N.D. Ill.: Neither Statutory Estoppel nor “Misleading” Statements Regarding Its Scope Sufficient to Knock Out Invalidity Defenses

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A district court has ruled that the scope of IPR estoppel under 35 U.S.C. § 315(e)(2) did not apply to invalidity grounds that relied on physical products. The court also declined to apply judicial estoppel, notwithstanding the defendant’s “misleading” statements about the effect of estoppel, made when seeking a stay pending the outcome of IPR proceedings.

Earlier in the district court litigation, the patent owner had asserted four patents. The defendant then petitioned for inter partes review (IPR) at the Patent Trial and Appeal Board (PTAB). During the pendency of the institution decisions, the defendant served its final invalidity contentions in the district court, identifying anticipation and obviousness grounds that all included prior art products. The PTAB instituted the IPR petitions, and the defendant then sought and obtained a stay in district court pending the outcome of the IPR proceedings. The PTAB found unpatentable the claims of one of the four patents asserted in district court. Thereafter, the court lifted the stay, and the parties disputed the scope of the statutory IPR estoppel and whether the defendant was judicially estopped from bringing its prior art arguments. Patent owner argued that the court should look to whether the product was described and disclosed in a publication that could have been raised in an IPR.

The court began its analysis by noting the absence of appellate court precedent on the scope of statutory estoppel, as well as the current division of opinion among district courts. By considering how the term “ground” had been construed in other aspects of IPR proceedings, the court interpreted “ground” to mean “the specific piece of prior art or combination of prior art that a petitioner raised, or could have raised, to challenge the validity of a patent claim during an IPR.” As such, the court ruled estoppel does not apply to prior art products. The court acknowledged that a defendant could not avoid estoppel to a ground that relied on printed materials merely because the “materials reflect or represent a prior art product.” But the court concluded that such was not the case here because the defendant’s claim charts, “replete with photographs” of the products, showed that the defendant intended to argue that the actual products disclosed limitations of the claims.

The court then considered whether to apply judicial estoppel to the prior art grounds in light of the defendant’s representations made when seeking a stay. On this issue, the court considered its regional circuit’s three-part test. First, the court determined that the defendant’s current estoppel argument was “clearly inconsistent” with its earlier representations on case-narrowing following an IPR. The defendant had previously argued that it would have to narrow its invalidity positions in light of the outcome of the IPRs. When the defendant made those statements, it had already served its final invalidity contentions which included prior art invalidity grounds that all included prior art products. Thus, this factor favored application of judicial estoppel because the defendant’s pre-stay statement was inconsistent with its post-IPR argument that it was not required to narrow any of its prior art grounds.

For the next factor of the circuit law test, the court found that the defendant’s earlier position had succeeded in persuading the court to stay the case pending the outcome of the IPRs. The court’s stay ruling was based, in part, on potential simplification of the invalidity issues. As such, this factor also favored application of judicial estoppel.

Under the final factor of the circuit law test, however, the court found that it would not be unfair to the patent owner to allow the defendant to proceed with its prior art invalidity theories. The court found that the defendant’s assertions, although misleading, were “not so egregious or manipulative as to warrant wholesale preclusion of its prior art invalidity theories.” The court explained that it granted a stay based on several factors, including no disadvantage to the patent owner and the potential to remove claims from the case. The court further explained that the patent owner had been able to prepare responses to the invalidity grounds for over a year and could rely on relevant work from the IPR proceedings.

Considering the three factors and using its “equitable judgment and discretion,” the court decided that the patent owner was “not entitled to a knockout blow on [the defendant’s] prior art invalidity arguments.”

Practice Tip: The jurisprudence of estoppel continues to develop through district court decisions. Regarding statutory estoppel, in the absence of binding precedent, a defendant may be well-served by making explicit reference to the features of a prior art product as opposed to a printed publication describing the product. A patent owner should, on the other hand, scrutinize the defendant’s invalidity grounds and, where the parties have made arguments to the court about a stay, the patent owner should consider the defendant’s pre-stay and post-IPR representations concerning the simplification of the case. Concomitantly, in light of the potential for a party to be judicially estopped, litigants should pay close attention to the arguments raised for or against a stay pending an IPR outcome.

Medline Indus., Inc. v. C.R. Bard, Inc., No. 17 C 7216, 2020 WL 5512132 (N.D. Ill. Sept. 14, 2020)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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