Sanctions at the PTAB: Recent Cases

Case 1. Ventex Co., Ltd. v. Columbia Sportswear N. Am., Inc., IPR2017-00651, IPR2017-00789, Paper 164 (P.T.A.B. Apr. 12, 2023)

Holding

The Patent Trial and Appeals Board (“PTAB” or the “Board”) granted Columbia’s motion for sanctions seeking attorneys’ fees and costs incurred since discovery began and ordered Ventex to pay Columbia $32,761.

Background

After granting institution to evaluate U.S. Patent Nos. 8,424,119 and 8,453,270 (“the ’119 patent” and “the ’270 patent”), the Board sought party input regarding issues raised relating to the statutory bar under 35 U.S.C. § 315(b). Id. at *2.

§315(b) states that “[a]n 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.” 35 § 315(b) (emphasis added). Columbia argued that Ventex’s petition was time-barred because Seirus Innovative Accessories, Inc. (“Seirus”) was a real party-in-interest and privy to Ventex and Seirus was served with a complaint alleging infringement of the ’119 patent more than one year prior to filing the petition.

To support its contentions, Columbia relied on two agreements between Ventex and Seirus: a 2013 Supplier Agreement and 2016 Exclusive Manufacturing Agreement. Id. at *3. The 2013 Supplier Agreement required Ventex to “indemnify, defend and hold harmless Seirus . . . from and against any and all claims, demand, damages, liabilities, losses, costs and expenses, (including without limitation, attorney’s fees and costs), of any nature whatsoever, which arise from [Ventex’s] failure to perform its obligations.” Ventex Co., Ltd. v. Columbia Sportswear N. Am., Inc., IPR2017-00651, Paper 148 at *7 (P.T.A.B. Jan. 24, 2019) (precedential), quoting Ex. 2009, at 3. The 2016 Exclusive Manufacturing Arrangement dictates that Ventex “agrees to only manufacture Heatwave Material for Seirus” in exchange for Seirus’s payment of “an exclusivity fee.” Id. quoting Ex. 2189, at 1-2.

Based on the non-exhaustive list of factors set out by the Supreme Court in Taylor v. Sturgell, 553 U.S. 880 (2008), the Board determined that the legal relationship between Ventex and Serius establishes that one is the privy of the other.[1] Relying on factors 2 and 5, the Board found the parties had a preexisting substantive legal relationship through the Supplier Agreement and Exclusive Manufacturing Agreement, and that Ventex served as a proxy for Seirus since Seirus was, in effect, funding Ventex’s inter partes review. Id. at *12-14. Thus, Seirus should have been named both a privy of Ventex and a real party-in-interest.

Columbia sought attorney’s fees based on Ventex’s conduct. Columbia alleged that by failing to disclose Seirus’s relationship to Ventex, Ventex (1) unnecessarily increased the cost of the proceeding, (2) misrepresented facts, and (3) abused discovery. See 37 C.F.R. §§ 42.12(a)(3), (a)(5), (a)(7). Ventex Co., Ltd. v. Columbia Sportswear N. Am., Inc., IPR2017-00651, IPR2017-00789, Paper 164, at *9 (P.T.A.B. Apr. 12, 2023). According to Columbia, “the harm attributable to Ventex’s actions [is] $254,599.34, which includes all of its fees and costs since discovery reopened on September 27, 2018.” Id. at *16-17.

Board

The Board agreed that Ventex’s failure to disclose the existence of the Exclusive Manufacturing Agreement in “documents, interrogatory responses, or through the testimony of Ventex’s designated representative Mr. Park” led to “unnecessary delay and an unnecessary increase in the cost of the proceeding.” Ventex at *11. Additionally, based on Mr. Park’s waffling testimony, the Board concluded that he had misrepresented his knowledge regarding the Exclusive Manufacturing Agreement. Id. at *12-13. Finally, because the omitted documents were highly probative evidence on the issue of whether Seirus was a real party-in-interest with Ventex, the failure to produce those documents amounted to an abuse of discovery. Id. at *13-16. Based on these findings the Board found the sanction of $32,761 was sufficient to deter repetition of the conduct or comparable conduct by others. Id. at *16.

