In this case, the question ultimately answered by the Federal Circuit was a straightforward question of statutory interpretation: in determining whether a party is time-barred from filing a petition for inter partes review because a privy of that party or the real party in interest was served with a complaint alleging infringement of the challenged patent, at what point in time should privity or party interests be determined? But the route to that answer -- and maybe even the answer itself -- was strongly influenced by the unusual facts of the case. As a result, to prevent possible gamesmanship, the Federal Circuit decided that the litigation-related time bar remains a possibility at least until the U.S. Patent and Trademark Office decides whether to institute inter partes review.
Power Integrations owns U.S. Patent Nos. 6,212,079 and 8,115,457, among others. Fairchild Semiconductor filed two ex parte reexamination proceedings challenging claims of the '079 patent in 2005 and 2006; the U.S. Patent and Trademark Office confirmed the patentability of the claims in September 2009. Two months later, in November 2009, Power Integrations sued Fairchild for infringement of the '079 patent and the '457 patent (and one other patent not at issue here). In March 2014, a jury found that Fairchild infringed claims of the '079 patent (but no claims of the '457 patent), and that the infringed claims were not invalid. The jury awarded $105 million in damages. Fairchild moved post-trial for a new trial on damages, the District Court granted the motion, and the jury on re-trial awarded damages of $139.8 million.[1] Fairchild appealed on both liability and damages; the Federal Circuit affirmed the finding of infringement but vacated the damages award because the entire market value rule should not have been applied and remanded the case for further proceedings.
Just prior to the damages re-trial, in November 2015, Semiconductor Components (which did business as ON Semiconductor) agreed to merge with Fairchild. The Fairchild-ON merger did not close quickly. Instead, in March 2016, ON filed a petition for inter partes review of claims of the '079 patent (including all of the claims that had been found infringed by Fairchild). Five months later, ON filed an IPR petition related to the '457 patent. The Fairchild-ON merger then closed just four days before the IPR related to the '079 patent was instituted on September 23, 2016.
In its Preliminary Responses and Patent Owner's Responses in the IPRs directed to the '079 and '457 patents, Power Integrations argued that ON's petitions were time-barred by 35 U.S.C. § 315(b). Section 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).
35 U.S.C. § 315(b) (emphasis added). Power Integrations argued that Fairchild and ON were in privity when the petitions were filed because of the announced merger, and that Fairchild had been served in an earlier lawsuit more than one year before the filing of the petitions (indeed, it was served more than one year prior to the enactment of the America Invents Act, which created IPRs). The only issue was whether privity existed; the Patent Trial and Appeal Board found upon institution that Fairchild's lack of control and involvement in the filing of the petition outweighed the announced (and by then, closed) merger. Power Integrations also argued that ON was acting as Fairchild's proxy, but the PTAB found ON had its own interest arising out of the pending multi-billion-dollar merger with Fairchild. Finally, in the Patent Owner's Response, Power Integrations argued that the closing of the merger prior to institution meant that the petitions should be time-barred. But the PTAB, relying on a pair of earlier nonprecedential opinions, found that the facts as of the date of filing would control the time bar inquiry, not facts that developed later.
In both IPRs (the one related to the '079 patent and the one related to the '457 patent), the PTAB issued a final written decision in which all of the challenged claims were found unpatentable. It therefore cancelled all of the challenged claims, including all of the claims of the '079 patent underlying the verdict against Fairchild. Power Integrations appealed the PTAB's decision in the IPR relating to the '079 patent, but not the IPR relating to the '457 patent.
