Can Unified Patents survive the Federal Circuit’s RPI decision?
Update: See our more recent post on the PTAB’s first post-AIT decision involving Unified Patents here.
The Federal Circuit recently issued a strong decision instructing the PTAB to rethink the way that it decides who is an RPI (real-party-in-interest). While the decision involved RPX, it presents a more existential threat to Unified Patents, which has risen as one of the most prolific non-party filers of IPRs. Can Unified survive the CAFC’s RPX decision?
Standing to file an IPR is very broad. The statute provides that, essentially, anyone who is not the owner of a patent can file a petition for inter partes review. (See 35 U.S.C. § 311(a)). That is the principle reason that companies such as Unified Patents and RPX have launched services that file IPRs. And it is also the reason that no corollary types of services exist in district court, where standing to challenge a patent’s validity requires that you are first sued for infringement, or at least threatened with suit.
Yet, even though standing for IPRs is broad, there exists a time-bar. That time bar provides that if a company is sued for patent infringement, then it has essentially one year to file an IPR. After a year, the company no longer has standing to challenge the patent’s validity in an IPR. (See 35 U.S.C. 315(b)). The time-bar, however, applies not only to companies actually named as defendants in a lawsuit alleging patent infringement, but also to any real-party-in-interest (RPI) or privy of the petitioner. (See 35 U.S.C. 315(b)).
This fact—that the time-bar applies to RPIs as well as privies—is technically a wrinkle in Unified Patent’s business model. On the one hand, the broad standing requirement is what allows Unified Patents to exist in the first place. On the other hand, if Unified Patent’s members or clients are deemed to be RPIs, then that could deprive Unified the right to pursue an IPR if one or more of its members are already time-barred.
This issue arose relatively early in the infancy of IPRs. Subsequently, however, the PTAB issued multiple decisions that essentially blessed Unified’s business model, as long as there was no explicit contract or instruction from any members to file a particular IPR. Rather, the PTAB held that the key consideration is whether any of Unified’s members exercised any control over the actual IPR itself—through either directly funding the IPR or directing the arguments. The PTAB repeatedly held that merely being a member of Unified Patents is itself insufficient to make any of those members an RPI to IPRs filed by Unified. If the members otherwise exercise no discretion or control over which IPRs are filed or how they are managed, then the PTAB blessed Unified to continue to file IPRs without naming any of its members as RPIs. See e.g., Unified Patents v. American Vehicular Sciences, LLC, IPR2016-00364 (PTAB Jun. 27, 2016) (Paper 13); Unified Patents, Inc. v. Uniloc Luxembourg S.A., IPR2017-02148 (PTAB Apr. 17, 2018); Unified Patents Inc. v. Dragon Intellectual Property, LLC, IPR2014-01252 (PTAB Feb. 12, 2014)(Paper 37).
All seemed well for Unified’s business model. The only problem was that the PTAB’s view on RPI’s and third-party filers, such as Unified, was never blessed by the Federal Circuit. That review was hampered because, only until recently, time-bar determinations were not reviewable. That changed this year. The Federal Circuit issued an en banc decision holding that time-bar determinations can be appealed. See Wi-Fi One, LLC v. Broadcom Corporation, 878 F.3d 1364, 1374 (Fed. Cir. 2018) (Wi-Fi En Banc).
In the Court’s recent decision, Applications In Internet Time, LLC v. RPX Corp. (hereinafter, the AIT decision), the Federal Circuit finally had occasion to do just that—review an appeal of a time-bar determination that was based directly on the PTAB’s prior holdings on whether Unified’s members constitute RPIs. And the news was not good. The Court held that the PTAB has taken an “unduly restrictive view of” RPIs.
The Court’s opinion is lengthy, and it includes long forays into the history of agency, privity and real-party-in-interest principles throughout the law. But the takeaway is clear. The Court faulted the PTAB for focusing exclusively on the proceeding itself. In other words, the PTAB’s position has been, as long as Unified’s or RPX’s members do not control or finance the specific IPR proceeding itself, either through contract or otherwise, then they will not be deemed RPIs. The Federal Circuit has now rejected that approach. Rather, the question is not limited to the relationship between RPX’s members and the IPR proceeding itself, but instead, the PTAB must also probe the nature of the relationship between RPX (or Unified) and its members.
On this point, the Court held that there was considerable evidence that the PTAB simply ignored. That evidence included the nature of RPX’s business itself. The Court described RPX as a for-profit company whose clients pay for “patent risk solutions” to help extricate themselves from patent lawsuits. Even if RPX takes no specific direction from any of its members regarding IPRs that are filed, the Court still found evidence suggesting that RPX may file IPRs to benefit specific clients. Indeed, the Court suggested the evidence might indicate that RPX works to ascertain what a client wants, without obtaining express consent, before making the decision to file an IPR. The Court remanded to case back to the PTAB to revisit its RPI determination.
If the AIT decision is any guide, the result is that RPI issues are going to be much more difficult for RPX, Unified and any other non-party filers going forward. Unified can no longer, presumably, rest easy that as long as no member has expressly controlled or financed the specific IPR at issue, then it need not name any member as an RPI.
