Director Considers Common Customer/Supplier Indemnification Scenarios

Earlier this year, the USPTO Director clarified that competitors of a multi-defendant suit do not necessarily share a “significant relationship” consistent with PTAB precedent to justify a discretionary denial of an otherwise meritorious IPR petition. Ford Motor Co. v. Neo Wireless LLC (IPR2023-00763). Late last week, the Director considered another common multi-party litigation scenario. This time the Director explored the degree of interest (i.e., degree of cooperation, contractual obligation, or common purpose) necessary to create an RPI or privity relationship such that a 315(b) bar of one such party applies to the other — specifically, in customer/supplier indemnification scenarios.

In Luminex International Co. Ltd v. Signify Holdings B.V., the Director considered whether an indemnification obligation, absent more, demonstrates an RPI relationship, or creates privity between a customer and supplier.

In Luminex (here) the Director considered the relationship between supplier Luminex and its customer Menard. The facts were that customer Menard was served with a complaint for infringement from Signify in August of 2022. In answering, Menard stated that as a distributor, it would be indemnified by its suppliers. Menard filed a third-party complaint identifying Luminex in October of 2022. And Luminex answered the complaint in February of 2023, adding counterclaims of invalidity. Along the way, the Court ordered Menard and Luminex to coordinate.

Petitioner Luminex sought IPR alone in October of 2023 and was denied as a result of the August 2022 one-year time bar that applied to Menard. That is, the Board found Menard to be an RPI of Luminex, and that service of the original complaint in August 2022 barred the IPR filing under 315(b).

The panel explained that Luminex was obligated to indemnify Menard, the parties were cooperating in court, and the claims were overlapping in the IPR and litigation (where seemingly only Luminex was on the hook). The panel also explained that “from a ‘practical and equitable’ standpoint, Menard will benefit from the redress [of the IPR] because a decision determining that the challenged claims are unpatentable would relieve Menard from liability for infringing the ’336 patent [and] Menard likely prefers relief from infringement liability rather than a liability determination followed by litigation about indemnification.”

The Director reversed, explaining that customer Menard was neither an RPI nor privy of supplier Luminex. The Director noted the issue is a common one:

This case presents the issue of whether a customer-indemnitee’s request for indemnification by a manufacturer-indemnitor under a standard, non-exclusive, manufacturer-customer indemnification agreement relating to patent infringement can be sufficient to support a finding of real party in interest and trigger the one-year time bar.

In distinguishing the agreement for RPI purposes, the Director explained the standard nature of the indemnification clause:

Petitioner characterizes the Agreement between itself and Menard as one that is “typical of those used across industries.” Petitioner further argues that its relationship with Menard is a “standard, non-exclusive, arm’s-length customer
manufacturer” relationship. Based on the limited excerpts of the Agreement that are of record in this proceeding, I agree with Petitioner that the Agreement includes standard indemnification language, and this language does not support an inference that the Agreement gives Menard the opportunity or ability to control this IPR proceeding or Petitioner’s filing of the Petition. . . .¶ I further disagree with the Board’s determination that Menard’s indemnification requests elevate Menard to a real party in interest of Petitioner. As discussed below, these unilateral requests refer to indemnification under the Agreement as it relates to the district court litigation (without mention of any proceedings before the Office) and do not show that Petitioner filed this IPR as a representative or at the behest of Menard.

In considering policy aspects of such standard, non-exclusive agreements the Director noted:

As a matter of policy, binding an indemnitor-petitioner to the one-year bar that applies to the indemnitee-defendant on facts like these could have the perverse result of encouraging patent owners to file infringement complaints against retailers to escape the threat of potential IPR challenges by manufacturers, who become unwittingly time-barred from doing so based upon standard contractual agreements and arm’s-length relationships. This case illustrates the concern. Taking into account the equitable and practical considerations at issue in this case, the current record includes no evidence that Petitioner knew of the district court litigation before Menard filed its third-party complaint naming Petitioner as a third-party defendant. Thus, the current record includes no evidence that Petitioner knew of the district court litigation at the time that Menard was served with a complaint alleging infringement; i.e., as of the date triggering the one-year bar. . . .¶ Further, Petitioner here appears to have had a much greater interest in pursuing the IPR than Menard: Menard invoked the Agreement to hold Petitioner liable for Menard’s litigation costs and any judgment against it, and Menard’s initial answer did not include invalidity contentions. More generally, as the producer of the allegedly infringing products, Petitioner has a strong and independent interest in establishing noninfringement or invalidity, so as to remove the cloud over its products in its dealings not only with Menard but also with other customers.

In concluding no RPI relationship exists, the Director pointed out that there was no evidence of control between Menard and Luminex, and that the inferential evidence offered (timing of the indemnification demand and the obligation scope) was not enough. In finding that privity also did not exist, the Director again emphasized the standard nature of the indemnity obligation and lack of direct evidence of anything more between the parties.

Takeaways:

  • Standard indemnification agreements from infringement do not create RPI or privity relationships, alone, absent evidence of more. (cf. exclusive agreements, agreements covering PTAB expenses)
  • Request for indemnification does not create RPI relationship
  • Gamesmanship concern where customer/retailer is sued first to thwart supplier response (or party of greater interest)
  • Evidence of cooperation on the district court side is unavailing where ordered by the court.
  • Where customer is sued first, proof of supplier knowledge of suit may be helpful.
  • This is all subject to (and likely to) change under the next Director (there were cases under the previous Director finding the exact opposite).