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Facebook v. Windy City, timing and scope of IPR, and what it means for startups
During these unprecedented times, the U.S. Court of Appeals for the Federal Circuit is one of the many institutions taking steps to avoid the spread of COVID-19: shifting to telephonic proceedings, releasing live audio of oral arguments, restricting in-person access to court buildings, and modifying operations. But the court is continuing its work, issuing new opinions every day.
In one recent opinion, Facebook, Inc. v. Windy City Innovations, LLC, the Federal Circuit addressed timing and scope of inter partes review (“IPR”) proceedings. As we have explained, an IPR is a trial-like proceeding in which the U.S. Patent and Trademark Office (“USPTO”) can take a “second look” at patents that arguably should not have issued in the first place.
The law imposes time limits on IPR filings, and after Facebook v. Windy City, it is especially important for parties to decide early which of a patent’s claims they want to challenge in an IPR. Here, Windy City had accused Facebook of infringement, and within the first year of that case Facebook filed IPRs challenging the validity of many patent claims. Four months after the IPRs were filed, though, Windy City identified the specific patent claims it was asserting in its case against Facebook. And some of those asserted claims were not yet being challenged in Facebook’s IPRs. But, in Facebook’s view, the newly-asserted claims were invalid for substantially similar reasons. So, in the context of the already-ongoing IPRs, Facebook asked the Patent Trial and Appeal Board (“PTAB”) to consider the validity of Windy City’s newly-asserted claims. The PTAB initially agreed. However, the Federal Circuit disagreed and held that Facebook was not authorized to join new claims (or new issues) into existing IPRs more than one year after the parallel lawsuit started.
Moving forward, defendants accused of patent infringement will need to identify all the claims they want to challenge in an IPR within the first year of any lawsuit. This may mean pressing the court for early disclosure of asserted claims or filing multiple IPRs to challenge every possible claim.
The Facebook decision also includes a concurring opinion, indicating the USPTO may have less flexibility to unilaterally interpret the law around IPRs. Instead, the judges suggest that the patent office should go through formal, publicly-accessible rulemaking procedures in developing new policies or procedures for IPRs.
A brief primer on IPR time-bars, joinder, and deference.
As a reminder, in 2011, Congress created the inter partes review (“IPR”) procedure whereby people or companies—referred to as “petitioners”—can challenge the validity of issued patents. Some patents claim things that are obvious or not novel, and those claims (which fail to disclose actual, new inventions) should have never issued in the first place. Historically, patent validity could be challenged either through lengthy and expensive district court procedures or reexamination at the USPTO. Congress understood that “questionable patents [were] too easily obtained and [were] too difficult to challenge.” So it created IPR as a more efficient alternative, where a petitioner can request a trial-type procedure conducted before the patent office’s Patent Trial and Appeal Board (“PTAB”), and challenge a patent’s validity on limited grounds. However, Congress put detailed requirements in place that limit who can file IPRs and when.
In order to understand the Facebook decision, you need to understand two specific features of the IPR process. First is the time bar. Put simply, under 35 U.S.C. § 315(b), once an accused infringer receives a complaint for patent infringement, that defendant only has one year to prepare and file any IPRs challenging the asserted patents. Second is joinder. Pursuant to § 315(c), once the PTAB has instituted an IPR, it may join other parties to that proceeding (i.e., other petitioners, for example other accused infringers, can participate in the ongoing challenge). The party who wants to be joined must file its own IPR petition, and then the PTAB has discretion to join the new party to the existing proceeding.
The topic of deference is also relevant here. Briefly, there is an entire body of law surrounding whether, when, and to what extent a court defers to an administrative agency’s interpretation of the law. There are formal rulemaking procedures an agency can deploy, and courts are more likely to defer to agency policies and interpretations if the agency uses those rulemaking procedures. The question of deference in Facebook turns on the status of precedential PTAB decisions. In September 2018, the USPTO Director created a new procedure for deciding and designating binding PTAB decisions. The Director established the Precedential Opinion Panel (“POP”), which includes the Director, the commissioner for patents, and the chief judge of the PTAB. That panel is tasked with deciding issues of exceptional importance to the PTAB as well as designating precedential decisions—decisions which will be binding in future PTAB decisions.
Facebook v. Windy City.
The case started in June 2015, when Windy City sued Facebook for infringement. There were four patents at issue, and each contained many claims, with a total of 830 total patent claims involved in the single case. One year after Windy City served its complaint, in June 2016, Facebook filed several IPR petitions challenging a number (but not all) of the 830 claims.
