Decision alters strategic calculus in patent suits

Federal Circuit holds time-bar determinations under §315(b) are appealable

By Kris Olson and Barry Bridges
BridgeTower Media Newswires

PROVIDENCE, RI - A recent Federal Circuit decision has altered tactical considerations after parties agree to dismiss a patent lawsuit without prejudice, attorneys say.

At issue in Click-to-Call Technologies, LP v. Ingenio, Inc., et al., was the one-year time period a "petitioner, real party in interest, or privy of the petitioner" has to institute the inter partes review process, or IPR, under 35 U.S.C. §315(b).

Although the statute is seemingly clear on its face that the clock begins ticking upon service of a complaint alleging infringement of a patent, in practice the Patent Trial and Appeal Board had carved out an unwritten exception to the rule for cases dismissed without prejudice. That exception allowed the parties to hit the reset button and return to the position they had been in before the complaint was served.

"This is a change from what the previous assumptions have been," said Providence patent attorney Joshua A. Stockwell. "The board has in the past treated a voluntary dismissal as if the complaint had never happened, and theoretically that party could bring the same action later. This holding limits a defendant's options because it might not then be able to petition for IPR."

The former practice persisted not only due to its utility but because it had been assumed that a decision of the U.S. Patent and Trademark director regarding the timeliness of inter partes review was unreviewable, per 35 U.S.C. §314(d).

But in January, the Federal Circuit issued an en banc decision in Wi-Fi One, LLC v. Broadcom Corp., holding that time-bar determinations under §315(b) are appealable. That opened the door for plaintiff Click-to-Call Technologies to renew its challenge that the defendants - one of whom had been served a complaint in 2001 - had waited too long to invoke IPR.

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The decision

Ruling in Click-to-Call's favor, the Federal Circuit said if there was some ambiguity in the statute, it might be required to give deference to the director's interpretation that a dismissal without prejudice resets the IPR clock. But here, there was no ambiguity.

"The statute does not contain any exceptions or exemptions for complaints served in civil actions that are subsequently dismissed, with or without prejudice," Judge Kathleen M. O'Malley wrote on the court's behalf.

Had Congress wished to create such an exception, it knew how to do so, the court noted, pointing to §315(a)(2), where Congress specifically addressed the effect of a dismissal of an IPR petitioner's District Court action. Similar language is absent from §315(b).

Congress could have included in §315(b) a variation of the phrase "unless the action in which the complaint was served was later dismissed without prejudice," the Federal Circuit said.

The legislative history of §315(b) further buttressed the court's position.

Though the appeal was argued before a three-judge panel, the court weighed in en banc on the key question. Nine judges joined in the majority, while two dissented.

In that dissent, Judge Timothy B. Dyk raised the specter of a patent owner gaming the system, serving many possible infringers with complaints and then quickly dismissing those cases, accomplishing the goal of starting the clock on the one-year period to initiate IPR.

But in a concurring opinion, Judge Richard G. Taranto noted that such a strategy is "purely hypothetical" and relies on a dubious premise: that the defendants, although already sued once on the patent, would decide that they are unlikely to be sued on it again.

"Without such (doubtful) reliance, it is plausible that one or more of the defendants would initiate IPR challenges to the patent at issue within the one-year period, defeating the posited scheme of the patentee," Taranto wrote. "The assumptions of legal ignorance, naiveté, or uniform fingers-crossed risk assessment seem strained."

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The implications

The Click-to-Call decision removes some flexibility the parties had at the initial stages of litigation, attorneys say. Where defendants might have previously agreed to a dismissal without prejudice, they now may need to be more insistent on dismissals with prejudice or some type of licensing agreement.

"It's going to make settlement more difficult for a party staying in the field of the invention," Stockwell said, "because a defendant who is coming out with improvements or a different version of a product over time could face additional lawsuits in the future without recourse to IPR."

The holding "tips things toward the patent owner" and puts pressure on defendants, who will have to "strongly consider whether to file for IPR, because it's now or never," Stockwell said.