Case 2. Spectrum Solutions LLC v. Longhorn Vaccines & Diagnostics, LLC, IPR2021-00847, -00850, -00854, -00857, -00860, Paper No. 107 (P.T.A.B. May 3, 2023)[2]

Holding

The Board granted Petitioner’s motion for sanctions of adverse judgment and denial of revised motions to amend after determining that Patent Owner’s counsel “failed to meet its duty of candor and fair dealing in its actions before the Board.” Id. at *2.

Background

Petitioner Spectrum Solutions challenged claims in U.S. Patent Nos. 8,084,443; 8,293,467; 8,669,240; 9,212,399; and 9,683,256. The petitions were granted and during the subsequent proceedings Patent Owner Longhorn Vaccines filed a Patent Owner’s Response, a Sur-Reply to Petitioner’s Reply, a Motion to Amend, and a revised Motion to Amend. Id. at *3-4. To support its filings, Patent Owner hired Assured Bio Labs to conduct testing. Id. at *4. The Board became involved after Patent Owner made attorney work product objections during Petitioner’s deposition of Assured Bio employees, and eventually issued an Order “authorizing additional questioning on certain testing and ordering Patent Owner to serve any relevant inconsistent information as required by 37 C.F.R. § 42.51(b)(iii).” Id.  

Patent Owner argued the Order was “improper” because “the testing conducted on its behalf is privileged as attorney work product[.]” Id. at *25.

Board

The Board determined that the data supplied by Longhorn was incomplete and was relevant to the patentability of the claims as Longhorn sought to construe them and as ultimately construed by the Board. Id. at *29. The Board further explained that:

In ignoring the claim construction set forth in the institution decisions, and arguing its preferred claim construction without disclosing at least the underlying facts of the test results, to at least the Board, Patent Owner put itself in an untenable position as to meeting its duty of candor and fair dealing.

Id. at *47. According to the Board, “Patent Owner has taken an overly strict view of what is material to patentability of the claims while simultaneously taking a lax view as to the duty of candor and fair dealing.” Id. at *41.

The Board concluded that “given the materiality of the test results within the meaning of the claims, as interpreted in light of the specification, withholding the test results was inexcusable.” Id. at *31-32.  Thus, the Board granted Petitioner’s motion for sanctions of adverse judgment as to all challenged claims and denied Patent Owner’s revised motions to amend.

The concurring opinion would have also awarded Petitioner compensatory expenses, including attorney fees. Id. at *61.

Take-aways

The USPTO’s recent notice, Duties of Disclosure and Reasonable Inquiry During Examination, Reexamination, and Reissue, and for Proceedings Before the Patent Trial and Appeal Board, 87 Fed. Reg. 45,764 (July 29, 2022), reminds practitioners that the duty of disclosure applies to all dealings with the USPTO, including post-grant proceedings. The Spectrum decisions drive the seriousness of that duty home. The Board went so far as to call disregard for meeting the duty of disclosure “misconduct.” Id. at *55. Selective disclosure of test results, whether in prosecution or in a post-grant proceeding, has potential to be the basis for sanctions and, if raised in litigation, a finding of inequitable conduct.

Additionally, parties before the Board must ensure discovery and the disclosure of potential real parties in interest. Otherwise, a party may end up losing both an IPR and being subject to significant sanctions, as in Ventex.

Endnotes

[1] The factors are: “(1) an agreement between the parties to be bound; (2) pre-existing substantive legal relationships between the parties; (3) adequate representation by the named party; (4) the non-party’s control of the prior litigation; (5) where the non-party acts as a proxy for the named party to relitigate the same issues; and (6) where special statutory schemes foreclose successive litigation by the non-party (e.g., bankruptcy and probate).” Id. at 894-95.

[2] The Board also issued a Final Written Decision holding all challenged claims unpatentable on the merits. Paper 112 (P.T.A.B. May 3, 2023). That Final Written Decision was appealed, but in the meantime, Sue Sponte Director review was granted. Paper 126 (P.T.A.B. June 12, 2023).