On Nov. 21, 2024, U.S. Patent and Trademark Office Director Kathi Vidal issued a Patent Trial and Appeal Board (PTAB) Director Review decision addressing 35 U.S.C. § 315(a)(1) and § 315(b), the statutes that preclude institution of inter partes review (IPR) proceedings after certain civil actions are filed.
Section 315(a)(1) states that an IPR may not be instituted if a petitioner or its real party-in-interest (RPI) “filed a civil action challenging the validity of a claim of the patent” before an IPR petition is filed. Section 315(b) precludes institution if an IPR petition is filed more than one year after the date on which the petitioner — or its RPI or privy — is served with a complaint alleging infringement of the patent.
Section 315 inquiries are often fact-intensive and complex, and it is instructive to see Director guidance on these issues. Although this Director Review decision is not currently designated as precedential, PTAB panels are likely to follow this approach generally going forward.
Background
The case, Luminex Int’l Co., Ltd. v. Signify Holdings B.V., IPR2024-00101, Paper 20 (Vidal Nov. 21, 2024), involved an agreement between petitioner Luminex International Co. and Menard, an unnamed third party. Relying on the Menard Customer Returns, Defective Goods Policy and Conditions of Order Agreement, which stated that Luminex “shall defend, indemnify, and hold Menard harmless from … any actual or alleged violation or infringement of any intellectual property right,” the PTAB found that Menard was an RPI of Luminex. The PTAB then denied institution of Luminex’s IPR petition under § 315(b) because Patent Owner Signify Holdings had sued Menard — an RPI — for infringement more than one year before Luminex filed its petition. The PTAB did not reach an alternate argument that the petition was also barred by § 315(a)(1) because its decision on § 315(b) disposed of the proceeding.
In an Aug. 20, 2024, order, the Director disagreed with the PTAB’s RPI determination, granted Director Review and remanded the proceeding to the PTAB. The Nov. 21, 2024, Director Review decision reflects the Director’s analysis of the 35 U.S.C. § 315 issues presented in this case.
Real Party-in-Interest and 35 U.S.C. § 315(b)
In evaluating RPI, U.S. Court of Appeals for the Federal Circuit case law instructs that the PTAB must consider “whether a petition has been filed at a []party’s behest.” In resolving that question, the PTAB considers who is “controlling, funding, or directing” the IPR; “whether the petitioner is representing the interests of [an] unnamed party”; and whether an unnamed party is “a clear beneficiary that has a preexisting, established relationship with the petitioner.”
In this case, Director Vidal framed the RPI issue presented here as “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.” Director Vidal answered that, “without more, it cannot.”
Director Vidal found that sound policy dictates this approach. “As a matter of policy, binding an indemnitor-petitioner to the [§ 315(b)] one-year bar … 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.”
On the facts here, Director Vidal determined that the agreement’s language was “standard” language often found in “other arm’s-length customer-supplier agreements,” and did not “support an inference that the Agreement gives Menard the opportunity or ability to control” Luminex’s IPR; that the record lacked evidence of “an exclusive, or similarly relevant, business relationship” between Luminex and Menard; and that the record lacked evidence that Luminex knew of the district court litigation until Menard filed its third-party complaint.
Director Vidal also determined that the circumstances here did not present anything sufficiently “more” to support an RPI finding. The record lacked evidence “of control, funding, or substantial coordination between Petitioner [Luminex] and Menard,” and the mere fact that Menard desired to be free of infringement liability or may have had indemnification obligations in district court did not establish that the IPR was filed “at Menard’s behest.”
Privity and 35 U.S.C. § 315(b)
Having determined that Menard was not an RPI of Luminex, Director Vidal next considered privity. Federal Circuit and U.S. Supreme Court case law explain that the privity inquiry concerns whether a party has had the full and fair opportunity to challenge a patent in past litigation such that they should not be permitted to do so again. A number of factors may be relevant, including (1) an agreement to be bound, (2) a pre-existing substantive legal relationship, (3) adequate representation by someone with the same interests who was a party, (4) assumption of control over the prior litigation, (5) whether the nonparty to an prior litigation is a proxy for the named party and (6) a statutory scheme foreclosing successive litigation.
Signify argued that Luminex and Menard were in privity due to factors 2 and 5. Director Vidal determined that the previous RPI analysis “addresses consideration 5 … and precludes a finding of privity on that basis.” Director Vidal was equally unpersuaded with respect to factor 2, for similar reasons. Unlike a previous privity finding in which entities had “an agreement with a requirement to indemnify and defend, as well as an exclusive manufacturing agreement,” Luminex and Menard had only a “standard manufacturer-customer agreement.” Additionally, “there is no evidence of any payments made by Menard to Petitioner [Luminex], much less specific funding by Menard of the IPR.” Taken together, Director Vidal found insufficient evidence of a substantive legal relationship between Luminex and Menard.
Cross-Claims and 35 U.S.C. § 315(a)(1)
Because the Director determined that Menard was neither an RPI nor a privy, the § 315(b) time bar did not apply. The Director next considered §315(a)(1).
Several months after being sued by Signify, Menard filed a third-party complaint that named Luminex and other entities as its suppliers and third-party defendants and alleged, inter alia, indemnification. In its answer, Luminex filed cross claims against Signify seeking, inter alia, declaratory judgment of invalidity. In the PTAB proceeding, Signify argued that institution must be denied because the declaratory judgment cross-claim was a “civil action” triggering § 315(a)(1)’s bar.
Director Vidal disagreed and held that “Petitioner’s filing of an answer containing a declaratory judgment ‘cross-claim’ of invalidity in response to Menard’s initial third-party complaint in an existing civil action does not constitute ‘fil[ing] a civil action challenging the validity of a claim in a patent’ barring institution under § 315(a)(1).” Relying on the language of the statute, the Federal Rules of Civil Procedure, and the legislative history, the Director reasoned that § 315(a)(1) “bars a party from commencing a suit by filing a complaint in district court … and then filing an IPR petition at the PTAB,” but does not apply to a “responsive answer [filed] in an already-commenced civil action” (emphasis added).
Takeaways
The Director did not designate this decision as precedential upon issuance. Nonetheless, it reflects the Director’s application of certain facts — some of which commonly occur — to the statutory requirements of § 315(a)(1) and § 315(b). Although it is not binding on future PTAB panels, it is reasonable to expect that panels will nonetheless follow the approach articulated by the head of the agency.
When RPI and privity are at issue, the PTAB will likely look to any applicable agreement and ask whether it is a “standard” manufacturer-customer indemnification agreement or whether, for example, the relationship is exclusive or otherwise gives the indemnitor-manufacturer some discernible ability to control the proceeding. The PTAB will also look to determine whether there is anything “more” that suggests an RPI relationship. Without some showing of control, funding or coordination, a finding of an RPI relationship may be less likely. Similar inquires will also drive the PTAB’s consideration of whether a substantive legal relationship existed to give rise to a privity finding.
Given the Director’s analysis of the § 315(a)(1) statutory language, the Federal Rules of Civil Procedure and the legislative history, it appears unlikely that future PTAB panels would determine that § 315(a)(1) applies to bar IPR petitions in which a petitioner has filed a responsive cross-claim in district court. Although this fact pattern arises less frequently, the Director Review decision provides substantial clarity on this front nonetheless.