How PTAB Privity Ruling Constrains Federal Contractors

• Published date: 15 May 2020
• Author: Mr Lionel Lavenue, Kelly Lu and Regan Rundio
• Subject Matter: Intellectual Property, Litigation, Mediation & Arbitration, Patent, Trials & Appeals & Compensation
• Law Firm: Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

The ongoing process of reconciling how the Patent Trial and Appeal Board fits within the broader patent regime continues almost nine years after Congress' passage of the Leahy-Smith America Invents Act.

The PTAB, U.S. Court of Appeals for the Federal Circuit and U.S. Supreme Court have all recently weighed in on how the PTAB interacts with the U.S. Court of Federal Claims, the exclusive forum for patent infringement claims against the federal government.

In Microsoft Corp. v. Science Applications International Corp.,¹ the PTAB denied institution of a federal contractor's related inter partes review petitions, holding them time-barred under Title 35 of U.S. Code Section 315(b).

In June 2017, patent owner Science Application International Corp. sued the government for infringing its patents directed to rapid target acquisition, a feature that petitioner Microsoft Corp. allegedly implemented in a product it provided the government under a November 2018 contract.

The institution decision held that Section 315(b) barred Microsoft's IPR petitions against SAIC's asserted patents because (1) Microsoft and the government were in privity and (2) Microsoft filed the petitions more than a year after June 2017. The board also indicated that it would, as an alternative, exercise its discretion to deny institution as a means of comporting with the holding in Return Mail Inc. v. United Postal Service.²

This article discusses the legal and factual background of the PTAB's Microsoft decision, how it applied the privity standard, the decision's impact on federal contractors, and how to square it with a similar PTAB decision from 2016.

Background

Third-Party Practice at the COFC

Suing the federal government for patent infringement³ is specialized work governed by Title 28 of U.S. Code Section 1498(a).⁴ Patent owners can sue in only one forum, the jury-less COFC, and only for "reasonable and entire compensation"⁵ ' not injunctive relief.⁶ Patent owners cannot sue federal contractors for infringing activity performed for the government.⁷

Federal contractors may nevertheless find themselves in these specialized proceedings in the role of government indemnitor Federal contracting regulations typically require suppliers to indemnify the government from patent infringement liability.⁸ If a contractor-indemnitor's activity or related activities of federal government are found to infringe, its continued performance under the contract exposes it to mounting indemnification liability.

Compounding a contractor's predicament is the government's inability to cede control of its litigation defense to a third party.⁹ The contractor-indemnitor bereft of control of its indemnitee's defense but exposed to indemnification liability, may join a Section 1498(a) action as a third party.¹⁰ In that capacity, it may present defenses against any alleged infringement, including defenses distinct from the government's.

The IPR Section 315(b) Time Bar

Given the much-discussed benefits of PTAB proceedings,¹¹ federal contractors may prefer to invalidate a patent before administrative patent judges as opposed to a COFC judge. Access to the PTAB is, however, time-sensitive For example, Section 315(b) provides that:

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.

This provision is particularly salient for contractor-indemnitors because they are (i) at risk of being deemed in privity with their customers and (ii) often only notified that products or services they supply are the subject of a complaint long after service.

As discussed below, the PTAB recently denied a series of IPR petitions by applying Section 315(b) to Microsoft in its capacity as a federal contractor.

Microsoft v. SAIC

On June 19, 2017, SAIC sued the government under Section 1498(a), accusing certain night-vision goggles of implementing its patented rapid target acquisition technology. RTA provides visual indication in a soldier's heads-up display where the soldier's gun is...