In the latest round of the Apple/VirnetX saga, the US Court of Appeals for the Federal Circuit held to its precedents in determining when 35 USC § 317(b) estoppel is triggered against inter partes re-examinations. VirnetX Inc. v. Apple, Inc., Case Nos. 17-1591, -1592, -1593 (Fed. Cir. Aug. 1, 2019) (Prost, J) (Reyna, J, dissenting in part).

After VirnetX alleged that Apple infringed four of its patents in district court in 2010, Apple (in October 2011) filed requests for inter partes re-examination of two of the patents before the US Patent and Trademark Office (PTO), challenging all claims of the asserted patents as anticipated or obvious over prior art (Apple re-exams). Before the PTO examiner reached a decision on the Apple re-exams, a jury in the district court proceedings found that the asserted claims were infringed and not invalid, and awarded VirnetX $386 million in damages. Apple appealed the district court’s denial of motion for judgment as a matter of law to the Federal Circuit, but in December 2014, in VirnetX I, the Court affirmed the jury’s finding of no invalidity for all four patents, as well as infringement for many of the claims not related to the instant appeal. In VirnetX I, the Court vacated the construction of one term and the damages relevant to the patents at issue in this appeal, and remanded for further proceedings. Apple did not file a request for rehearing on the Court’s invalidity or noninfringement affirmances of VirnetX I, and did not seek Supreme Court review.

On remand, the jury again found infringement by Apple as to certain claims and awarded damages to VirnetX. Apple appealed, and earlier in 2019, the Federal Circuit affirmed the jury verdict and award (IP Update, Vol. 22, No. 1).

In the parallel Apple re-exams, in May 2014, the PTO examiner found all claims of the two patents unpatentable and issued right to appeal notices (RANs). VirnetX appealed the examiner’s decisions to the Patent Trial and Appeal Board (PTAB) and also petitioned the PTO to terminate the Apple re-exams based on the estoppel provision of § 317(b). VirnetX’s petition was denied in June 2015. In September 2016, the PTAB affirmed the examiner’s finding of unpatentability as to all claims of the two patents and denied VirnetX’s requests for rehearing. VirnetX appealed to the Federal Circuit and moved for remand. A motions panel denied VirnetX’s motion for remand in June 2017.

In 2010, VirnetX also sued Cisco, alleging that it infringed VirnetX’s patents. Cisco responded by filing for inter partes re-examination in December 2011 (Cisco re-exam). The examiner in the Cisco re-exam issued a RAN in January 2015, rejecting certain claims as anticipated or obvious. Once again VirnetX appealed to the PTAB, and in September 2017 the PTAB affirmed the examiner. VirnetX’s motion for rehearing was denied, and VirnetX appealed.

On appeal, VirnetX argued that Apple was estopped from maintaining its re-exams under the pre-America Invents Act (AIA) version of § 317(b), and challenged the merits of the PTAB’s conclusions in the Apple and Cisco re-exams that the patents were invalid.

Concerning the estoppel issue, VirnetX argued that the PTO erred in refusing to terminate the Apple and Cisco re-exams and in concluding that § 317(b) did not apply. VirnetX argued that the Federal Circuit’s December 2014 decision constituted a “final decision” under § 317(b), estopping further attempts by Apple to prove invalidity.

Reviewing the statutory interpretation issue de novo, the Federal Circuit first considered the pre-AIA § 317(b) which recites as follows:

Once a final decision has been entered against a party in a civil action arising in whole or in part under section 1338 of title 28, that the party has not sustained its burden of proving the invalidity of any patent claim in suit . . . then neither that party nor its privies may thereafter request an inter partes reexamination of any such patent claim on the basis of issues which that party or its privies raised or could have raised in such civil action or inter partes reexamination proceeding, and an inter partes reexamination requested by that party or its privies on the basis of such issues may not thereafter be maintained by the Office, notwithstanding any other provision of this chapter.