Given the new lay of the land, Boston patent attorney Nathan R. Speed said that defendants in cases dismissed without prejudice are now in an awkward position, needing to decide whether to file an IPR against a company that is not actively suing them. Not only is there a cost associated with filing the IPR, but such a petitioner is increasing the likelihood it will be sued anew.

The decision, Speed said, is "whether, by filing for IPR, you poke the bear, or whether it is better to wait and see if the bear comes back. It all depends on the risk appetite of the client and what it knows about the plaintiff."

At a minimum, risk-averse attorneys and similarly minded clients are more likely to file for IPR in situations in which they may not have done so previously, Speed added.

In cases in which the parties agreed to dismissals without prejudice and service occurred less than a year ago, Speed predicts there will be a "scramble" to get IPRs on file. As for cases more than a year out from the date of service, those patents are now more valuable, given that the accused infringer cannot file for IPR.

"We are likely to see a number of old disputes come back to life," Speed said.

Other attorneys are taking the position that a time bar on IPR is not the end of the world.

"There are lots of ways to attack a patent," said Boston attorney Susan G.L. Glovsky.

That includes filing a declaratory judgment action challenging the validity of a patent or seeking ex parte re-examination from the U.S. Patent and Trademark Office.

But Stockwell highlighted potential drawbacks to that strategy.

"After filing a request for ex parte re-examination, you are just a spectator," he said. "There's no opportunity to rebut anything if you feel the examiner is headed in the wrong direction. You lose control, and that makes people nervous."

Boston attorney Michael H. Bunis listened to the oral arguments in Click-to-Call and said the plaintiff's lawyer made precisely the point that no "parade of horribles" would ensue if a defendant could not invoke IPR and instead had to litigate the validity of a patent in U.S. District Court.

For Boston lawyer Robert M. Asher, the main lesson from Click-to-Call is: "Be careful who you partner up with."

Asher was referring to the fact that the Federal Circuit held that if one petitioner was time-barred from seeking IPR, the whole petition would be dismissed, affecting even parties not served with the original complaint.

Although that may seem unfair, Stockwell said, that stance is consistent with other areas of patent law where a party may be bound by a decision in which it was not involved.

Asher agreed with Judge Taranto that the dissenters' concerns were overstated.

"We have laws against abuse of the legal process," he said. "A plaintiff would be risking liability for bringing sham litigation and abusing the judicial system."

If any type of party were to consider the strategy of suing a bunch of defendants to cause their IPR rights to expire, it might be "non-practicing entities," or patent trolls, said Bunis.

But such parties do not typically rush to assume the costs of running into court, he added. Rather, they tend to write letters attempting to extract a license payment.

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Will Congress respond?

Though he believes large companies might have preferred the old regime, Speed said he was unsure if either patent holders or potential defendants feel strongly enough to lobby Congress to undo the Federal Circuit's Click-to-Call ruling.

"Getting Congress to act is such a difficult thing," Asher said. "I don't think this rises to that level, and we need experience with the [Federal Circuit's] new interpretation to know whether it causes mischievous results."

Speed said if §315(b) were revisited at all, it probably would need to be as part of a larger, more general revamping of the America Invents Act, which enacted the inter partes review procedure.

Bunis noted that it had been "hard to bring the bedfellows together" when drafting what became the AIA. The "life sciences side of the world" did not want to see millions of dollars in research and development go up in smoke in IPR proceedings, while the "tech side" wanted a relatively inexpensive way to shake patent trolls loose.

Thus, in his view it makes sense that the Federal Circuit would endorse a strict construction of rules related to what was conceived as a narrow, confined process.

"IPR was not supposed to be the end all, be all" of challenging a patent, Bunis said.

Meanwhile, Glovsky found it interesting that the Federal Circuit apparently did not consider - and the defendants did not raise - the issue of the complaint having been served more than a decade before the IPR process had even been created.

If Congress does revise §315(b), it might clarify that the one-year time bar applies only to complaints filed after the AIA was enacted, she suggested.

Published: Wed, Sep 12, 2018

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