Friday, September 07, 2018

CAFC vacates PTAB in Worlds/Bungie. Issues of real party in interest and issue preclusion.

In Worlds v. Bungie, the CAFC vacated a decision of PTAB:

Appellant Worlds Inc. (“Worlds”) appeals the final decisions
of the Patent Trial and Appeal Board (“Board”)
invalidating three patents in three inter partes reviews
(“IPRs”). Because we hold that the Board erred in its
real-party-in-interest analysis, we vacate its decisions and
remand for proceedings consistent with this opinion.

Two issues were presented by the appellant:

This consolidated appeal presents two issues. First,
Worlds contends that Bungie’s IPR petitions were timebarred
because an alleged real party in interest, Activision,
had been served with a complaint alleging infringement
of these patents over one year prior to the
IPRs’ filing dates. Second, Worlds appeals the Board’s
substantive obviousness analysis.

Under 35 U.S.C. § 312(a)(2), an IPR petition “may be
considered only if . . . the petition identifies all real parties
in interest.” Correctly identifying all real parties in
interest with respect to each IPR petition is important, as
the determination may impact whether a petition may be
instituted. See 35 U.S.C. § 315(a)(1) (concerning a real
party in interest’s civil action challenging the patent’s
validity); id. § 315(b) (concerning a patent owner’s civil
action against a real party in interest). It may also limit
the arguments available in subsequent proceedings. See
id. § 315(e). In this case, Worlds argues that Bungie’s
IPR petitions were time-barred under § 315(b) because
they were filed over one year after Worlds served Activision,
the alleged real party in interest, with a complaint
alleging infringement of the challenged patents

On appeal, Worlds contends that the Board placed the
burden of persuasion on the patent owner to prove that
Bungie’s petitions were time-barred under § 315(b) because
Activision was a real party in interest, and that this
allocation of the burden was error. These appeals therefore
require us to determine the appropriate burden
framework for analyzing the real-party-in-interest determinations
in these IPRs. Worlds has not sought review of
the Board’s order denying Worlds’s motion for discovery
on this issue.

Both Worlds and Bungie point us to Atlanta Gas Light
Co. v. Bennett Regulator Guards, Inc. as representing a
burden framework used by other Board panels in the realparty-in-interest
analysis. See IPR2013-00453, Paper 88
(P.T.A.B. Jan. 6, 2015). Although there is no indication
that the Board relied on Atlanta Gas Light in these appeals,
we find it appropriate to begin our analysis with
that decision, given the parties’ focus on that framework.

The CAFC gets into presumptions:

Initially, we question the Board’s practice of creating
a “presumption” by its acceptance of a petitioner’s initial
identification of the real parties in interest. Generally, for
a party to gain the benefit of a presumption, the party
must prove certain basic facts from which the presumed
fact is then inferred according to the relevant substantive
law. See A.C. Aukerman Co. v. R.L. Chaides Constr. Co.,
960 F.2d 1020, 1035–37 (Fed. Cir. 1992) (en banc) (explaining
that the presumption of laches, which was a
defense available in patent cases prior to SCA Hygiene,
arose upon proof that the patentee delayed filing suit for
more than six years after actual or constructive
knowledge of the defendant’s alleged infringing activity),
abrogated on other grounds by SCA Hygiene Prods.
Aktiebolag v. First Quality Baby Prods., LLC, 137 S. Ct.
954 (2017); 21B Charles A. Wright & Kenneth W. Graham,
Jr., Federal Practice and Procedure: Evidence
§ 5122 (2d ed. 2005) (“[A] true presumption cannot arise
without proof of some ‘basic fact’. . . .”). In the real-partyin-interest
context at issue here, the relevant statute and
regulations do not require evidentiary proof of such basic
facts. See 35 U.S.C. § 312(a)(2) (requiring a petition to
“identif[y] all real parties in interest”); 37 C.F.R.
§ 42.8(b)(1) (requiring a party to “[i]dentify each real
party-in-interest for the party”); see also id. § 42.104(a)
(requiring a petitioner to “certify . . . that the petitioner is
not barred or estopped from requesting an inter partes
review challenging the patent claims on the grounds
identified in the petition”).


Moreover, presumptions are usually created based on
certain policy considerations, such as correcting an imbalance
due to one party’s superior access to sources of proof,
or promoting efficiency by presuming a fact to be true
where the existence of certain basic facts makes the truth
of the presumed fact highly probable. See 2 George E.
Dix, et al., McCormick on Evidence § 343 (7th ed. 2016).
In the real-party-in-interest context, however, we see no
particular need to create a formal presumption—
especially a presumption that would disfavor the party
that likely has inferior access to potential sources of proof.


The next question then becomes: what must a patent
owner do to sufficiently raise the issue? In Atlanta Gas
Light, the Board viewed the “presumption” created by the
IPR petitioner’s initial identification of the real parties in
interest as shifting the burden of production to the patent
owner. From this, the Board explained that, where “a
patent owner provides sufficient rebuttal evidence that
reasonably brings into question the accuracy of a petitioner’s
identification of the real parties in interest, the burden
remains with the petitioner to establish that it has complied
with the statutory requirement to identify all the
real parties in interest.” Atlanta Gas Light, Paper 88 at 8
(emphasis added). As explained above, we disagree with
the use of a presumption in this context. We agree,
however, that a patent owner must produce some evidence
that tends to show that a particular third party should be
named a real party in interest.8 A mere assertion that a
third party is an unnamed real party in interest, without
any support for that assertion, is insufficient to put the
issue into dispute.

