New Tactics & Risks for Litigators

On Monday, I laid out my Top 5 PTAB cases of 2019 for PTAB Practitioners, focusing on those cases that changed day-to-day practices before the agency. Like Monday’s list, my Top 5 PTAB developments of 2019 for District Court Litigators will focus on those practical developments that will impact related litigation practices outside of the agency.

In 2019, there were a number developments of interest to litigators, from tricks to avoid the PTAB altogether, to new risks on fee awards and estoppel.  

5. Using the Court for PTAB Fodder Wont Play Well in Texas (United Services Automobile Association v. Wells Fargo Bank, N.A. (here))

Litigants beware; Judge Rodney Gilstrap (E.D. Texas) warned litigants considered to be using the district court proceedings to posture positions in co-pending CBM proceedings that ‘[t]he Court does not countenance—in fact this Court is offended by—the strategic use of an Article III Court to gain a tactical advantage in any parallel proceeding.”  But, this dispute may be a preview 2020 developments with the PTAB now aligned with the Phillips construction of the courts.

In United Services Automobile Association v. Wells Fargo Bank, N.A., 2:18-CV-00245-JRG (E.D. Tex.), USAA brought a suit for patent infringement against Wells Fargo concerning four patents directed to remote check deposit technology.  Defendants first filed a rule 12(c) motion for judgment on the pleadings on Section 101 grounds; Plaintiffs filed a response to the motion thereafter.  After Plaintiffs’ filed their response, Defendants filed four CBM proceedings on each of the asserted patents on 101 issues (which were seemingly tailored to address the district court arguments that plaintiff presented).  Plaintiffs next filed an amended complaint along with a motion to compel deposition of Defendant’s expert witness in the CBM proceedings; Judge Gilstrap denied the 12(c) Motion as moot and gave Defendants leave to file a similar 101 motion within 15 days.  The Defendants declined to file another 101 motion and represented that it would not file it again until after claim construction.  Yet, plaintiffs continued to insist on deposing Defendants CBM expert on the basis that the expert’s positions were inconsistent with the arguments presented in the, now moot, 101 motion.  The Judge heard oral argument as to the motion to compel expert testimony, and subsequently denied the motion to compel.

In his 2019 Order, (here) Judge Gilstrap chastised both parties for what he appeared to consider gamesmanship. He seemed unhappy that Defendants filed a 101 motion for the apparent purpose of obtaining Plaintiffs litigation positions before filing its CBMs, especially since the Defendants declined to file a renewed 101 motion after the plaintiffs filed an amended complaint. The Judge was also apparently unhappy that the Plaintiffs sought to depose the Defendant’s expert witness from the CBMs with respect to a moot motion.  That deposition wouldn’t really have any value in the district court (in light of there being no 101 motion), and instead was likely being sought for use in the concurrent CBMs.

The Court explained,

[T]he Court is persuaded that both parties have used (and continue to attempt to use) this Court as a mere tool to better posture their positions as regards the co-pending CBM proceedings before the Patent Trial and Appeal Board (the “PTAB”). The Court does not countenance—in fact this Court is offended by—the strategic use of an Article III Court to gain a tactical advantage in any parallel proceeding. Such overtly demonstrates the parties’ lack of recognition and reliance on the district court as a deliberative body. Moreover, such gamesmanship reflects a clear lack of respect for the Third Branch of our national government. This Court will not ignore such conduct.

With competing Markman and PTAB construction applying the same Phillips standard, this case is one to be aware of for parallel proceedings….at least in Texas.

4. Exceptional Cases & PTAB Fees (American Vehicular Sciences LLC v. Autoliv, Inc., (here))

A common question posed in the district courts in 2019 was: “Can a prevailing party in an “exceptional” case (35 U.S.C. § 285) obtain fees for work done at the PTAB?”

As with most cases, the answer may depend on your district, and facts.

