Print PDF

Articles

Gov't Contractors and the Inter Partes Review Time-Bar

Law360
January 5, 2017

Lavenue, Lionel M., Seastrunk, David C.

Article

Authored by Lionel M. Lavenue and David C. Seastrunk

When a patent owner sues the United States for patent infringement, a government contractor who provides products and services to the government related to those patents may find itself wrapped up in patent litigation at the United States Court of Federal Claims as a third-party defendant supporting the United States.1 Although the United States is always the primary defendant at the COFC, under Rule 14(b) of the Rules of the United States Court of Federal Claims,2 the United States can move to notify interested third parties who may have an interest in the litigation—and these third parties are often government contractors supplying products and services to the government.3

The United States' motivation for notifying government contractors of a pending COFC litigation is two-fold. First, government contractors may be obligated to indemnify the government for damages based on a Federal Acquisition Regulation patent indemnity clause in their contract.4 The standard FAR patent indemnity clause provides that "[t]he Contractor shall indemnify the Government ... against liability, including costs, for ... infringement of, or inducement to infringe, any United States or foreign patent ... arising out of the performance of [the] contract, provided the Contractor is reasonably notified of such claims and proceedings."5 In this situation, if the United States is ultimately found to infringe the patents, the contractor will ultimately be required to reimburse the government for damages.6 Second, the government contractor may have commercially used or manufactured the products accused of patent infringement, and would therefore have an interest in establishing their rights to use or manufacture those products free from claims of infringement.

In response to a threat of patent infringement, a defendant may move to challenge the patent’s validity at the U.S. Patent and Trademark Office using administrative review procedures created by the America Invents Act. The most popular option is to file an inter partes review petition at the USPTO’s Patent Trial and Appeal Board, which costs significantly less than litigation and focuses solely on the validity of the patent. Since the IPR provision went into effect on Sept. 16, 2012, over 5,000 IPR petitions have been filed with the PTAB.7 Once an IPR petition has been filed at the PTAB, the PTAB has six months to decide whether to institute the IPR.8 To justify institution, the petition must meet the threshold requirement of demonstrating that there is a "reasonable likelihood" that the petitioner will prevail in showing unpatentability of at least one claim.9

An IPR proceeding has many notable differences from standard patent litigation in district court. For example, there is a statutory deadline for the PTAB to complete an IPR proceeding—usually, 18 months after the filing of the petition.10 For example, the following image from the USPTO outlines the standard timeline of an IPR proceeding.11


 

As such, an IPR proceeding can provide significant cost savings when compared to litigating a patent case in district court. To date, IPR proceedings have been favorable for petitioners attempting to prove claims unpatentable. As of Nov. 1, 2016, over 75 percent of claims instituted by the PTAB have been canceled by the board.12


 

This article focuses on another aspect of IPR proceedings, specifically, the statutory rule that an accused party has one year to file an IPR petition after being "served with a complaint alleging infringement of the patent."13 After this one-year time period, the accused party is statutorily barred from filing an IPR — a rule that has been strictly enforced with only narrow exceptions.14 On Jan. 4, 2017, the Federal Circuit granted an en banc rehearing to decide whether judicial review should be available for PTAB institution decisions involving the timeliness of a petition under the one-year time-bar, but to date, such decisions have been held to be unreviewable on appeal.15

Despite this, in a surprising institution decision recently issued, the administrative patent judges at the PTAB held that this one-year time bar should not apply to a third-party defendant (i.e., government contractor) at the COFC. In the underlying COFC case, UUSI LLC brought a complaint against the United States in April 2012 on a patent related to a controller that assists in low-temperature engine starting.16 Shortly thereafter, the United States filed a Rule 14 motion to notify third-party defendants AM General LLC and GHSP Inc., two government contractors who were providing engine start devices for Humvees to the government.17 The third parties were served with a copy of the original complaint in August 2012 and an amended complaint in March 2014.18 Using either date of service as a measuring stick, AM General’s filing of four IPR petitions on May 18, 2016, was well beyond the one-year statutory time-bar for filing. Patent owner UUSI argued that these petitions should be barred because the petition was filed one year after: (1) service of a complaint on the United States (which UUSI argued is in privity with AM General), or (2) service of a complaint on AM General (in either August 2012 or March 2014).19 For the reasons discussed below, the PTAB rejected both arguments.20

First, the PTAB was not persuaded that the United States is a privy of AM General "such that service, on the Government, of either the complaint or the amended complaint would trigger running of the one-year statutory bar" against AM General.21 For privity to apply to a nonparty, the nonparty must have had a "full and fair" opportunity to litigate the claims and issues settled in that suit. Relying on Federal Circuit precedent, the PTAB noted that a CoFC judgment cannot support the assertion of issue preclusion against a government contractor (such as AM General).22 Further, the PTAB found that a government contractor is not provided a "full and fair" chance to litigate invalidity issues at the COFC—even if it jointly participates with the government in establishing invalidity positions—because it lacks the ability to appeal the court's final judgment.23 Another consideration in a privity analysis is whether the nonparty "exercised or could have exercised control" over the proceeding.24 In the present case, AM General’s participation in the COFC litigation and obligation to indemnify the government were argued as establishing such control. However, the PTAB held that the "mere existence of an indemnification agreement" did not demonstrate that AM General had control of the COFC litigation, "especially where, as here, there is no evidence" AM General was required to defend the claim against the United States.25