The debated evidence:

Worlds argued before the
Board that these IPRs are “legal reviews” necessary to
clear intellectual property rights, and that Activision had
the opportunity to control the IPRs, making Activision a
real party in interest. In response, Bungie presented a
different interpretation of the “legal reviews” provision,
arguing that, in the context of a videogame development
agreement, a “legal review[]” refers to “reviewing the title,
script, and visual and audio assets to ensure that any
appropriate rights have been obtained and that they do
not infringe any trademarks or copyrights.” J.A. 415
(Opp. to Worlds’s Discovery Mot.).12
The Board flatly rejected Worlds’s argument that
Bungie’s IPRs could be considered “legal review[s] of a
‘Product,’” first in its order denying Worlds’s discovery
motion, then again in its institution decisions. J.A. 429
(Discovery Order) (stating that “[a] legal review of a
‘Product’ under the Agreement and other provisions do
not specify, require, or necessarily include filing an IPR
against a patent”); J.A. 507, 3874, 5092 (Institution
Decisions) (stating that Worlds’s argument was based on
a faulty assumption that “legal reviews” could include
IPRs). The Board’s institution decisions explained that
the IPRs involved a patent rather than a product, and
thus the IPRs could not be considered “legal reviews of a
Product” that would give Activision a right of review and
approval. J.A. 507 (“The only subject of this proceeding is
the ’856 patent; this proceeding does not involve any
product. Thus, Patent Owner has not shown that this
proceeding falls within the scope of a ‘legal review[] of the
Products’ . . . .” (citation omitted)); see also J.A. 3874,


This implies that the Board assumed
the burden of persuasion rests with the patent owner.
Moreover, the Board’s potential reliance on the rebuttable
presumption from Atlanta Gas Light may have effectively
skewed the burden of persuasion despite Atlanta Gas
Light’s statement that it was not approving such a shift.
Under these circumstances, we cannot discern whether
the Board placed the burden on Worlds, the patent owner,
to persuade the Board that Bungie failed to list a real
party in interest that would render the petitions timebarred
under § 315(b). As discussed above, this would
have been improper.

The subject of mere attorney argument arose:

As an aside, we have some concern that the Board
may have relied on attorney argument as evidence that
Activision was not controlling or funding these IPRs. See
J.A. 510, 3877, 5095 (citing Bungie’s briefing and stating
that “[o]n this record, we accept Petitioner’s express
representations that Activision is not controlling or funding
this proceeding”); see also Icon Health & Fitness, Inc.
v. Strava, Inc., 849 F.3d 1034, 1043 (Fed. Cir. 2017)
(“Attorney argument is not evidence.”). This is particularly
concerning given that the Board’s apparent reliance on
such statements seemed to outweigh the actual evidence
presented by Worlds. Instead of citing evidence to support
this factual conclusion, the Board merely cited attorney
argument from Bungie’s briefing—attorney argument
that itself failed to cite evidence, such as affidavits or
declarations. See J.A. 510, 3877, 5095 (Institution Decisions);
J.A. 409–10, 416 (Bungie’s briefing).

Issue preclusion arose:

The general rule for issue preclusion (also called collateral
estoppel) is “[w]hen an issue of fact or law is
actually litigated and determined by a valid and final
judgment, and the determination is essential to the
judgment, the determination is conclusive in a subsequent
action between the parties, whether on the same or a
different claim.” B & B Hardware, Inc. v. Hargis Indus.,
Inc., 135 S. Ct. 1293, 1303 (2015) (quoting Restatement
(Second) of Judgments § 27 (1982)). This general rule is
“subject to certain well-known exceptions.” Id. (citing
Restatement (Second) of Judgments § 28 (1982) as listing
Bungie devotes just two pages of its briefing to arguing
that the basic requirements of issue preclusion are
satisfied in this case. Appellee’s Br. 62–63. In similarly
cursory fashion, Worlds’s Reply Brief compiles a handful
of conclusory assertions in an attempt to avoid issue
preclusion. Reply Br. 30–32. And because of the timing
of the six IPRs, the Board did not consider issue preclusion.

The CAFC gave PTAB prioritized instructions:

For the foregoing reasons, the Board’s final written
decisions in these three consolidated appeals are vacated.
On remand, the Board should first address whether
Worlds is estopped from arguing the real-party-in-interest
issue. The Board should thoroughly consider the posture
of the related proceedings, as well as any relevant exceptions
to collateral estoppel. If the Board determines that
collateral estoppel does not apply, the Board should then
reevaluate the merits of the real-party-in-interest issue.
And, in light of this court’s recent guidance on the substantive
real-party-in-interest inquiry, the Board, in its
discretion, should consider whether to allow for additional
discovery on this issue


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