IPR institution denied for Microsoft challenges against VirnetX patents

Finnegan client VirnetX served Microsoft with a complaint alleging infringement of the challenged patents more than a year before Microsoft filed its three inter partes review (IPR) petitions.  However, the litigation was settled and dismissed after trial but before a final decision.  Microsoft argued that its petitions were not barred because its counterclaims and affirmative defenses regarding invalidity in the litigation were dismissed “without prejudice.”  In its preliminary responses, VirnetX argued that the manner in which counterclaims and affirmative defenses are dismissed is irrelevant for 35 U.S.C. 315(b)’s time bar—it is the infringement allegations that matter.  Agreeing with VirnetX, the Patent Trial and Appeal Board (PTAB) denied institution, in part, because the infringement allegations in the complaint were dismissed “with prejudice” and the parties were in different relative legal positions than before the complaint was filed.