The parties did not dispute that the “civil action arising . . . under [28 USC §] 1338” was the 2010 complaint, to which Apple raised an affirmative defense of invalidity on multiple grounds. Therefore, Apple had the “burden of proving the invalidity of [the asserted] patent claim[s] in suit.” The Federal Circuit noted that Apple presented its invalidity defenses to a jury in a week-long trial in 2012, that the jury concluded that Apple “failed to sustain its burden of proving the invalidity” of asserted claims, and that the district court found the evidence presented substantial enough to support the jury’s finding and enter final judgment. Similarly, the Federal Circuit noted that district court judgment was affirmed by this Court in VirnetX I.

In denying termination of the re-exams, the PTO accepted Apple’s argument that there was not yet a final decision on invalidity. Apple maintained that any issues vacated and remanded by the Court in VirnetX I may be reviewed on appeal, and that Apple may choose to file a petition for certiorari, asking the Supreme Court of the United States to look at any issues, including those decided in VirnetX I. Because the Supreme Court has “authority to consider questions determined in earlier stages of the litigation where certiorari is sought from the most recent of the judgments of the Court of Appeal” (Mercer), Apple argued that the decision on invalidity is only final when there is no potential for Supreme Court review of it.

The Federal Circuit disagreed, concluding that there is a “final decision” on a party’s attempt to prove invalidity after the party fails to petition for certiorari within the 90-day time period. The Court reiterated its 2017 decision in Fairchild (IP Update, Vol. 20, No. 5) as it relates to a binding ruling on an issue that has been litigated. Specifically, the Court explained that if a finding of no invalidity has been affirmed on appeal, a remand of other issues will not “have any effect” on validity. As for that issue, the decision is “final” once the 90-day deadline for certiorari has passed. The Court also referenced its 2011 decision in Bettcher (quoted in Fairchild) that estoppel “applies when ‘all appeals have terminated.’” Therefore, § 317(b) applies here even though issues unrelated to invalidity were remanded.

The Federal Circuit further explained that even if Fairchild did not control, the statutory text and purpose of § 317(b) compelled rejecting Apple’s theory that the entire case must be resolved in a final judgement in order to trigger estoppel. Rather, the Court found that the statute only required “a final decision” on the precise issue of “whether the party has ‘sustained its burden of proving the invalidity of any patent claim in suit,’” explaining that the plain language of the statute (and its legislative intent) demands a party cease duplicative invalidity challenges via re-exams in the PTO once “a final decision” has been reached on an invalidity challenge in a civil action.

The Federal Circuit vacated the PTAB decision and remanded the case to terminate the Apple re-exams with respect to certain claims. Referencing § 317(b)’s “raised” or “could have raised” language, the Court also noted that Apple did not dispute that estoppel extended to the dependent claims, as no new prior art was added in Apple’s re-exam requests or after the start of trial.

As to the merits regarding the challenged claims not subject to estoppel, the Federal Circuit found VirnetX’s “kitchen sink approach” unpersuasive. For example:

  • In the absence of clear disavowal of claim scope, the PTAB properly construed claim terms.
  • The PTAB’s conclusions were well supported by the examiner’s underlying factual findings, and Apple had properly carried its burden of showing invalidity to the examiner without improper burden shifting.
  • There was no new argument since VirnetX had fair opportunity to respond.
  • There was substantial evidence to support the invalidity conclusions.
  • As found in Oil States, inter partes review is constitutional, and thus VirnetX’s arguments treating the unconstitutionality of inter partes reviews and re-examinations as interchangeable were moot.

The Court affirmed the PTAB’s decisions as to certain patents’ claims in the Apple and Cisco re-exams as unpatentable.

Judge Reyna dissented in part, disagreeing that applying Fairchild precluded re-examination. In Judge Reyna’s view, a “single appeal” is preferable to piecemeal litigation, and the Federal Circuit should not concern itself over the finality of the particular (invalidity) issue, but rather defer to Apple’s right to petition for certiorari. Thus, in Reyna’s view, there is no “final decision” that triggers a bar under § 317(b).