Invalidity Counterclaims-In-Reply Will Not Trigger 35 U.S.C. § 315(a)

Congress created IPR to provide a “quick and cost effective alternative[ ] to litigation.”  To fulfill that role, Congress limited a party’s ability to seek an IPR after commencement of civil litigation in two ways: (1) under § 315(a), no IPR may be instituted if the challenger filed a civil action challenging the validity of a patent claim before filing the IPR petition, and (2) under § 315(b), an IPR may not be instituted on any petition filed more than one year after the petitioner (or a real party in interest or privy) was served with a patent infringement complaint.  These provisions are designed to control PTAB filings concurrent with civil complaints.

In a recent decision, the Northern District of California lamented that the statutory provisions permit a counterclaim of invalidity in a Reply. 315(a)(3). The Court interpreted such a counterclaim to be a “loophole.”

Last week in Epic Games, Inc. v. Acceleration Bay LLC (here), the Northern District of California explained that these statutory provisions create a loophole for DJ plaintiffs to challenge the validity of a patent in a counterclaim-in-reply and to later file an IPR petition without a time bar.

In Epic, a declaratory judgment action of non-infringement was filed against certain patents owned by Acceleration Bay.  Acceleration Bay answered the complaint and asserted counterclaims of infringement against Epic Games.  Epic Games answered the counterclaim and simultaneously asserted six counterclaims-in-reply challenging the validity of the asserted patents.  Acceleration Bay then brought a motion to strike or reclassify Epic Games’ counterclaims-in-reply as amendments to the complaint and alleged that Epic Games sought to end-run around rules governing availability of IPR.

The Court denied Acceleration Bay’s motion.  It found that “because the issues raised by Epic Games’ counterclaims-in-reply are redundant of its affirmative defenses [of non-infringement], striking the counterclaims would be futile.”  And further, under Supreme Court precedent, a counterclaim for patent invalidity survives the dismissal of patent infringement claims and presents a standalone issue—so the Court must decide patent validity regardless.  Therefore, Epic Games could still challenge validity at district court and file an IPR petition without a time bar.  But the Court noted that this outcome may undermine IPR’s statutory scheme:

In so ruling, the Court recognizes the apparent loophole left by the statutory scheme governing IPR availability.  Unlike a patent infringement defendant (which cannot bring an IPR more than one year after being sued) or a declaratory judgment plaintiff seeking a judgment of invalidity (which cannot seek an IPR at all), a declaratory judgment counterclaimant faces no apparent restrictions on seeking an IPR.  In theory, a declaratory judgment counterclaimant may fully litigate the issue of patent validity in the district court, lose on the issue, and then seek a “re-do” before the PTAB while being subject to no estoppel or time limit whatsoever.  Such boundless ability to seek an IPR cannot be reconciled with the clear congressional intent that the IPR serve as a “substitute” for district court litigation that relieves the burdens on the courts.  Nevertheless, the statutory issue is one for Congress to resolve.

But, there is no loophole in such scenarios as the defendant’s counterclaim for infringement triggers 315(b). St. Jude Medical Cardiology Division, Inc. v. Volcano Corp. (IPR2013-00258).  So, there is a one-year time limit under 315(b) that would preclude the outcome the court discusses (“no estoppel or time limit”).  And, practically speaking, there is always a counterclaim of infringement from a defendant in such scenarios.