Standing to appeal an IPR is deprived by an agreement of non-infringement

Who is entitled to appeal an IPR decision? That is a recurring question in IPR jurisprudence. This still relatively-new process created by the American Invents Act has been found by the U.S. Patent and Trademark Office to allow “[a] person who is not the owner of a patent” to file a petition to institute inter partes review of the patent. 37 C.F.R. 42.101. That seems to include just about everyone.

Just because one can file an IPR and even participate in the process does not necessarily mean you have standing to appeal the eventual Final Written Decision. In Phigenix, Inc. v. ImmunoGen, Inc., 845 F.3d 1168 (Fed. Cir. 2017), the Federal Circuit found that Phigenix desire to license its own patent – which it alleged was frustrated by ImmunoGen’s patent – was inadequate to confer Article III standing to maintain its appeal. Phigenix suggests that an injury in fact, on par with that necessary to maintain a declaratory judgment action in District Court, is required to confer Article III standing following an appeal. Subsequent cases E.I. DuPont de Nemours & Co v. Synvina C.V., 904 F.3d 996, 1005 (Fed. Cir. 2018)and Altaire Pharmaceuticals, Inc. v. Paragon Bioteck, Inc., 889 F.3d 1274 (Fed. Cir. 2018) found Article III standing when there was a significant risk of an infringement threat (Dupont) or plans to begin conduct that was likely to infringe (Altair).

ABS Global Inc. v. Cytonome/ST, LLC, 19-2051 (Fed. Cir. Jan. 6, 2021) (available here) comes in that same general vein of cases, but offers a new, and unfortunately very specific set of factual twists. Here, ABS Global filed an appeal of an IPR decision finding several Cytonome/ST ‘161 patent claims invalid. There was a lawsuit filed by Cytonome/ST prior to the IPR being filed and ABS responded with the IPR. The IPR proceeded to final decision finding some claims of the ‘161 patent invalid, and some claims valid. The district court case then proceeded and a summary judgment of non-infringement of the ‘161 patent was granted.

Cytonome/ST did not appeal the decision of non-infringement by the district court, making it final that ABS did not infringe. in the IPR appeal, Cytonome/ST argued that ABS’ appeal was moot because it did not infringe the ‘161 patent and Cytonome/ST had failed to appeal that decision. Cytonome/ST further argued that ABS therefore lacked the requisite “injury in fact” (citing Phigenix) to maintain its appeal at the CAFC.

In short, the CAFC agreed. Cytonome/ST’s decision to acquiesce to the finding of non-infringement of the ‘161 patent resulted in “voluntary cessation” of any potential claim. If a party cannot “‘reasonably be expected’ to resume its enforcement efforts,” then it has voluntarily ceased the actions that could cause the dispute to be “live” and Article III standing is dissolved. Id. at 5.

So, in this somewhat unusual set of circumstances where a party has multiple patents pending, loses an IPR on one of them, and continues with the other patents. It is possible to acquiesce to that loss, while maintaining the case with regard to other patents, and to thereby deprive the potential infringer of standing in a co-pending IPR. Potentially, a similar set of facts for a surviving patent, that no longer was of significant value against one infringer who was challenging it in an IPR could be deprived of standing so that the patent could survive an appeal through lack of standing, and be asserted against another more-valuable target at a later time.

What makes for an adequate pre-suit infringement investigation?

As most patent practitioners know, a pre-suit investigation is required before filing any lawsuit, and certainly a patent lawsuit. Fed. R. Civ. Pro. 11 opens up any attorney to sanctions for failure to adequately investigate its claims before bringing them. Many patent attorneys believe that a claim chart, some review of the file history, and a reasonable belief that a potential defendant infringes a patent are all that are required to demonstrate an adequate pre-suit investigation to file a patent lawsuit. The CAFC and the Eastern District of Texas appear to disagree.

In WPEM, LLC v. Soti, Inc., 2020 U.S. Dist. LEXIS 17449 (E.D. Tex. Feb. 4, 2020) (available here) and WPEM, LLC v. Soti, 2020 U.S. App. LEXIS 38440 (Fed Cir. Dec. 9, 2020) (available here) the district court found that plaintiff and plaintiff’s counsel had failed to conduct an adequate investigation. The plaintiff and patent owner found “version 11” of the defendant’s software on its website in the form of a manual. Plaintiff then worked with counsel to develop a claim chart and to ensure that title was accurately reflected.

After the suit was filed, defendant answered. A month later, WPEM offered to settle for $429k. Defendant’s counsel responded that its product was available before the priority date of the patent having the accused functionality. Therefore, the patent was invalid. Plaintiff offered to settle for $150k. In response, defendant send a Rule 11 letter describing the ways in which its own product pre-dated the asserted patent, that it invalidated the patent, and several other bases for invalidity or unenforceability of the patent. In response, WPEM then offered to settle for $75k, and then to dismiss with prejudice without any payment. WPEM them unilaterally dismissed without prejudice. The entire lawsuit lasted approximately four months.

The court found that there was no pre-suit investigation at all. The court found it unlikely that the plaintiff could not have easily realized that “version 11” of the accused product might have had earlier versions. And, the court did not agree that the presumption of validity superseded plaintiff’s obligation to confirm that its claims were not already present in the product against which it was asserting infringement. It was unhelpful to WPEM that it did not quickly dismiss its case once it realized it’s position was untenable. Instead, it sought to reach monetary settlement while slowly decreasing its “ask.”

It is difficult to quantify or singularly clarify the obligations of a patent plaintiff’s pre-suit investigation. This case is but one example of the types of investigation that are necessary. But, in other cases, validity may not reasonably be questioned at the outset. In other cases, obvious non-infringement positions must be explored and carefully considered. If nothing else, the mere preparation of a claim chart,  confirmation that the patent is actual in force, and owned by a plaintiff are unlikely to be sufficient investigation to satisfy Rule 11. Do whatever a “reasonable” person would do when presented with a set of infringement allegations. If questions arise, investigate them, address them, and resolve them. And, if you are presented with obvious indication that the defendant cannot infringe or that your patent is invalid, act quickly to dismiss the complaint. Otherwise, you may be liable for the attorney’s fees of your opponent based upon your negligence.

We will discuss these cases at our weekly SoCal IP Institute with any who wish to join us on a video conference on January 11, 2021 at 1:00 pm. Simply email elisham @ socalip.com (remove the spaces which were added to to avoid spammers) to RSVP. This activity is approved for 1 hour of California MCLE credit.