Second, the PTAB was also not persuaded that service of the Rule 14 notice/summons to AM General, together with a copy of the complaint established that AM General was "served with a complaint alleging infringement of the patent" within the statutory meaning.26 The PTAB noted that it had previously interpreted this provision "to mean that the party is served as a defendant in the case," rather than served for the purpose of enforcing a third-party subpoena for discovery.27 The Federal Circuit has explained that due to the limited subject matter jurisdiction of the COFC as an Article I court, no claim can be brought against anyone other than the United States.28 The PTAB concluded in the present case that while AM General was served with a copy of the complaint in the COFC action, it was nothing more than a "nominal defendant" at the COFC.29 The PTAB reached this conclusion notwithstanding AM General’s "active participation and support" of the COFC litigation and its indemnity obligation to the government. In summary, the PTAB found AM General was not time-barred and therefore had standing to file the IPR petitions.30

This new decision, however, is not binding precedent on other PTAB panels. Since the creation of IPR proceedings, the PTAB has designated a total of eight opinions as "precedential," meaning they are binding in all future cases at the PTAB unless they are overturned by later precedential decisions.31 Notwithstanding, even routine PTAB decisions are commonly cited by both petitioners and patent owners alike, particularly where the facts are similar.

Endnotes
1 28 U.S.C. § 1498(a).

2 RCFC 14(b)(2).

3 Lionel M. Lavenue, Patent Infringement Against the United States and Government Contractors Under 28 U.S.C. § 1498 in the United States Court of Federal Claims, 2 J. Intell. Prop. L. 389, 1995.

4 IdSee also 48 C.F.R. § 52.2124(h).

5 Id.

6 Id.

7 Patent Trial and Appeal Board Statistics published by the USPTO, available at https://www.uspto.gov/sites/default/files/documents/aia_statistics_october2016.pdf.  

8 35 U.S.C. § 314(b).

9 35 U.S.C. § 314(a).

10 37 C.F.R. § 42.100(c).

11 Trial Proceeding Timeline, available at https://www.uspto.gov/patents-application-process/patent-trial-and-appeal-board/trials.

12 Daniel F. Klodowski and David Seastrunk, Claim and Case Disposition, AIA Blog, http://www.aiablog.com/claim-and-case-disposition

13 See 35 U.S.C. § 315(b).

14 See Telit Wireless Solutions Inc. v. M2M Solutions LLC, Case IPR2016-01081 (PTAB Sept. 29, 2016) (Paper 11); LG Electronics, Inc. v. Mondis Technology Ltd., Case IPR2015-00938 (PTAB Sept. 17, 2015) (Paper 7); Medtronic, Inc. v. Endotach LLC, Case IPR2014-00695 (PTAB Sept. 25, 2014)(Paper 18).

15 WiFi One, LLC v. Broadcom Corp., Case No. 15-1944, reh’g en banc granted (Fed. Cir. Jan. 4, 2017); See Achates Reference Publishing, Inc. v. Apple Inc., 803 F.3d 652 (Fed. Cir. 2015) (holding whether a petition is time-barred is part of the institution decision and is therefore is unreviewable on appeal).

16 UUSI, LLC v. United States, Case No. 1:12-cv-00216 (C.F.C. Apr. 3, 2012).

17 Id.

18 Id.

19 AM General LLC v. UUSI, LLC, Case IPR2016-01049, slip op. at 3 (PTAB Nov. 7, 2016) (Paper 14).

20 Id.

21 Id. at 5.

22 Penda Corp. v. United States, 44 F.3d 967, 972 (Fed. Cir. 1994).

23 AM General, slip op. at 56.

24 Office Patent Trial Practice Guide, 77 Fed. Reg. 48,756, 48,759 (Aug. 14, 2012).

25 Id. at 6.

26 Id. at 69.

27 Id. at 7.

28 Penda, 44 F.3d at 971.

29 AM General, slip op. at 56.

30 Id. at 9.

31 The process for designating an opinion as precedential is outlined in the PTAB’s Standard Operating Procedure 2 (Revision 9), available at https://www.uspto.gov/sites/default/files/documents/sop2-revision-9-dated-9-22-2014.pdf. A list of the eight precedential opinions (to date) can be found at https://www.uspto.gov/patents-application-process/appealing-patent-decisions/decisions-and-opinions/precedential

Disclosure: Finnegan Henderson Farabow Garrett & Dunner LLP is currently involved in the representation of UUSI, LLC at the United States Court of Federal Claims in UUSI LLC v. United States, Case No. 1:12-cv-00216 (C.F.C.).

Originally printed in Law360 (www.law360.com). Reprinted with permission. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.