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Article: October 2018: Patent Litigation Update

October 01, 2018
Business Litigation Reports

Real Party in Interest Decision. On July 9, 2018, the Federal Circuit in Applications in Internet Time, LLC v. RPX Corp., 897 F.3d 1336 (Fed. Cir. 2018) vacated a decision by the Patent Trial and Appeals Board (“PTAB”), holding that the Board had applied an unduly restrictive test for analyzing whether an unnamed client of an IPR Petitioner was a real party in interest. In doing so, the Federal Circuit indicated that the PTAB must adopt a “flexible approach” when analyzing whether a non-party is a real party in interest, taking into account both equitable and practical considerations. Id. at 1351.

The PTAB Challenge. Patent owner Applications in Internet Time (“AIT”) sued defendant (“Salesforce”) in U.S. District Court for infringement of two AIT patents. Id. at 1338. By statute, Salesforce had until one year from the date it was served the complaint to file inter partes review (“IPR”) petitions challenging the patents-in-suit. 35 U.S.C. § 315(b). Instead of filing IPR petitions, Salesforce filed covered business method (“CBM”) petitions with the PTAB within the one-year period. The Board denied both of these petitions (outside of the one-year period) because Salesforce had failed to establish that the patents were “covered business method patent[s]” within the meaning of the AIA. Applications in Internet Time, 897 F.3d at 1339.

Shortly thereafter, but still eight months after the expiration of the one-year period, third party RPX Corporation (“RPX”) filed IPR petitions against AIT’s patents-in-suit, identifying itself to the PTAB as the “sole real party-in-interest,” and certifying that it was not barred or estopped from requesting IPR as to these two patents. Id. It was undisputed that Salesforce was a client of RPX, subscribing to RPX’s “patent risk solution” services; that RPX and Salesforce shared a member on their respective boards of directors; and that there had been six communications between RPX and Salesforce concerning the pending AIT litigation and patents-in-suit. Id. at 1339-42. Arguing that accused infringer Salesforce was also a real party in interest, AIT argued that institution of the IPRs was time-barred under §315(b), because the petitions were filed more than one year after service of AIT’s complaint on Salesforce. Id. at 1338-1339. The PTAB rejected AIT’s arguments, and ultimately invalidated claims in the asserted patents. Id. at 1339.

The Federal Circuit Appeal. On appeal the Federal Circuit vacated PTAB’s final decision, finding that the PTAB had relied on an erroneous understanding of the term “real party in interest” in finding that the IPR petitions were not time-barred. Id. Section 315(b), titled “Patent Owner’s Action,” provides that an IPR “may not be instituted if the petition requesting the proceeding is filed more than one 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.” Id. at 1346. Historically, the PTAB has determined that a person or entity is a real party in interest if it has, or could have, exercised control over the proceedings. Id. at 1342-43. After reviewing the legislative history of the code section, the court determined that “Congress intended that the term ‘real party in interest’ have its expansive common-law meaning,” and would include those “who, from a ‘practical and equitable’ standpoint, will benefit” from the proceeding:

Determining whether a non-party is a “real party in interest” demands a flexible approach that takes into account both equitable and practical considerations, with an eye toward determining whether the non-party is a clear beneficiary that has a preexisting, established relationship with the petitioner. Id. at 1349-51.

The court noted that this more holistic approach is consistent with the approach set forth in the PTAB’s own Trial Practice Guide, and explained that the two questions lying at the heart of this “fact-dependent” inquiry are whether a non-party “desires review of the patent” and whether a petition has been filed at a nonparty’s “behest.” Id. at 1342.

The Federal Circuit determined that the PTAB’s consideration of the evidence was “impermissibly shallow,” disregarding Salesforce’s relationship with RPX and the nature of RPX as an entity, i.e., a for-profit company whose clients pay for its portfolio of “patent risk solutions.” Id. at 1351-52. Because the PTAB disregarded facts “which, taken together, imply that RPX can and does file IPRs to serve its clients’ financial interests, and that a key reason clients pay RPX is to benefit from this practice in the event they are sued by an NPE,” the court vacated the decision, remanding the case for further proceedings consistent with its holding. Id. 1351-52, 1358.

Factors and Facts Relevant for Identifying a Real Party in Interest. Following the Applications in Internet Time decision, petitioners and patent owners should consider the following factors in evaluating whether a non-party may be deemed a real party in interest: (1) the non-party’s control over a petitioner’s participation in a proceeding; (2) the non-party’s funding of the proceeding; (3) the non-party’s direction of the proceeding; and (4) the nature of the petitioner’s business. Id. at 1342–43. Moreover, the specific facts set forth in the decision provide additional guidance. For example, the Federal Circuit noted the following facts tended to show that Salesforce could potentially be a real party in interest to RPX’s IPR petitions: (1) Salesforce was time-barred from challenging these patents; (2) RPX publicly stated its goal to file IPRs where its clients have been sued by non-practicing entities; (3) RPX admitted it was highly unlikely that any party other than RPX would challenge these patents; (4) RPX could not identify any client other than Salesforce that might be at risk of infringement claims arising out these patents; (5) RPX stated publicly that its “interests are 100% aligned with those of [its] clients;” (6) Salesforce renewed its membership with RPX just prior to the filing of the IPR petition; and (7) Salesforce and RPX shared a common member on their boards of directors. Id. at 1340-43, 1353. Additionally, the Federal Circuit rejected Salesforce’s argument that RPX didn’t have any contractual obligation to file the IPRs. Id. at 1354. “[A] nonparty to an IPR can be a real party in interest even without entering into an express or implied agreement with the petitioner to file an IPR petition.” Id.

With respect to the fourth factor concerning the nature of the petitioner’s business, the Federal Circuit found statements made by RPX, which indicated that its “interests are 100% aligned with those of [its] clients,” relevant to show that the petitioner’s business purpose was to benefit the non-party. Id. at 1357. The Federal Circuit also noted that the mere fact that a petitioner has an independent interest in pursuing an IPR is insufficient to prevent a non-party from being named a real party in interest. Id. at 1353.

Future Outlook of Successive Litigation and Patent Proceedings. The Federal Circuit’s ruling in Applications in Internet Time is likely to expand the scope of discovery in PTAB proceedings, as patent owners explore relationships between petitioners and non-parties. Under the court’s expanded real party in interest framework, non-litigants intending to file petitions with the PTAB will need to evaluate carefully the impact a petition may have on the petitioner’s clients and members, especially when those non-parties are currently being sued in infringement litigation involving the challenged patent.