Rather, the patent owner will presumably be permitted to probe—through discovery—all facts and circumstances leading up to Unified’s decision to file a given IPR. Even if there is no express direction from a member, the nature of discussions leading up to the IPR may suggest that Unified filed an IPR to benefit specific clients. That, in itself, will likely spawn considerable satellite discovery over Unified’s interactions with specific members leading up to filing a given IPR. The result is that even if Unified can eventually circumvent some of these challenges, its costs go up while its statistical successes likely go down.
More potentially damning, the Federal Circuit indicated that the very nature of RPX’s and Unified’s business may necessarily implicate its members as RPIs. That business is to file IPRs on behalf paying members. In short, the Federal Circuit left open the possibility that if you run a business to file IPRs for paying members, then any members potentially benefitting from those IPRs could be deemed RPIs.
That might seem rather draconian, but then again, what is the alternative? The alternative, as expressed by other commentators, is that a patent owner could face dual attacks from companies like Unified as well as separately from their members. In the AIT decision, the Federal Circuit held that the principle for extending the statutory time-bar to RPIs is because a “patent owner dragged into an IPR by a petitioner, who necessarily has an interest in canceling the patent owner’s claims, should not be forced to defend against later judicial or administrative attacks on the same or related grounds by a party that is so closely related to the original petitioner as to qualify as a real party in interest.” Otherwise, RPX’s and Unified’s members are essentially buying the right to have two bites at the apple. While the PTAB previously held that this was kosher, the Federal Circuit has now apparently indicated that it is not.
But doesn’t the AIT decision only matter if one of Unified’s members is already time-barred? Not necessarily. It is true that, in the AIT decision, it mattered that RPX’s member, Salesforce.com, was an unnamed RPI was because Salesforce.com was already time-barred. But even if Unified is forced to name members as RPI’s who are not otherwise time-barred, that may still hamper its business. That is because of estoppel. When an IPR petition is filed, the estoppel applies not only to the Petitioner, but also to any RPI and privy. That would mean that membership with Unified could negatively impact how a member defends itself in litigation, without having any control over Unified’s IPR itself. Many of Unified’s members may soon conclude that, if they are going to be estopped by IPRs filed by Unified, and they can no longer rely upon Unified to circumvent the time-bar, then it may make more sense to just file their own IPRs.
Unified has already apparently attempted to circumvent the AIT decision. For instance, it has changed its website to state, “Unified’s activities are not based upon the interests of any particular member or members.” That is a bit difficult to swallow. Indeed, if this is true, Unified’s members may themselves suddenly question what exactly they are paying for, if Unified is purportedly not acting in any of their interests. Unified may be saying it is unilaterally pursuing the goal of eradicating allegedly bad patents, and its members are essentially making donations to that cause. Frankly, that narrative may pass muster one day. Yet, for now, it will be difficult given that Unified is a for-profit company. Moreover, it will not likely be difficult to show that the IPRs Unified has filed most likely correlate to patents enforced against its members.
In full disclosure, our sister law firm to Markman Advisors represented a company whose patent was challenged by Unified Patents. Our interactions with the company led us to conclude that its management is sharp and business savvy. They saw a business demand through the broad standing requirements for IPRs, and they built a business that adequately filled that demand. Now, however, the company will likely face a setback because of a change in the law—or rather, a clarification in the law. That is unfortunately a business-risk for any business that relies in part on the courts and litigation. That includes the traditional law firm business model as well, as many law firms have painfully learned. But just like law firms, Unified Patents may find a way to tweak its model to overcome this setback. (The irony for Unified is that, over the past year, the existential threat it was likely more mindful of was Oil States rather than some random IPR filed by RPX.)
So what can Unified do? Unified could collect anonymous membership fees. Or alternatively, it could set up a Chinese wall so that the management team responsible for filing and prosecuting IPRs is not knowledgeable about who the company’s members actually are (and has no interaction with them.) From there, if Unified Patents establishes a track-record of attacking the patents asserted by the more prominent patent-plaintiffs, then Unified may soon prove what a lot of people are already thinking—patents are only presumed to be valid only after they survive an IPR—even though the Patent Statute expressly states the opposite. Essentially, Unified’s members will be making donations to the cause that, theoretically, companies named as defendants in lots of patent litigations already support. As of now, there is something of a free-rider problem, where defendants rely upon IPRs filed by others. Unified could theoretically tweak its model to monetize its correction of that.
Unified, or other non-party IPR filers, could also potentially devise business models unique to certain industries. Although it is always changing, patent holders in today’s climate generally includes NPEs, but also brand pharma, medical device companies as well as certain big-tech licensors, such as Qualcomm. Some of those big-tech licensors are exhibiting tendencies to sue competitors, including IBM and Nike. Unified has traditionally focused its business around NPE patents. Yet, each sector likely includes unique business models to fill a similar demand. At Markman Advisors, we have previously consulted on what some of these business models may look like, which we may blog about in the future.
The AIT decision is clearly a turning point in the ups-and-downs of the infancy of IPRs over the past few years. The AIT decision is not final, but rather remanded back to the PTAB, which will likely provide further guidance on the new contours of RPI issues. Non-party filers, such as Unified Patents and RPX, have undoubtedly changed the landscape of patent litigation. How they weather to the latest wrinkle remains to be seen.