In American Vehicular Sciences LLC v. Autoliv, Inc., the defendants (Autoliv) moved for an award of attorney’s fees based on plaintiff AVS’s “exceptional” conduct at the PTAB. There, the district court case was stayed shortly after filing pending the outcome of multiple IPRs filed against the asserted patent, including by Autoliv. The PTAB invalidated the asserted patent, and invalidity was summarily affirmed at the Federal Circuit. When AVS moved to dismiss the case, Autoliv moved for attorney’s fees for the costs associated with the PTAB litigation. While the court ultimately denied the request here, language in the opinion appears to open the door for fees even in cases where there is no substantive litigation in the district court.

The court specifically held that if the Defendants establish that the PTAB proceedings are “exceptional,” then they “would be allowed to seek fees attributable to the work before the PTO here.” The court then walked through the rationales that various courts have relied on in awarding fees in cases involving PTAB proceedings, including: Where proceedings before the PTO were “reasonably necessary or related to the underlying patent lawsuit,” M-1 Drilling Fluids UK Ltd. v. Dynamic Air Inc., No. 14-cv-4857, 2018 WL 3104240, at *5 (D. Minn. Feb. 27, 2018) and Chaffin v. Braden, No. 6:14-0027, 2016 WL 5372540, at *2 (S.D. Tex. Sept. 26, 2016); Where “there was a stay of the related district court case, such that the PTO proceedings effectively took the place of the federal court litigation,” Deep Sky SoftwareInc. v. Southwest Airlines Co., No. 10-cv-1234, 2015 WL 10844231, at *2 (S.D. Cal. Aug. 19, 2015); and where “the court determined the PTO’s decision played a central role in determining the outcome of the federal court case,” Howes v. Med. Components, Inc., 761 F.Supp. 1193, 1198 (E.D. Pa. 1990); Scott Paper Co. v. Moore Bus. Forms, Inc., 604 F.Supp. 835, 838 (D. Del. 1984).

The court ultimately agreed with the California Deep Sky decision, noting that the PTAB proceedings “took the place” of the district court litigation (Indeed, by Congressional design). Interestingly, the court also noted an N.D. Cal. case where the court did not award fees for an IPR proceeding where the district court and PTAB proceedings ran concurrently (e.g. the district court case was not stayed). Chamberlain Group, Inc. v. Techtronic Indus. Co., 315 F.Supp.3d 977, 1019-20 (N.D. Cal. 2018).

Importantly, the court denied the fees here because the Autoliv failed to establish that the case was “exceptional.” Because there was no substantive litigation at the district court, Autoliv needed to show that AVS’s conduct during the IPR proceeding was “exceptional.” The court then noted that the Board, in its three FWDs, did not fault AVS’s for its litigation positions, did not sua sponte order fees, nor did defendants request attorneys fees at the PTAB.

The takeaway here is that even if there’s no substantial district court activity, a prevailing party may still be able to seek fees based solely on PTAB litigation conduct—perhaps more readily in a stayed case. Requesting fees at the PTAB, even if unlikely to succeed before the Board (and it will be), may nevertheless serve as a marker for a later opportunity to obtain fees under 285 when returning to the district court.  A further factor that might impact this analysis is fighting over doomed claims as discussed in my #2  development.

3.  PTAB Estoppel For Winning Arguments (BTG v. Amneal (here)) 

One of the stranger developments of 2019 has been the interpretation of PTAB estoppel (315(e)(2)) to foreclose a petitioner from pursuing arguments in a district court that were successful at the PTAB. That is, a petitioner that has successfully defeated claims at the PTAB, and has received a Final Written Decision (FWD) explaining the same, is thereafter estopped from making the same successful arguments in court.

in 2019 the government supported this position in an amicus brief to the Federal Circuit in BTG v. AmnealIn it’s brief, the government explains that its interpretation leads to the “counterintuitive result that the district court would not be able to consider invalidity arguments that the Board found persuasive.”

