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IP Alert: Federal Circuit Clarifies Privity in the Context of Section 315(b) Time-Bar

May 11, 2018

On May 7, in WesternGeco LLC v. ION Geophysical Corp., the Federal Circuit affirmed the holding of the Patent Trial and Appeal Board (PTAB) that Petroleum Geo-Services (PGS) was not time-barred from filing an inter partes review (IPR) because PGS was not a privy to parties from prior litigation. This decision comes on the heels of Wi-Fi One, LLC v. Broadcom Corp., in which the Federal Circuit ruled en banc that section 315(b) time-bar determinations made by the PTAB in IPR proceedings are reviewable. In WesternGeco, the court further clarified the factors and considerations for determining privity in the context of section 315(b).

The patents challenged in the IPRs at issue were earlier litigated between WesternGeco, the patent owner, and ION. ION and PGS had a customer-manufacturer relationship regarding the accused product, and ION had agreed to indemnify PGS for infringement damages in the parties’ purchase agreements. Also, PGS was served with a third-party subpoena in the litigation, and PGS appeared through counsel and served discovery responses.

After a favorable infringement verdict against ION, WesternGeco initiated a separate lawsuit against PGS. PGS then filed two rounds of IPR petitions. ION moved to join the IPR proceedings but was accorded “spectator” status after oppositions from both WesternGeco and PGS.

Section 315 (b) of the Patent Act precludes inter partes review if the petition is filed more than one 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. WesternGeco argued that PGS’s petitions were time-barred under section 315(b) because ION had been served with an infringement complaint well over a year before the IPRs were filed. Although PGS and ION admittedly were separate entities, WesternGeco asserted that ION was either a “real party in interest” or the “privy” of PGS. WesternGeco focused on privity as “the key basis of its time-bar challenge, reasoning that privity is more expansive in the types of parties it encompasses compared to real party in interest.” In arguing that PGS is a privy to ION, WesternGeco relied on the preexisting business alliance between ION and PGS and the indemnity provisions contained in the purchase agreements for the product accused of infringing WesternGeco’s patents. The PTAB rejected WesternGeco’s contention, and WesternGeco appealed.

On appeal, the Federal Circuit reasoned that “[p]rivity is essentially a shorthand statement that collateral estoppel may be applied in a given case.” The court stated that the privity analysis is highly fact-dependent and should be a flexible analysis decided on a case-by-case basis, but cautioned that the reach of privity cannot extend beyond the limit of due process. Because the rationale behind section 315(b)’s preclusion provision is to prevent successive challenges to a patent by those who previously have had the opportunity to make such challenges in prior litigation, the privity inquiry should focus on the relationship between the named IPR petitioner and the party in the prior lawsuit. Citing an earlier Supreme Court case, Taylor v. Sturgell, the court gave the following nonexhaustive list of considerations where nonparty preclusion would be justified: “(1) an agreement to be bound; (2) preexisting substantive legal relationships between the person to be bound and a party to the judgment (e.g., ‘preceding and succeeding owners of property’); (3) adequate representation by someone with the same interests who was a party (e.g., ‘class actions’ and ‘suits brought by trustees, guardians, and other fiduciaries’); (4) assumption of control over the litigation in which the judgment was rendered; (5) where the nonparty to an earlier litigation acts as a proxy for the named party to relitigate the same issues; or (6) a special statutory scheme expressly foreclosing successive litigation by nonlitigants.”

With specific regard to the “control” factor, the court found that PGS filed its IPRs as a defensive measure in response to WesternGeco’s lawsuit against PGS, rather than at ION’s instruction. Also relevant were PGS’s active opposition to ION’s attempt to join the IPR proceedings, the fact that ION did not disclose any prior art references to PGS in connection with the IPR proceedings, the fact that ION did not pay for the IPR proceedings, and the fact that the parties were represented by separate counsel.

As to other factors in the privity analysis, the court held that the business relationship and the indemnification provision between PGS and ION, without more, were insufficient to establish that ION controlled the lawsuit. The nonspecific nature of the indemnification provision did not obligate ION to defend PGS from a patent infringement lawsuit, reimburse or pay for a lawsuit, cover any damages liability for any adverse patent infringement verdict against PGS, or initiate an invalidity challenge. Instead, the court observed that in the prior litigation PGS did no more than respond to the third-party subpoena. The relationship between PGS and ION did not give PGS a “full and fair opportunity” to litigate the validity of claims in that litigation. The court opined that as a general proposition, “a common desire among multiple parties to see a patent invalidated, without more, does not establish privity.”

As such, the court concluded that PGS and ION were not privies, such that PGS was not time-barred by the prior litigation.

This case is relevant to patent owners and third parties who are evaluating potential time-bar arguments in an IPR, specifically in the context of whether third-party involvement in a patent lawsuit could create time bars for IPR filings under section 315(b).

For more information on this ruling, please contact Fitch Even partner Karen J. Wang, author of this alert.


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