IPRs: The Pitfalls of Real Party-In-Interest

Identifying a real party-in-interest in a petition for an inter partes review (IPR) or post-grant review (PGR) is critical because the failure to do so may result in a termination of the proceeding due to an untimely petition. While it is true that the Board may grant the petitioner one month to cure its petition [1], the petition must be cured within one year of the date on which the real party-in-interest was served a complaint alleging patent infringement.[2] In most circumstances, however, one year has elapsed since the petitioner was served a complaint. Accordingly, the Board terminates the proceeding due to the untimely petition. The purpose behind the rule guides its strict application. First, identifying all real parties-in-interest allows the Patent Trial and Appeal Board (Board) to flag potential conflicts of interest, such as having an investment in a company that is involved in the proceeding.[3] Second, the petitioner must establish that neither it nor its privies have raised, or had the opportunity to raise, the ground in dispute in a previous IPR or PGR proceeding.[4]

Who is a real party-in-interest?

In general, the term “real party-in-interest” is used to describe any party whose relationship with the petitioner justifies applying conventional principles of estoppel and preclusion.[5] A real party-in-interest has been described as encompassing any party “at whose behest the petition has been filed.”[6] So, for example, a real party-in-interest conceivably includes a sister corporation, parent corporation, subsidiary corporation, holding corporation, or a licensor. Determining who is a real party-in-interest is a “highly fact-dependent question” with no “bright-line test.”[7] The Board thus looks to whether a party exercises or could exercise control in the IPR proceeding.[8] Some common considerations include (i) whether the non-party ‘funds and directs and controls’ an IPR petitioner or proceeding; (ii) the non-party’s relationship with the petitioner; (iii) the non-party’s relationship to the petition itself, including the nature and/or degree of involvement in the filing; and (iv) the nature of the entity filing the petition.[9] However, a non-party is not deemed a real party-in-interest because the non-party is associated with the petitioner in an unrelated business endeavor, [10]  or because the two parties are co-defendants.[11] Nevertheless, one should consider naming the following parties as a real party-in-interest:

Sister Corporations

In Corning Optical,[12] the petitioner failed to include its sister corporation as a real party-in-interest. There, the Board found the overlap of officers and attorneys between the two corporations weighed in favor of identifying the sister corporation as a real party-in-interest. Because the president, senior vice president, secretary, and others shared similar titles in both corporations, it established “a pre-existing substantive legal relationship,” which justified identifying the sister corporation as a real party-in-interest. Moreover, instead of “maintaining well-defined corporate boundaries,” the two companies were “so intertwined that it [was] difficult for both insiders and outsiders to determine precisely where one ends and another begins,” despite their geographical differences.[13] For example, the two corporations referred to each other interchangeably on multiple occasions, including in an engagement letter with outside counsel, on the officer’s online profiles, and in state-filed annual reports. Accordingly, these actions “blurred sufficiently the lines of corporate separation,” leading the Board to conclude that the sister corporation could have controlled the filing and participation of the IPRs. 

Parent Corporations 

Although a parent/subsidiary relationship does not, by itself, establish a parent’s ability to exert control over a proceeding,[14] there could be other factors that justify finding a parent corporation as a real party-in-interest. In ZOLL Lifecor,[15] a subsidiary-petitioner failed to include its parent corporation as a real party-in-interest, because the two had a “very close parent and wholly-owned subsidiary relationship with aligned interests and sufficient opportunity for the parent to control [the IPR proceeding].” While the petitioner argued that it was the petitioner—and not the parent—who was supervising the conduct and paying the costs of the IPRs, it was unpersuasive as the parent corporation ultimately authorized the subsidiary-petitioner’s budget and plans, and had been since it acquired the subsidiary in 2006. Further, the parties held themselves out to the district court as a single identity so as to stay a first action, which involved the subsidiary, to focus on a second action, which involved the parent. Thus, the Board concluded the parent corporation “ha[d] the actual measure of control or opportunity to control that might reasonably be expected between two formal co-parties.”[16]

