Federal Circuit Holds That Post-Petition Privity and RPI Relationships Are Properly Considered for Purposes of IPR Statutory Time Bar

On June 13, 2019, the United States Court of Appeals for the Federal Circuit in Power Integrations, Inc. v. Semiconductor Components Industries, LLC d/b/a ON Semiconductor issued a decision clarifying whether privity and real party-in-interest (RPI) relationships arising after filing but before institution should be considered for purposes of the statutory time-bar under 35 U.S.C. § 315(b).¹Concluding in the affirmative, the Federal Circuit overturned Semiconductor Components Industries, LLC's (ON) victory at the Patent Trial and Appeal Board (PTAB) against Power Integrations, Inc. (Power Integrations).

As discussed below, this recent decision provides important guidance for petitioners and patent owners on issues relating to the § 315(b) time-bar for inter partes review (IPR) proceedings, as well as issue preclusion.

Background

On November 4, 2009, Power Integrations sued Fairchild Semiconductor Corporation and Fairchild (Taiwan) Corporation (collectively "Fairchild") for patent infringement of several patents, including US Patent No. 6,212,079 (the '079 patent). Fairchild was served with the complaint on November 6, 2009. In March 2014, a jury found that Fairchild infringed the '079 patent and awarded $105 million in damages. The district court thereafter granted a new trial on damages, which resulted in an award of approximately $140 million in December 2015. However, this award was subsequently vacated by the Federal Circuit and remanded for further proceedings.  

On November 18, 2015—a month prior to the second damages award—ON entered into an agreement to merge with Fairchild. In March 2016, while the merger was still pending, ON filed a petition for IPR seeking to invalidate several claims of the '079 patent. Several months later—and four days before the decision instituting IPR—the Fairchild-ON merger closed. Power Integrations argued in both its Patent Owner Preliminary Response and its Patent Owner Response that the IPR should be time-barred under § 315(b) because ON and Fairchild were in privity at the time of filing and Fairchild had been served with a complaint for infringement more than one year before the petition was filed. The PTAB rejected this argument.

Several months after filing the first IPR petition relating to the '079 patent, ON filed an additional IPR challenging a different patent—US Patent No. 8,115,457 (the '457 patent)—that was not subject to the district court's infringement finding or damages award. Power Integrations again argued that the IPR should be time-barred under § 315(b) and this argument was again rejected. Power Integrations did not file an appeal from the final decision.

Issue Preclusion Did Not Apply in View of the Later-Filed And Unappealed IPR Ruling

After the principal appellate briefs were filed, ON filed a motion requesting the Federal Circuit refrain from addressing Power Integrations' arguments relating to the statutory time bar. According to ON, issue preclusion should apply because Power Integrations had not appealed the PTAB decision relating to the '457 patent, specifically the ruling that the IPR petition for that patent was not time-barred under § 315(b).

The Federal Circuit rejected ON's request, holding that although the basic requirements of issue preclusion were met, Power Integrations established that the lack-of-incentive-to-litigate exception applied. As the Federal Circuit explained, there are exceptions to the general principal that a tribunal's resolution of an issue can preclude the party that lost on an issue from later contesting that same issue in another case, and that a lack of incentive to litigate is one of those exceptions. As the Supreme Court recognized, "[i]ssue preclusion may be inapt if 'the amount in controversy in the first action [was] so small in relation to the amount in controversy in the second that preclusion would be plainly unfair."

In light of this exception, the Federal Circuit declined to preclude Power Integrations from arguing that privity relationships arising after filing but before institution are relevant to the § 315(b) time-bar analysis because the non-appealed IPR concerned a patent unassociated with any infringement findings or damages awards, whereas the appealed IPR concerned a patent associated with a jury award of nearly $140 million for infringement.

Privity and RPI Relationships Arising After Filing but Before Institution Are Properly Considered for Purposes of the § 315(b) Time-Bar

Turning to the issue of whether the IPR proceeding on the '079 patent was time-barred, the Federal Circuit analyzed the statutory provision, which requires that an accused infringer file any petition seeking IPR within one year after having been served with a complaint alleging infringement of the patent. The Federal Circuit, applying traditional principles of statutory construction, held that the time-bar analysis properly includes consideration of privity and RPI relationships after filing but before institution. In particular, § 315(b) provides:

An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent. The time limitation set forth in the preceding sentence shall not apply to a request for joinder under subsection (c).

As the Federal Circuit emphasized, § 315(b) states that an IPR "may not be instituted" if the stated condition is true. The condition precedent to determine whether to institute in this statute is whether a time-barred party (a party that has been served with a complaint alleging infringement of the patent more than one year before the IPR was filed) is the petitioner, RPI, or privy of the petitioner. Thus, the Federal Circuit determined that its holding aligns with the most natural reading of the statute.

ON, however, argued that practical considerations and deference to the Patent Office warranted a more limited reading that would narrow considerations of privity and RPI relationships to only the time of filing of the petition.

In particular, ON argued that the Patent Office's code of regulations under 37 C.F.R. § 42.101 supported this more narrow interpretation. But, the regulation in question merely parrots the statutory language, to which the Federal Circuit stated it will not give deference. The Federal Circuit further declined to give deference to the prior panel decisions narrowly interpreting § 315(b) because those decisions were not precedential and therefore "do not even bind other panels of the Board."

With respect to practical considerations, ON argued that assessing privity and RPI relationships arising after filing but before institution adds unpredictability by creating a "moving target" in which the PTAB may reach different outcomes relative to events affecting the relationship between the petitioner and other entities. However, the Federal Circuit concluded that this will not create scenarios that are too unpredictable for the parties to evaluate and address a potential time-bar issue, stating "[w]hile the exact date that the Board institutes within the three-month window is beyond the petitioner's control, the terms and timeline of a possible merger are not."

Strategic Takeaways

This recent decision provides guidance for petitioners and patent owners at the PTAB. In particular, whether petitioning for IPR or preparing a preliminary response, it is critical to prospectively consider whether any RPI and/or privity relationships exist or may exist for the petitioner up to six months or more beyond the date of filing.

While rare, discovery at the PTAB should also be considered. The PTAB allows for limited discovery upon a showing that it is in the "interests of justice," which could be useful for patent owners seeking to establish that a privity and/or RPI relationship exists prior to institution.

In addition, the Federal Circuit's decision is an important reminder that even where the basic requirements of collateral estoppel are met, there are exceptions to the rule, such as the lack-of-incentive-to-litigate exception.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.