Last week, the Federal Circuit for the first time addressed the legal standard for demonstrating standing in an appeal from a final agency decision, such as an inter partes review (IPR) decision.  Phigenix, Inc.  v.  ImmunoGen, Inc., 2017 WL 74762 (Fed. Cir. Jan. 9, 2017).  The court dismissed an appeal from an adverse IPR decision on the grounds that appellant Phigenix lacked standing because it failed to meet its burden to show injury in fact.  The holding makes clear that non-practicing entities (NPEs)—and even companies like Phigenix falling somewhere in-between a fully operating company and an NPE—will be challenged to establish standing for appellate review.

Like many NPEs, Phigenix collected revenue from patent licensing—a model that early-stage biotech companies often follow, since it can take years before a biotherapeutic or diagnostic is approved and ready for commercialization.  Unlike a traditional NPE, which usually obtains and asserts patents invented by others, Phigenix invented its intellectual property and maintained a wet lab where it conducted research.

The dispute here arose because Phigenix and ImmunoGen, another early-stage biotech company without a marketed product, separately offered Genentech licenses to patents they alleged covered Genentech’s KADCYLA^®.  Genentech engaged with ImmunoGen for exclusive access to its ‘856 patent, but declined to license Phigenix’s ‘534 patent.  Perceiving competition between itself and ImmunoGen, Phigenix sought to invalidate ImmunoGen’s ‘856 patent to clear a path for its own intellectual property, reasoning that at least a portion of ImmunoGen’s “licensing revenue would inure to Phygenix if the ‘856 patent were invalidated.” Appellants’ Reply Br.  at 9-10; 2017 WL 74762 at 1.  Phigenix challenged all claims as obvious over cited art and the Patent Trial and Appeal Board (PTAB) confirmed validity, whereafter Phigenix appealed.

ImmunoGen challenged Phigenix’s standing, arguing that Phigenix could not establish a genuine stake in the outcome of the case and failed to establish an injury in fact.  Often an appellant’s standing is “self-evident,” such as when it is “an object of the action (or forgone action) at issue.” 2017 WL 74762 at 3.  Phigenix’s standing was not “self-evident” because it did “not contend that it faces risk of infringing the ‘856 patent, that it is an actual or prospective licensee of the patent, or that it otherwise plans to take any action that would implicate the patent.” Id.  at 4.

Burden to Show Standing

The Federal Circuit concluded that if a party faces a standing challenge while seeking appellate review of an agency decision, it has the same burden of production as that of a plaintiff moving for summary judgement in district court.  Affidavits or declarations that comply with evidentiary requirements for admissibility must be presented as soon as a standing challenge surfaces. 2017 WL 74762 at 3.

Phigenix put forth two main submissions to prove standing.  First, it produced a declaration by a financial valuation expert stating that between 2013-2014 Genentech paid royalties of $10 million to ImmunoGen relating to KADCYLA^® sales.  Phigenix used this to argue economic injury, claiming that the ‘856 patent caused licensing fees for the use of KADCYLA^® to divert away from Phigenix to ImmunoGen.  Second, Phigenix submitted a letter from its attorney to ImmunoGen stating it “believes it has a strong patent portfolio” and that the ‘856 patent is invalid.  Phigenix said this underscored an actual, concrete controversy between the parties.

The Federal Circuit concluded that both of Phigenix’s submissions were insufficient to demonstrate injury in fact because they were conclusory and lacked sufficient “supporting facts.” 2017 WL 74762 at 4.  Although the court held it was possible for Phigenix to have been injured if it had “licensed the ‘534 patent to the same parties to which ImmunoGen licensed the ‘856 patent,” there was no allegation Phigenix had ever licensed its ‘534 patent to anyone, and therefore it failed to prove that invalidation of the ‘856 patent would increase Phigenix’s revenues.  Any alleged harm was merely a “hypothetical licensing injury.” 2017 WL 74762 at 5.

Phigenix also contended that it suffered an injury in fact because of the estoppel effect of IPR decisions under 35 U.S.C.  § 315(e).  The court disagreed because estoppel prevents a petitioner from requesting or maintaining certain patent proceedings on grounds that were raised or could reasonably have been raised in an IPR, but there was no injury in fact here because Phigenix was “not engaged in any activity that would give rise to an infringement suit.” Id.  at 6.

NPEs Must Prove Constitutional Standing on Appeal

The Phigenix opinion is important because NPEs are active both offensively and defensively before the PTAB.  In 2016, 41.5 percent of all PTAB petitions were filed against NPE-owned patents (701 out of 1723 total filings).  Unified Patents 2016 PTAB Report (UP 2016), Fig.  4.  The Coalition for Affordable Drugs was one of the most active petitioners in the PTAB in 2016, maintaining 37 IPR petitions against pharmaceutical companies.  While NPEs can engage in IPRs, it is now clear that they are very unlikely to have standing to appeal unfavorable outcomes.  Thus, Phigenix raises the stakes for NPEs to win at the PTAB and may ultimately deter some NPEs from challenging less important patents because they only get one chance to prove their case.