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Decision alters strategic calculus in patent cases.

Byline: BridgeTower Media Newswires

By Kris Olson

Though not entirely a surprise, a recent Federal Circuit decision has altered tactical considerations after parties agree to dismiss a patent lawsuit without prejudice, attorneys say.

At issue in Click-to-Call Technologies, LP v. Ingenio, Inc., et al., was the one-year time period a "petitioner, real party in interest, or privy of the petitioner" has to institute the inter partes review process under 35 U.S. Code 315(b).

Although seemingly clear on the face of the statute that the clock begins ticking when the petitioner is served with a complaint alleging infringement of the patent, in practice the Patent Trial and Appeal Board had carved out an unwritten exception to the rule for cases dismissed without prejudice. That exception had allowed the parties to hit the reset button and return to the position they had been in before the complaint was served.

That could be useful, if the parties wanted to engage in business discussions without the threat of ongoing litigation or merely wanted to "kick the can down the road" if past sales of the accused product were minimal, Boston patent attorney Nathan R. Speed explained.

A common scenario was that the defendant would pay a small amount to convince the patent holder to withdraw the complaint while stopping short of signing a licensing agreement or reaching some other formal resolution, Speed said.

"It was a cheap and easy way to make the case go away," he said.

The practice persisted not only due to its utility but because it had been assumed that the decision of the director of the U.S. Patent and Trademark Office regarding whether it was too late to institute inter partes review was unreviewable, per 35 U.S. Code 314(d).

But on Jan. 8, the Federal Circuit issued an en banc decision in Wi-Fi One, LLC v. Broadcom Corp., which held that time-bar determinations under 315(b) are appealable. That opened the door for plaintiff Click-to-Call Technologies to renew its challenge that the defendants one of whom had been served a complaint in 2001 had waited too long to try to invoke inter partes review.

The decision

In ruling in Click-to-Call's favor, the Federal Circuit said that had there been some ambiguity in the statute, it might have been required to give deference to the director's interpretation that a dismissal without prejudice resets the clock on instituting inter partes review, or IPR. But here, there was no ambiguity.

"The statute does not contain any exceptions or exemptions for complaints served in civil actions that are subsequently dismissed, with or without prejudice," Judge Kathleen M. O'Malley wrote on the court's behalf.

Had Congress wished to create such an exception or exemption, it knew how to do so, the court noted, pointing to 315(a)(2), where Congress specifically addressed the effect of a dismissal of an IPR petitioner's District Court action. Similar language was not included in 315(b).

Congress could have included in 315(b) a variation of the phrase "unless the action in which the complaint was served was later dismissed without prejudice," the Federal Circuit said.

"We reject the [Patent and Trademark Appellate] Board's effort to graft this additional language into 315(b)," O'Malley wrote.

The court found additional support for its position in the legislative history of 315(b).

Though the appeal was argued in front of a three-judge panel, the court weighed in en banc on the key question. Nine judges joined in the majority, while two dissented.

In that dissent, Judge Timothy B. Dyk raised the specter of a patent owner gaming the system, serving many possible infringers with complaints and then quickly dismissing those cases, accomplishing the goal of starting the clock on the one-year period to initiate IPR.

But in a concurring opinion, Judge Richard G. Taranto noted that not only is such a strategy "purely hypothetical," it relies on a dubious premise: that the defendants, although already sued once on the patent, would decide that they are unlikely to be sued on it again.

"Without such (doubtful) reliance, it is plausible that one or more of the defendants would initiate IPR challenges to the patent at issue within the one-year period, defeating the posited scheme of the patentee," Taranto wrote. "The assumptions of legal ignorance, naivet, or uniform fingers-crossed risk assessment seem strained."

There would be other risks to the plaintiff, Taranto continued.

"By suing many defendants in the first place, the patentee would be expanding the pool of persons objectively threatened by the patent, which would seem to increase the likelihood of an early IPR challenge and to lower the cost of an IPR for any individual defendant if the defendants file jointly," he wrote.

The patentee might even face sanctions for deploying the strategy, Taranto noted.

The implications

In cases in which the parties agreed to dismissals without prejudice and service occurred less than a year ago, Speed said he expects there will be a "scramble" to get IPRs on file.

As for cases in which more than a year has already passed from the date of service, those patents are now more valuable, given that the accused infringer cannot file for IPR.

"We are likely to see a number of old disputes come back to life," Speed said.