The Board also analyzes the degree of overlap in counsel and preparation of the IPR petition between a parent and subsidiary-petitioner, and how the IPR is being financed. It is telling of the parent’s ability to control the proceeding if the parent (or any of its counsel) gives input into the preparation of the IPR petition. In Zoll, both the parent and subsidiary relied on the same attorney for legal counsel and the subsidiary-petitioner did not affirmatively deny the parent’s involvement in the proceeding. The Board is also persuaded by evidence of how the IPR is being financed.[17] In Optical Corning, an engagement letter was sent by a parent company on behalf of its subsidiary and listed the parent’s in-house counsel as the case manager contact. Moreover, the outside counsel directed the invoice to the parent, who then paid the outside counsel on behalf of the petitioner. Although it was not clear whether the petitioner had reimbursed the parent of all costs, it was sufficient that the parent corporation received and reviewed the relevant invoices while also making the initial payments.[18]

Subsidiary Corporations 

While a subsidiary may list a parent as a real party-in-interest by virtue of its ability to control the subsidiary, the parent may not necessarily have to name its subsidiary. In Medtronic,[19] a parent-petitioner did not list a subsidiary corporation as a real party-in-interest. There, the patent owner agued that the parent-petitioner should have named the subsidiary as a real party-in-interest because (1) the subsidiary had filed a prior petition seeking an IPR of the same patent; (2) the subsidiary and parent were both listed as real parties-in-interest in that prior petition; (3) the two were both defendants in a related district court case; (4) the petitioner used the same counsel and declarant in that prior petition; and (5) the petitioner relied on the same prior art references included in that prior petition. However, the Board found that, without more, neither the subsidiary’s prior petition nor the fact that the two were co-defendants in the related district court action established who was responsible for controlling, funding, or directing the parent corporation in the current proceeding. The Board explained that while the subsidiary was wholly-owned by the parent-petitioner, which gave the parent an ability to exercise some measure of control over its subsidiary, it did not mean the opposite was true.

Holding Corporations

In Atlanta Gas Light,[20] the petitioner failed to list its parent holding corporation, AGL Resources, as a real party-in-interest. Even though a “holding company…conduct[s] substantially all of its operations through its subsidiaries,” there were no well-defined corporate boundaries, and the different entities were casually referred to, both internally and externally, by the umbrella designation of “AGL Resources.” For example, the common use of letterheads, email addresses, and website addresses encouraged the perception that the holding corporation and its subsidiaries functioned as a single entity. In addition, the two corporations had overlapping officers, namely the vice president and chief counsel. The Board concluded that this evidence weighed in favor of finding the holding corporation as a real party-in-interest. In Accord Healthcare,[21] however, the holding corporation was found not to be a real party-in-interest, despite its ownership interest in the subsidiary-petitioner and an overlap in the board of directors. Unlike the overlap of the general counsel with the holding corporation in Atlanta Gas Light, the petitioner’s senior patent counsel declared that (a) he was not paid or employed by the holding corporation; (b) he did not manage any litigation or work for the holding corporation; (c) the holding corporation did not direct or fund outside counsel’s work; and (d) the holding corporation was not involved in either the decision to file the petition or in the preparation of the petition. declaration severed the holding corporation’s ability to control the proceeding.

Licensor Corporations

Neither the licensor nor the licensee is deemed a real party-in-interest simply because a license requires a licensor to indemnify a licensee due to patent infringement.[22] In Samsung,[23] a license stated that the non-party licensor would “defend, or at its option settle, any third party lawsuit or proceeding brought against the [licensee-petitioner].” The patent owner argued that this agreement, in effect, gave the non-party licensor full control of the defense and settlement of a third-party infringement action, including the current IPR proceeding. The Board disagreed, and it was not persuaded by the patent owner’s additional argument that the licensor’s act of seeking to intervene in an earlier U.S. International Trade Commission proceeding, which involved the same licensee-petitioner and licensed patent, was evidence of an aligned interest.

Conclusion

At some point on the continuum, a non-party will be found to be a real party-in-interest because of its ability to exercise control in the IPR proceeding. While the factors remain quite broad and the inquiry fact-specific, evidence that tends to be persuasive includes an overlap of corporate officers or counsel, a non-party’s assistance in the preparation of an IPR petition, a corporation’s ability to control a non-party’s decisions in the IPR proceeding or otherwise, a non-party’s assistance in funding the IPR, and any act in which the parties hold themselves out as being a single entity. Thus, a real party-in-interest potentially includes a sister corporation, a parent corporation, a subsidiary corporation, holding corporation, or (conceivably) a licensor.

