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The PTAB recently denied institution of inter partes review of two related petitions – Galderma S.A. v. Allergan Industrie, IPR 2014-01422 (“the 422 IPR”) and Galderma S.A. v. Allergan Industrie, IPR 2014-01417 (“the 417 IPR”), citing a failure to identify all the real parties-in-interest, as required by 35 U.S.C. § 312.  Correctly identifying real parties-in-interest is a highly fact dependent inquiry that lacks any brightline rules.  The PTAB’s decisions denying institution of the 417 and 422 IPRs provide insight into when a unnamed party has sufficient control to be considered a real party-in-interest and demonstrate the potentially severe consequences of failing to identify such parties in a petition.  In view of this decision, Petitioners should consider being overly inclusive in listing real parties-in-interest. 

The 422 IPR and the 417 IPR challenged claims of U.S. Pat. No. 8,357,795 (“the ’795 patent”) and the U.S. Pat. No. 8,450,475 (the ’475 patent), respectively, both of which have been asserted in the co-pending litigation, Allergan USA, Inc. v. Medicis Aesthetics, Inc., 8:13-cv-01436-AG-JPR (C.D. Cal.).  The ’795 and ’475 patents both relate to dermal fillers and share the same filing dates, disclosure, and priority claims.  In the district court case, Allergan alleged that Petitioner infringes the patents by manufacturing and supplying the products Restylane-L and Perlan-L.  Since the petitions involve the same parties, the PTAB set forth its analysis on real party-in-interest in its decision on the 422 IPR and incorporated that analysis in its decision on the 417 IPR.

The petitioners in the 417 and 422 IPRs are Galderma S.A. and Q-Med AB.  Q-Med AB is a wholly owned subsidiary of Galderma S.A, and Galderma S.A. is a wholly owned subsidiary of Nestlé Skin Health S.A., which is wholly owned by Nestlé S.A.  Q-Med AB manufactures and supplies the allegedly infringing products, Restylane-L and Perlane-L.  The 417 and 422 IPR petitions identify only Galderma S.A. and Q-Med AB as the real parties-in-interest.  Patent Owner, on the other hand, asserted that Nestlé S.A exhibits sufficient control to also be considered real a party-in-interest.

The PTAB began its analysis with the general concept that a real party-in-interest is one that “desires review” of the patent at issue.  Describing this analysis as “highly fact-dependent” and without any bright line test, the PTAB cited Taylor v. Sturgell, 533 U.S. 880 (2008), as providing relevant factors for identifying a real party-in-interest.  In particular, “[a] common consideration is whether the non-party exercised or could have exercised control over a party’s participation in a proceeding.”

Focusing on the issue of control, the PTAB stated that evidence that a non-party wields control in a matter must demonstrate that the non-party possessed effective control over a party’s conduct as measured from a practical, as opposed to a purely theoretical, standpoint.  Such evidence must show more than a mere parent-subsidiary relationship.  E.g., compareCompass Bank v. Intellectual Ventures II LLC, IPR2014-00724, Paper No. 12, at pp. 10-11 (“Patent Owner’s evidence does not demonstrate sufficiently that [parent] exercised or could have exercised control over [subsidiary]’s filing” or “that [parent] funded, directed, and controlled the filing of the petition”); withAtlanta Gas Light Co. v. Bennett Regulator Guards, Inc., IPR2013-00453, Paper 88, at pp. 2–6 (unnamed parent company was a real party-in-interest, where petitioner’s vice president held the same title in the parent company, conducted negotiations with the patent owner on behalf of both petitioner and parent, and generally blurred the distinctions between the parent and its subsidiaries.).

Turning to the merits, the PTAB relied on multiple facts to conclude that Nestlé S.A. and Nestlé Skin Health S.A. exercised a pattern of control over Galderma S.A.  As of 2013, L’Oréal and Nestlé S.A. each owned a 50% interest in Galderma S.A; the PTAB noted, however, that Nestlé’s potential for control extended beyond its 50% ownership, citing a Nestlé 2013 Annual Report, which disclosed that Nestlé’s Chairman had responsibilities for the direction and control of Nestlé’s engagements with L’Oréal and Galderma.

The PTAB further noted the intertwined relationship between Nestlé S.A., Nestlé Skin Health S.A., and Galderma S.A.  In February 2014, Nestlé Skin Health S.A. announced that it would acquire 100% ownership of Galderma S.A. and that “Galderma will form the foundation of Nestlé Skin Health S.A.”  The PTAB found it significant that when Nestlé S.A. completed this acquisition, Nestlé announced that Galderma S.A. “will henceforth operate as the pharmaceutical arm of Nestlé Skin Health S.A.”  The PTAB also noted that four of the five members of Nestlé Skin Health S.A. are senior officers of Nestlé S.A., evidencing a significant overlap between the organizations.

Perhaps most important, the PTAB emphasized that one individual served as President and Chief Executive Officer of both Galderma S.A. and Nestlé Skin Health S.A.  On this point the PTAB stated that

Mr. Antunes’s presence at the helm of both Galderma and its parent, Nestlé Skin Health S.A., strongly implies “an involved and controlling parent corporation representing the unified interests of itself and Petitioner.”  As President and CEO of both parent and subsidiary, Mr. Antunes wields a significant degree of effective control over the present matter.  We need not consider whether Mr. Antunes did or did not, directly or indirectly, exercise this control.  It is sufficient that he had, in the words of Gonzales, “the power— . . . to call the shots.”

(Citations omitted).

From this analysis, the PTAB concluded that at least Nestlé Skin Health S.A. was a real party-in-interest with respect to the 417 and 422 IPRs.  Consequently, the petitions were deemed incomplete and not accorded a filing date.  See 37 C.F.R. § 42.106(b).  To make matters worse, because the complaint alleging infringement of the ’795 patent was served more than one-year before the PTAB’s decision denying institution, the petitioner could not correct its error, as any new petition would be denied as untimely under 35 U.S.C. § 315(b).

The PTAB’s decisions denying institution of the 417 and 422 IPRs highlight the dire consequences of not identifying all possible real parties-in-interest.  Based on these decisions, one important factor in identifying real parties-in-interest is any overlap in control between a parent and subsidiary, such as a common President, CEO, or Board Member.  However, other than requiring more than a mere parent-subsidiary relationship, the inquiry remains vague and flexible.  Petitioners should therefore consider being overly inclusive in listing real parties-in-interest.  Patent Owners should consider raising a deficiency in the listed real parties-in-interest to defeat petitions early on, especially where the § 315(b) one-year statutory bar would prevent the Petitioner from correcting the petition.

As an additional point to keep in mind, the Federal Circuit has thus far refused to consider appeals of institution decisions.  See, e.g., St. Jude Med. v. Volcano Corp., 749 F.3d 1373 (Fed. Cir. Apr. 24, 2014).  A denial to institute inter partes review by the PTAB is final, and the Petitioners are prevented from having the invalidity of the ’795 and ’475 patents considered by the PTAB.