The Patent Trial and Appeal Board (PTAB) recently dismissed and terminated inter partes review challenging claims of U.S. Patent No. 8,495,167 (“the ’167 patent”).  Netflix, Inc. v. Owner, IPR2022-01568, Paper 29 (PTAB March 18, 2024).  (The PTAB’s case captions originally listed Lauri Valjakka as the owner.  Paper 29 uses “owner” instead because “the identity of the patent owner is unclear on the current record.”)  The PTAB’s decisions followed a district court’s order finding that Lauri Valjakka, the ostensible patent owner, lacked article III standing to assert infringement of the ’167 patent. See Valjakka v. Netflix Inc., No. 22-cv-01490-JST, Dkt. 257 (N.D. Cal. Jan. 8, 2024).

In September 2022, Netflix Inc. (Netflix) petitioned for inter partes review (IPR) of the ’167 patent.  The ’167 patent relates to data communication networks network servers, network terminals, and computer programs.  Id.  During early stages of IPR, the PTAB accepted the parties’ representations that Valjakka was the patent owner and sole real party in interest.  When the PTAB instituted review, the most recent assignment of the patent recorded Valjakka as the assignee.  Netflix Inc., IPR2022-01568 at Paper 29.  In July 2023, Netflix requested guidance from the PTAB regarding ownership of the ’167 patent because Netflix discovered evidence suggesting Valjakka might not be the current owner during a simultaneous district court case.  Id. at Ex. 3003.

January of this year, Netflix emailed the PTAB stating that the judge had granted summary judgment in the co-pending district court litigation that held that the Valjakka was not the owner of the ’167 patent and that the true owner had abandoned the ’167 patent while it was pending as U.S. Patent Application 10/208,685 (the ’685 application).  The district court had concluded that Valjakka lacked standing because he was not the owner; its opinion was based on preclusion.

Over a decade ago, two Finnish courts applying Finnish contract law had found that Valjakka had terminated his ownership interest in the ’685 application by assigning his rights to Suomen Biisi Oy (SBO), a Finnish company Valjakka co-owned.  Valjakka later recorded an assignment back to himself, but the Finnish courts found the assignment ineffective.  SBO abandoned the ’685 application during its ownership and Valjakka subsequently filed a petition for revival despite the Finnish court decisions.

Following the district court’s decision on standing, Netflix requested that the PTAB enter adverse judgment against Valjakka under 37 C.F.R. § 42.73(b) because Valjakka was not an owner of the ’167 patent.  Section 42.73(b) provides that

A party may request judgment against itself at any time during a proceeding. Actions construed to be a request for adverse judgment include:

1. Disclaimer of the involved application or patent;
2. Cancellation or disclaimer of a claim such that the party has no remaining claim in the trial;
3. Concession of unpatentability or derivation of the contested subject matter; and
4. Abandonment of the contest.

37 C.F.R. § 42.73(b).

Netflix argued that § 42.73(b) should apply because the true owner had abandoned the ’685 application.   The PTAB agreed that the true owner had abandoned the application, but found that it did not matter because patent prosecution does not fall within that scope of adverse judgment, as it is not “during a proceeding.”  The PTAB also found section 42.73(b) inapplicable because Valjakka had not taken any of its enumerated acts. Valjakka had also continued to act as the patent owner.  The PTAB observed that Netflix did not address how none the rule’s actions included not being a patent owner, noting that only a “party” could request an adverse judgment.  Moreover, the term “party” includes only the petitioner and the patent owner.  See 37 C.F.R. § 42.2.  Thus, the PTAB concluded that Netflix had not explained how Valjakka was a party while concurrently alleging he was not a patent owner.

Netflix further argued that the IPR should be terminated because Valjakka lacked standing to act as a patent owner and that the district court’s decision regarding ownership and standing were final for issue preclusion purposes.  As a remedy, Netflix requested the PTAB expunge all papers and exhibits filed by Valjakka.  The PTAB declined Netflix’s request to make an independent determination regarding standing and to expunge Valjakka’s filings.  However, the PTAB still terminated the IPR on the grounds that Valjakka did not otherwise oppose Netflix’s request to terminate.  The PTAB referenced the district court’s finding that Valjakka had no title or exclusionary right to the ’167 patent and appeared to defer to the district court, but did not comment further as to the extent of its preclusive effect.

Takeaways:

1. Failure to disclose the results of a foreign judgment regarding property rights may adversely impact later proceedings.  2. Patent owners should conduct diligence on conveyances before making statements to the Office. 3. Abandonment of a patent application may not be an “adverse judgement” for 37 C.F.R. § 42.73(b) purposes because prosecution does not occur during a trial or preliminary proceeding.