Interactions During Preliminary Proceeding Can Doom PTAB Filing

Since last summer’s decisions in Applications in Internet Time, LLC v. RPX Corp., and Worlds Inc. v. Bungie, Inc., the Patent Trial & Appeal Board (PTAB) has seen RPI/privity disputes spring back to the fore. The renewed scrutiny presents challenges for petitioners participating in joint defense groups or those obligated under indemnification agreements.

A precedential decision issued today by the Federal Circuit highlights the danger of new RPI and privy interactions post-petition filing. 

Power Integrations sued Fairchild Semiconductor Corporation for infringement in 2009 for infringement of U.S. Patent No. 6,212,079 (“the ’079 patent”). On November 18, 2015, Semiconductor Components Industries, LLC (“ON”) entered into an agreement to merge with Fairchild. Prior to the merger being completed, ON filed a petition for IPR of the ’079 patent on March 29, 2016 (more than one year after Fairchild was served with the complaint alleging infringement of the ’079 patent).

ON’s petition disclosed the merger agreement, but explained the merger with Fairchild had not closed by the time of the filing of the petition and was dependent on several uncertain conditions occurring. ON asserted that Fairchild had no role in the decision to file the petition for IPR, had no control over the content of the petition, and did not pay for the petition. The merger closed on September 19, 2016, and the Board instituted the IPR four days later on September 23, 2016.

Power Integrations argued in its Patent Owner Preliminary Response that the IPR should be time barred under 35 U.S.C. § 315(b). Power Integrations reasoned ON and Fairchild were in privity at the time of filing due to the pending merger, and Fairchild had been served with a complaint for infringement more than one year before the filing of the petition. The Board rejected this argument in its institution decision. The Board found there was insufficient evidence of record to establish Fairchild exercised, or could have exercised, control. (an analysis rectified late by Applications in Internet Time, noted above))

After institution, Power Integrations was denied authorization to file a motion for additional discovery on the relationship between ON and Fairchild. In its Patent Owner Response, Power Integrations again argued ON was in privity with Fairchild, but the Board rejected this argument for the same reasons as in the institution decision. The Board rejected as speculation an argument that ON was acting as Fairchild’s proxy in filing the IPR petition. Finally, Power Integrations argued the IPR was time barred because Fairchild was an admitted RPI as a result of the merger with ON that closed before institution. Similar to two other panels of the Board, this panel of the Board held in its final written decision that RPI and privity relationships for the purpose of § 315(b) were only relevant up to the date the petition was filed.

The Federal Circuit reviewed § 315(b) (here) and found the statutory language “may not be instituted” described a condition precedent to the institution decision, not a petition’s filing. Thus, RPI/privity relationships arising before institution should be considered in the § 315(b) time-bar analysis. This interpretation was consistent with prior Federal Circuit cases that interpreted § 315(b) as a statutory limit on the Director’s ability to institute IPR. This interpretation was also consistent with common law preclusion principles. Because Fairchild was an RPI at the time of institution and time barred, the Federal Circuit vacated the final written decision.

While focusing on the indisputable RPI creation upon merger of the petitioners four days before institution, the Court reiterated its expansive view of privies, explaining that:

Congress chose language that bars petitions where proxies or privies would benefit from an instituted IPR, even where the petitioning party might separately have its own interest in initiating an IPR.

In view of the Federal Circuit’s timing clarification, and expressed view of covered relationships, parties will need to exercise significant caution prior to institution decisions, and not just prior to the filing of petitions for IPR. This could have a chilling effect on Joint Defense Groups or even indemnification discussions until a given PTAB filing is instituted.