Upon appeal, ON filed a motion to preclude review of the PTAB's § 315(b) decision in the appeal of the decision related to the '079 patent because the same issue had been conclusively determined between the parties when Power Integrations chose not to appeal the PTAB's decision in the IPR related to the '457 patent. Issue preclusion usually prevents review of an issue when the issue has been actually litigated and determined by a valid final judgment and the determination is essential to the judgment, regardless of whether the claim is the same or different. There are exceptions to the general rule, however, including where there is a lack of opportunity or incentive to obtain a full and fair adjudication of the issue earlier. As the Supreme Court has said, "[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.'"[2]
The Federal Circuit found that issue preclusion would normally apply to the § 315(b) question before it, but that the exception for lack of incentive to appeal should apply in this case. The '079 patent was the basis for the Fairchild verdict worth over $100 million; the '457 patent was not. Notably, however, in reaching the decision finding this case would be appropriately excepted from issue preclusion, the Court considered that Fairchild had merged and considered the timing of the merger itself -- issues which would appear irrelevant to the questions appropriate for determining incentive to appeal. Further, the Court did not note (and therefore appeared not to consider) that Power Integrations had asserted the '457 patent in the same lawsuit in which it obtained the nine-figure verdict, but had just been unsuccessful. Regardless, in these very specific circumstances,[3] the Federal Circuit panel found that issue preclusion would not apply.
Addressing the merits, the Federal Circuit rejected the PTAB's interpretation of § 315(b) and found that the time-bar should not be limited to the circumstances at the time the petition was filed. The Court focused on the fact that the statute says that an IPR "may not be instituted," and interpreted that as an indication that any privity and real party in interest relationships that arise before institution -- even if after filing of the petition -- should be considered. The statute does not say that a petition cannot be filed, but instead that it may not instituted. In addition to the language of the statute, the Court relied upon its own prior decisions as suggesting that § 315(b) was focused upon institution. But just as importantly, it considered general common law preclusion principles.[4]
Under common law issue preclusion cases, "[c]ourts have repeatedly found privity where, a suit begins, a nonparty acquires assets of a defendant-infringer."[5] Essentially, if a third party were able to acquire rights but avoid the implications of a final judgment related to those rights, it might multiply litigation and prevent a final judgment from being litigated. That is especially true for IPRs, where a privy might be able to benefit from a final written decision without acting timely or incurring the estoppel penalties that serve as a quid pro quo for invoking the IPR process. Therefore, the Court rejected the analogy to jurisdiction, for which federal courts apply a "time-of-filing" rule. The Court also rejected deferring to the U.S. Patent and Trademark Office's interpretation of § 315(b) because the language of the applicable regulation merely parroted the language of the statute.
Notably, while the Federal Circuit panel (Chief Judge Prost and Judges Reyna and Stoll) held that privity can be determined at least as late as the time of institution, it left open the possibility that later events could be relevant to the determination of privity.[6] Of course, the reasoning of the opinion -- based on the express language of the statute -- would be contrary to an extension of the time bar to any time after institution of review. But given the extreme circumstances of the Power Integrations case, the Federal Circuit did not want to cut off the possibility that privity would not have applied if the Fairchild-ON merger had closed five days later. Thus, it is possible that post-institution facts could still be relevant to determining whether an IPR is time-barred, in addition to the certainty that all pre-institution circumstances are to be considered.
Power Integrations, Inc. v. Semiconductor Components Industries, LLC (Fed. Cir. 2019)
Panel: Chief Judge Prost and Circuit Judges Reyna and Stoll
Opinion by Chief Judge Prost
[1] Be careful what you ask for -- the second jury applied the entire market value rule, which was the basis for increased damages.
[2] B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293, 1309 (2015) (alteration in original) (quoting Restatement (Second) of Judgments § 28 cmt. j).
[3] The decision went so far as to say, "[w]e have no occasion to consider the preclusive effect of IPR decisions in circumstances different than presented in this case." Slip Op. at 11 n. 6.
[4] To link the issue to common law preclusion principles, the Federal Circuit panel cited jurisprudence and legislative history that indicated that "privity" and "real party in interest" should be defined in line with common law principles. But that really does not support such a link -- the terms can be defined based on the common law without importing common law principles for every aspect of the statute, and no case or portion of the legislative history indicates such a link. It would have been more intellectually rigorous to have relied on common law principles without seeking to rely on the tenuous bridge the definitions of privity and real party in interest.
[5] Slip Op. at 16 (quoting Kloster Speedsteel AB v. Crucible Inc., 793 F.2d 1565, 1583 (Fed. Cir. 1986) (emphasis added), overruled on other grounds by Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d 1337 (Fed. Cir. 2004) (en banc)).
[6] See Slip Op. at 14 n. 8.
