Federal Gov’t & Federal Contractors in the Court of Federal Claims – A Legal Relationship?

Federal government contractors are protected from patent infringement suits when infringing activities are performed pursuant to a contract with the Federal Government. 28 U.S.C. § 1498(a). Under § 1498, rather than sue such contractors directly in a Federal District Court, patentees must instead file a suit against the United States in the Court of Federal Claims. Typically, contractors will intervene thereafter and become third party defendants.

When these contractors lodge IPR petitions with the PTAB, they often take the view that since they were never served with a “complaint for infringement,” that the one year anniversary of the 1498 complaint does not preclude such filings under 35 U.S.C. § 315(b). But a recent case will explore the legal relationship of the Federal Government to its contractors, and whether at least a privity relationship exists for purposes of applying 315(b) to the complaint anniversary date.

In Microsoft Corp. v. Science Applications International Corp. (IPR2019-01311-12 & IPR01359-62), third party defendant Microsoft filed several IPRs against a series of patents asserted against the Federal Government in a 1498 complaint. The filings were made outside of the one year anniversary of that complaint. In its petitions, Microsoft explained (here):

Microsoft is the only real party-in-interest in this proceeding, and it has never been served with a complaint alleging infringement of the [subject patents].

Nor has a “privy of the petitioner” been served with a complaint alleging infringement of the [subject patents]. Microsoft is, however, a recently-added party to a lawsuit involving the [subject patents]—Science Applications International Corp., v. The United States of America, Case No. 1:17-cv-000825—filed on June 19, 2017 in the U.S. Court of Federal Claims and naming only the United States of America as a defendant. On November 20, 2018, approximately seventeen months after filing of that action against the United States, Microsoft entered into a contract with the United States to develop a system called the Integrated Visual Augmentation System that includes implementation of an RTA feature. Approximately five months later, and in order to protect its interests regarding the United States’ defense that products incorporating a feature called Rapid Target Acquisition (RTA) do not infringe the patents asserted in this matter by Plaintiff Science Applications International Corp. (“SAIC”), Microsoft successfully moved to intervene pursuant to COFC Rule 24(a)(2) (“Rule 24”).

Rule 24 permits intervention as a matter of right to anyone who claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability to protect its interest, unless existing parties adequately represent that interest.

. . . .

¶For the avoidance of doubt, Petitioner states that neither Microsoft nor the government are controlling the other party’s prosecution of the case in the Court of Federal Claims, and that the government has had no involvement in the preparation of the present petition.

Based on at least the fact set forth above, Microsoft is not in privity with the United States for purposes of this petition.

(internal quotes and citations omitted, emphasis added)

Not surprisingly, Patentee challenged these positions. And sought additional discovery on the above highlighted contract and communications surrounding the contract, as well as communications between the parties concerning the topic of the IPR filings. As discussed previously, after recent feedback from the Federal Circuit, the Board has shown an increased willingness to grant such motions, and that is exactly what it did here, explaining (here):

Here, Petitioner’s contentions of it being the sole real party in interest are attorney argument characterizing the relationship between Petitioner and the United States and the contract that evinces that relationship. As Patent Owner argues, and we agree, Petitioner’s arguments characterize the very document it seeks to shield from discovery. Whether the contract will eventually prove Patent Owner’s contentions of privity and real party in interest is unknowable. But without the contract, Petitioner’s assertions that it is the sole party in interest have no factual support. Under these circumstances, Worlds causes us to question whether the matter can be resolved by taking Petitioner’s arguments at face value, without the benefit of the very document that gave rise to the relationship between Petitioner and the United States. . . . Although we are sympathetic to Petitioner’s explanations of its limitations as a litigant in the Court of Federal Claims as a mere arms-length supplier to the government, we have no factual basis by which we can deny Patent Owner’s request for the contract, especially when it is Petitioner’s burden to prove its status as the sole real party in interest, and Patent Owner has raised a reasonable dispute. Therefore, we determine that the contract is germane to the issue of real party in interest and privity and the request for the contract is not burdensome and is narrowly tailored to cover a single document that exists, and that is not public.

As to the surrounding communications, the Board explained:

Patent Owner has not presented any scenario, real or plausible, in which Patent Owner and the United States have collaborated or coordinated efforts sufficient to show more than a probability that communications concerning the filing or status of the IPRs have occurred. However, as stated above, Petitioner has the burden in this matter. Of particular concern is the fact that Petitioner has not conclusively stated that no such communications exist. . . . . [T]he request we have reviewed in the Motion is narrowly tailored to reasonable and specific time periods and covers only the instant proceedings. If there are no such communications, then there is nothing to produce. If there are communications, then those would be useful to show the extent, if any, of a coordination germane to Patent Owner’s contentions regarding real party in interest and privity between Petitioner and the United States. Thus, on balance, we are discharging our duty to engage in a flexible approach to discovering the facts and issues surrounding the real party in interest and privity allegations in the current legal landscape. See Applications in Internet Time, LLC v. RPX Corp., 897 F.3d 1336, 1351 (Fed. Cir. 2018) (explaining that determining whether a party is a real party in interest “demands a flexible approach that takes into account both equitable and practical considerations, with an eye toward determining whether the nonparty is a clear beneficiary that has a preexisting, established relationship with the petitioner”)

The additional discovery here will drive the Board’s ultimate RPI/Privy determination. Of course, as discussed last week in the context of 314(a), a contract between parties may be considered a “significant relationship.” As such, there is a significant risk in such 1498 timing scenarios. Furthermore, if the associated communications reveal RPI-like behavior, the recent SCOTUS decision in ReturnMail could also doom such a petition independent of 315(b) time bar considerations.