[1] 37 C.F.R. § 42.106(b).

[2] 35 § U.S.C. 315(b).

[3]Message from Chief Judge James Donald Smith, Board of Patent Appeals and Interferences: USPTO Discusses Key Aspects of New Administrative Patent Trials, http://www.uspto.gov/patent/laws-and-regulations/america-invents-act-aia/message-chief-judge-james-donald-smith-board#heading-2 (last visited Feb. 24, 2016); see also U.S.C. § 315(e)(1), U.S.C. § 325(e)(1).

[4] Message from Chief Judge James Donald Smith, Board of Patent Appeals and Interferences: USPTO Discusses Key Aspects of New Administrative Patent Trials, http://www.uspto.gov/patent/laws-and-regulations/america-invents-act-aia/message-chief-judge-james-donald-smith-board#heading-2 (last visited Feb. 24, 2016).

[5] Trial Practice Guide, 77 Fed. Reg. at 48,759.

[6] Trial Practice Guide, 77 Fed. Reg. at 48,759.

[7] Trial Practice Guide, 77 Fed. Reg. at 48,759 (citing Taylor v. Sturgell, 533 U.S. 880 (2008)).

[8] Trial Practice Guide, 77 Fed. Reg. at 48,759-60.

[9] Trial Practice Guide, 77 Fed. Reg. at 48,760; see also id. at 48,759 (citing Taylor v. Sturgell, 553 U.S. 880 at 893-95 & n.6 (2008)).

[10] Trial Practice Guide, 77 Fed. Reg. at 48,760.

[11] Chimei Innolux Corporation v. Semiconductor Energy Laborator Co., Ltd., Case IPR2013-00038 (PTAB Apr. 24, 2013) (Paper No. 7).

[12] Corning Optical Commc’n RF, LLC v. PPC Broadband, Inc., Case IPR2014-00440 (PTAB Aug. 18, 2015) (Paper 68).

[13] Atlanta Gas Light Co. v. Bennett Regulator Guards, Inc., Case IPR2013-00453, slip op. at 11 (PTAB Jan. 6, 2016) (Paper 88).

[14] Corning Optical Commc’n RF, LLC v. PPC Broadband, Inc., Case IPR2014-00440, slip op. at 22 (PTAB Aug. 18, 2015) (Paper 68).

[15] ZOLL Lifecor Corp. v. Philips Elec. N. Am. Corp., Case IPR2013-00616, slip op. at 11-12 (PTAB Mar. 10, 2014) (Paper 17)

[16] ZOLL Lifecor Corp. v. Philips Elec. N. Am. Corp., Case IPR2013-00616, slip op. at 11-12 (PTAB Mar. 10, 2014) (Paper 17) (Quoting 77 Fed. Reg. at 48,759).

[17] ZOLL Lifecor Corp. v. Philips Elec. N. Am. Corp., Case IPR2013-00616 slip op. at 11-12 (PTAB Mar. 10, 2014) (Paper 17).

[18] Corning Optical Commc’n RF, LLC v. PPC Broadband, Inc., Case IPR2014-00440, slip op. at 9-10 (PTAB Aug. 18, 2015) (Paper 68).

[19] Medtronic, Inc. v. Robert Bosch Healthcare Sys., Inc., Case IPR2014-00488 (PTAB Sept. 11, 2014) (Paper 17).

[20] Atlanta Gas Light Co. v. Bennett Regulator Guards, Inc., Case IPR2013-00453 (PTAB Jan. 6, 2016) (Paper 88).

[21] Accord Healthcare Inc., USA v. Daiichi Sankyo Co., Ltd., Case IPR2015-00864 (PTAB Sept. 15, 2015) (Paper 28).

[22] Samsung Electronics Co., LTD. v. Black Hills Media, LLC, Case IPR2014-00737 (PTAB Nov. 4, 2014) (Paper 7) (finding the licensor was not a real party-in-interest of a licensee-petitioner).

[23] Samsung Electronics Co., LTD. v. Black Hills Media, LLC, Case IPR2014-00737 (PTAB Nov. 4, 2014) (Paper 7).