Aside from interpreting the statute to be “counterintuitive” in the first instance, which is canon of sorts in statutory construction, it also requires one to construe estoppel as somehow guarding against consistency.  Ultimately, the Court dodged the issue in BTG,  deciding the case on other grounds.  But, there are several others headed to the CAFC disputing the same issue.  (Here is my earlier post explaining why the gov’t brief is wrong)

2. Collateral Estoppel for Orphan Claims (Intellectual Ventures I, LLC v. Lenovo Group Ltd.(here))

In Intellectual Ventures I, LLC v. Lenovo Group Ltd., Plaintiff Intellectual Ventures (“IV”) defendant EMC Corp. petitioned for inter partes review, challenging certain claims of the subject patent eventually leading to a Final Written Decision declaring the claims to be unpatentable.  In particular, the PTAB noted that a prior art reference (Reschke) met the limitations found in independent claim 1.  Prior to institution (but after the petition was filed), IV served its infringement contentions, which included a claim not included in the IPR petition (dependent claim 11).

In the district court, EMC moved for summary judgment on the invalidity of dependent claim 11, arguing that (1) IV is collaterally estopped from asserting claim 11, and (2) there was no genuine dispute of fact that claim 11 is obvious (under § 103) over the Reschke reference.

In response, IV argued that (1) claim 11 must be evaluated separately from claim 1 (and collateral estoppel therefore cannot apply), (2) the PTAB’s lower standard of proof makes collateral estoppel inapplicable, (3) and the PTAB’s broader claim construction standard also renders collateral estoppel inappropriate.

The court granted EMC’s motion (here), noting that collateral estoppel applies to claim 11 because the differences between it and claim 1 did not materially alter the invalidity analysis. 

The court first observed that collateral estoppel (following the law of the First Circuit) requires the following elements to be met:

(1) the issue sought to be precluded is the same as the one involved in the earlier action;
(2) the issue was actually litigated;
(3) the issue was determined by a final judgment; and
(4) the determination of the issue was essential to the earlier judgment.

The court also noted that “the party against whom the preclusion is asserted must have ‘had a full and fair opportunity for judicial resolution of the same issue.’”

The court primarily focused on the first element – whether the issue sought to be precluded is the same as in the previous action.  To evaluate this issue, the court looked to relevant Federal Circuit precedent, first determining that “final judgment[s] from the PTAB on the invalidity of a patent claim [have] an issue-preclusive effect on any pending actions involving that patent.”  This holds true even though actions in district court and the PTAB have different burdens of proof and claim construction standards.  Furthermore, asserted unadjudicated claims need not be identical to already adjudicated claims for collateral estoppel to apply, as long as “the differences between the unadjudicated patent claims and adjudicated patent claims do not materially alter the question of invalidity.”  Lastly, the court noted that in related circumstances, “the PTAB may apply collateral estoppel to unadjudicated dependent claims where the adjudicated independent claim was found unpatentable in a prior IPR proceeding.”  Finding, based on this precedent, that collateral estoppel applied to the PTAB’s decision on claim 1, the court looked to whether the differences between claims 11 and 1 “materially alter[ed] the invalidity analysis” and found that they did not.

Going forward, such estoppel may be argued as another factor militating in favor of a stay even where there is not a complete alignment between asserted and challenged claims, or be used as a basis for fees should the claim that survives if the litigated claim is substantially similar to cancelled claims.

1.  Avoiding the PTAB via NDA (Dodocase VR, Inc. v. Merchsource, LLC (here))

The AIA statutes provide that a person who is not the owner of a patent, can challenge the patent at the Patent Trial & Appeal Board (PTAB). Pursuant to the bright lines drawn by the statute, the PTAB has accepted AIA challenges from non-owners where traditional defenses may have prevented such challenges in other fora. For example, while assignor estoppel might preclude a patent validity challenge in a district court, the PTAB accepts such challenges. In affirming this practice, the Federal Circuit explained that common-law doctrines are subject to abrogation of the AIA statutes.

In Dodocase VR, Inc. v. Merchsource, LLC the CAFC considered the impact of private agreements between parties, namely, a forum selection clause of an NDA.  Can a forum selection clause divest the PTAB of jurisdiction of a patent validity dispute. For its part, the PTAB disagreed…..the District court on the other hand, issued an order enjoining petitioners from continuing at the PTAB in such circumstances. In april of 2019, the Federal Circuit backed the injunction, effectively shutting down the PTAB.

Rehearing in Dodocase was sought and denied, since then some other cases have distinguished the outcome on different forum selection clause language.

In entering pre-suit negotiations, it is imperative that parties are aware of these developments.