a Petition for an IPR proceeding. See 77 Fed. Reg. at 47,459.

For the foregoing reasons, on this record, we are persuaded that Petitioner did not fail to name all real parties-in-interest in the Petition. We note, however, that this Decision does not foreclose Patent Owner from continuing to argue the real party-in-interest issue in the Patent Owner Response. If the record should evolve in favor of Patent Owner on this issue, we would take appropriate action at that time.

(Decision on Institution of Inter Partes Review, Paper 37, pp. 12-14.)

In its analysis, the Board applied In re Guan to clarify that RPX v. VirnetX involved suggestion of the review proceeding and compensation to the petitioner by the RPI.  The Board found that Dragon failed to show that the members of Unified Patents suggested an IPR to Unified Patents and compensated Unified Patents for the IPR.  However, the Board did not prevent Dragon from arguing the RPI issue in its Patent Owner Response.

Trade associations and other associations desiring to petition for review of patents will be monitoring this case closely in the months to come to learn more about how the Board handles real party in interest issues.

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Timothy Bianchi
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