Given the new lay of the land, defendants in cases that have been dismissed without prejudice are now in an awkward position, needing to decide whether to file an IPR against a company that is not actively suing them, Speed said. Not only is there a cost associated with filing the IPR, but such a petitioner is increasing the likelihood it will be sued anew.

The decision, Speed said, is "whether, by filing for IPR, you poke the bear, or whether it is better to wait and see if the bear comes back. It all depends on the risk appetite of the client and what it knows about the plaintiff."

In addition to being quicker to file for IPR, another strategy defendants can consider is answering a complaint, even prior to it being served, Boston attorney Susan G.L. Glovsky said.

The Click-to-Call decision also removes some flexibility the parties had at the initial stages of litigation, attorneys say. Whereas once a defendant might have agreed to a dismissal without prejudice, they now may need to be more insistent on dismissals with prejudice, licenses or covenants not to sue.

That loss of flexibility will increase costs and cause cases that might otherwise have been resolved to linger, Speed said.

At a minimum, risk-averse attorneys and similarly minded clients are more likely to file for IPR in situations in which they may not have done so previously, Speed added.

But other attorneys stressed that, if a defendant is time-barred from pursuing IPR, it is not the end of the world.

"There are lots of ways to attack a patent," Glovsky said.

That includes filing a declaratory judgment action challenging the validity of a patent or requesting ex parte re-examination from the U.S. Patent and Trademark Office.

Boston attorney Michael H. Bunis said he listened to the oral arguments in Click-to-Call and that the plaintiff's lawyer made precisely the point that no "parade of horribles" would ensue if a defendant could not invoke IPR and instead had to litigate the validity of a patent in U.S. District Court.

For Boston attorney Robert M. Asher, the main lesson from Click-to-Call is: "Be careful who you partner up with."

Asher was referring to the fact that the Federal Circuit found that if one of the petitioners was time-barred from seeking IPR, the whole petition would be dismissed, affecting even parties not served with the original complaint.

Asher agreed with Judge Taranto that the concerns of the dissenters were overstated.

"We have laws against abuse of the legal process," he said. "A plaintiff would be risking liability for bringing sham litigation and abusing the judicial system."

If any type of party were to consider the strategy of suing a bunch of defendants to cause their IPR rights to expire, it might be "non-practicing entities," or patent trolls, Bunis said.

But such parties do not typically rush to assume the cost of running into court, he said. Rather, they tend to write letters attempting to extract a license payment.

Speed said that now that the Federal Circuit has walked through the door opened by WiFi One, it might next tackle some related aspects of IPR practice, such as joinder. Heretofore, the PTAB has not allowed a petitioner whose independent request for IPR is time-barred to join an existing petition that was timely filed. Now, that stance may be seen as inconsistent with Click-to-Call, he suggested.

Will Congress respond?

Though he believes large companies might have preferred the old regime, Speed said he was unsure if either patent holders or potential defendants feel strongly enough to lobby Congress to undo the Federal Circuit's Click-to-Call ruling.

"Getting Congress to act is such a difficult thing," Asher agreed. "I don't think this rises to that level."

However, Asher said, "We need experience with the [Federal Circuit's] new interpretation to know whether it causes mischievous results."

If 315(b) were revisited at all, it probably would need to be as part of a larger, more general revamping of the America Invents Act, Speed said.

Bunis noted that it had been "hard to bring the bedfellows together" when drafting what became the AIA. The "life sciences side of the world" did not want to see millions of dollars in research and development go up in smoke in an IPR proceeding, while the "tech side" wanted a relatively inexpensive way to shake patent trolls loose.

Thus, it makes sense that the Federal Circuit would endorse a strict construction of rules related to what was conceived as a narrow, confined process, he said.

"IPR was not supposed to be the end all, be all" of challenging a patent, Bunis said.

Meanwhile, Glovsky said she found it interesting that it did not appear the Federal Circuit had considered or the defendants had raised the issue of the complaint having been served more than a decade before the IPR process had even been created.

If Congress did tweak 315(b), it might clarify that the one-year time-bar applies only to complaints filed after the AIA was enacted, she suggested.

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Title Annotation:Click-to-Call Technologies, LP v. Ingenio, Inc., U.S. Federal Circuit
Author:Olson, Kris
Publication:Michigan Lawyers Weekly
Date:Sep 7, 2018
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