Four months later, in October 2016 and after Facebook’s deadline for filing new IPRs had passed, Windy City identified the specific claims it was asserting in its lawsuit against Facebook. Some of the claims Windy City asserted were not being challenged in an existing IPR. In response, Facebook sought to file two more IPR petitions to challenge the additional, newly-asserted claims. Because those two additional IPRs would have been past the one-year time bar, instead of filing them anew Facebook asked the PTAB to join the new IPRs to the existing IPRs.
The PTAB agreed to hear Facebook’s additional challenges. The PTAB found substantial similarity between the new and old IPRs—the new petitions challenged common patents and asserted the same basic invalidity arguments. Moreover, the PTAB determined that Facebook had not delayed in filing its newer IPRs, and it had good cause to challenge the additional claims now because Windy City had only recently asserted those claims in court.
The Federal Circuit disagreed and reversed the PTAB decision. The court held that the PTAB is not authorized to join two different proceedings filed by the same party, as it had effectively done in Facebook’s case. Insted, the statute only allows new parties to be joined to existing IPRs. Similarly, the Federal Circuit concluded that the PTAB was not authorized to consider the later-raised issues in Facebook’s most recent IPR petitions. With those two new IPRs, Facebook sought to incorporate new issues (new claims) into the ongoing IPRs, and because those new issues would otherwise be time-barred, the Federal Circuit excluded them.
Finally, in a concurring opinion, the three Federal Circuit judges who heard the Facebook appeal addressed deference. While the Facebook appeal was pending, the PTAB had decided a related issue in a separate case, Proppant Express Investments, LLC v. Oren Technologies, LLC. In that POP precedential opinion, the PTAB concluded that, under § 315(c)’s joinder provision, a petitioner (like Facebook) could be joined to a proceeding in which it was already a party. And in the present case, Facebook and the USPTO both argued that the Federal Circuit should defer to this USPTO interpretation of § 315. The judges disagreed. In part, the judges found nothing in the statute indicating Congress authorized the POP panel to interpret the statute. Similarly, the judges looked at the procedures the POP panel employs. Those procedures fell short of the traditional, publicly-accessible rulemaking procedures agencies use, and the judges likewise concluded those procedures fell short of the traditional procedures that receive deference.
What Facebook v. Windy City means for startups.
There are two main takeaways from the Facebook decision. First, the Federal Circuit’s decision forecloses the use of joinder to bring new challenges, claims, or issues into an ongoing IPR after the one-year time bar has passed. For startups accused of infringement, invalidity will always be one of the first defenses considered. If the patent claims appear invalid over printed prior art, as either obvious or not-novel, those claims may be amendable to more affordable, efficient challenges in an IPR. But startups will need to think very early in the case about whether and how to pursue an IPR.
In the Facebook opinion, the Federal Circuit acknowledged an inherent tension in its decision. By creating IPR, Congress sought “to provide quick and cost effective alternatives to litigation in the courts.” Windy City effectively found a loophole, by asserting an enormous number of claims in one lawsuit and waiting more than one year to identify the subset of claims it would assert in the case. The delay in identifying asserted claims effectively rendered the efficiency of the IPR alternative unavailable. Facebook chose not to challenge all of the potential 830 claims in its first round of IPRs (which would have, at least due to page limits, required Facebook to file many, many IPRs to cover each claim), presumably because that would have been inefficient. But by not challenging all the claims at the outset, there was an open door for Windy City to assert unchallenged claims later in the case, immunizing those claims from an IPR.
A few lessons can be taken from the Facebook decision. Startups accused of infringement may just decide at the outset to file an IPR on all claims of all the asserted patents. But that could be cost-prohibitive. Instead, startups could ask the district court to enter a scheduling order where the plaintiff is required to identify all asserted claims early in a case. This would provide defendants some certainty about whether and which claims to challenge in an IPR.
The second takeaway from the Facebook opinion concerns deference. The judge’s concurring opinion about deference is not binding, but it indicates that future legal interpretations or policy changes at the PTAB may need to go through formal rulemaking procedures to have true precedential effect. This could be a positive development in IPR policy. The Facebook concurrence may serve as a reminder to the USPTO and other policymakers that it is important to engage in open, public proceedings before making any changes to the PTAB. It is essential that policymakers understand how startups and other innovative companies benefit from IPR, and avoid changes to law or policy that make IPR less accessible and effective.
Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
