`
`
`
`Paper No.
`Filed: March 24, 2014
`
`
`Filed on behalf of: VirnetX Inc.
`By:
`Joseph E. Palys
`
`Naveen Modi
`Finnegan, Henderson, Farabow,
` Garrett & Dunner, L.L.P.
`11955 Freedom Drive
`Reston, VA 20190-5675
`Telephone: 571-203-2700
`Facsimile: 202-408-4400
`E-mail: joseph.palys@finnegan.com
`
` naveen.modi@finnegan.com
`
`
`
`
`UNITED STATES PATENT AND TRADEMARK OFFICE
`
`
`
`
`
`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`
`
`
`
`
`RPX CORPORATION
`Petitioner
`v.
`VIRNETX INC.
`Patent Owner
`
`
`
`Case IPR2014-00172
`Patent 6,502,135
`
`
`
`
`
`Patent Owner’s Response to the Board’s March 17, 2014 Order
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Table of Contents
`
`
`I.
`Introduction ...................................................................................................... 1
`II. Apple Is an RPI and RPX’s Privy Under Taylor ............................................. 2
`A.
`Taylor’s Second Category Does Not Require Control .......................... 2
`B. Apple Is an RPI and RPX’s Privy Under Taylor’s Second
`Category ................................................................................................ 3
`Taylor’s Fifth Category Does Not Require Control .............................. 5
`C.
`D. Apple Is an RPI and RPX’s Privy Under Taylor’s Fifth
`Category ................................................................................................ 7
`The Board Need Not Focus on Control, and Even If It Does,
`Apple Is an RPI and RPX’s Privy ......................................................... 9
`III. Conclusion .....................................................................................................10
`
`E.
`
`i
`
`
`
`
`
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Table of Authorities
`
`STATUTES
`35 U.S.C. § 315(b) ..................................................................................................... 7
`CASES
`
`Aevoe Corp. v. AE Tech. Co.
`727 F.3d 1375 (Fed. Cir. 2013) ........................................................................ 5, 7
`Asahi Glass Co. v. Toledo Eng’g Co., 505 F. Supp. 2d 423
` (N.D. Ohio 2007) .................................................................................................. 8
`
`Broadcom Corp. v. Telefonaktiebolaget LM Ericsson (Publ),
`IPR2013-00601, Paper No. 23 (Jan. 24, 2014) ..................................................... 9
`In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent
`Litig., 504 Fed. Appx. 900 (Fed. Cir. 2013) ..................................................... 6, 8
`Gen. Foods Corp. v. MA Dep’t of Pub. Health,
`648 F.2d 784 (1st Cir. 1981) ................................................................................. 5
`In re Guan et al., Inter Partes Reexamination Proceeding,
`Control No. 95/001,045, (Aug. 25, 2008)........................................................... 10
`Lightfoot v. Arkema, Inc. Ret. Benefits Plan,
`2013 WL 3283951 (D.N.J. June 27, 2013) ........................................................... 1
`Link v. Wabash R.R. Co.,
`370 U.S. 626 (1962) .............................................................................................. 8
`McCarroll v. U.S. Federal Bureau of Prisons,
`No. 3:11-cv-934, 2012 WL 3940346 (D. Conn. Sept. 10, 2012) ............. 3, 4, 6, 8
`Midway Youth Football Ladies Auxiliary, Inc. v. Strickland
`449 F. Supp. 418 (N.D. Ga. 1978) .............................................................. 3, 4, 10
`Montana v. U.S.,
`440 U.S. 147 (1979) .............................................................................................. 1
`Myrus Hack, LLC v. McDonald’s Corp.,
`No. 05-2700, 2009 WL 872176 (D.N.J. Mar. 30, 2009) .................................. 2, 4
`
`ii
`
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Nationwide Mut. Fire Ins. Co. v. George V. Hamilton, Inc.,
`571 F.3d 299 (3d Cir. 2009) ................................................................................. 2
`Pension Fund v. Wasatch Front Elec. and Const., LLC,
`No. 2:09-CV-0632, 2012 WL 2090061 (D. Utah June 8, 2012) ...................... 7, 8
`Phelps v. Hamilton, 122 F.3d 1309 (10th Cir. 1997) ................................................ 8
`
`Powell v. Gorham,
`No. 2:13-cv-0055-LSC, 2013 WL 3151632 (N.D. Ala. June 14, 2013) .......... 7, 8
`Riley v. Giguiere,
`631 F. Supp. 2d 1295 (E.D. Cal. 2009) ............................................................ 4, 9
`Synopsys, Inc. v. Mentor Graphics Corp.,
`IPR2012-00042, Paper No. 60 (February 19, 2014)............................................. 8
`Taylor v. Sturgell,
`553 U.S. 880 (2008) .....................................................................................passim
`OTHER
`“Office Patent Trial Practice Guide,” 77 Fed. Reg. 157
`(Aug. 14, 2012), pp. 48756-773 ....................................................................... 2, 9
`
`Restatement 3d of Agency, § 1.01, Comment C ....................................................... 6
`Restatement 3d of Agency, § 8.07 ............................................................................. 6
`“Rules of Practice for Trials Before the PTAB,” 77 Fed. Reg. 157
`(Aug. 14, 2012), pp. 48612-678 ................................................................... 1, 2, 9
`
`
`
`
`iii
`
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`I.
`
`Introduction
`The Board requested briefing regarding Taylor v. Sturgell’s second and fifth
`
`categories of nonparty preclusion, including what level of control, if any, is
`
`required under them to find that a party is a real party-in-interest (“RPI”) or privy
`
`of another party. Paper No. 37 at 2-3. No control is necessary when the
`
`appropriate relationship exists between the parties, such as by having a pre-existing
`
`substantive legal relationship under Taylor’s second category (e.g., the relationship
`
`between RPX and Apple), or by having a party act as a proxy under Taylor’s fifth
`
`category (e.g., RPX acting as a proxy for Apple). Taylor suggests as much, as its
`
`fourth category does require some control. Taylor v. Sturgell, 553 U.S. 880, 895
`
`(2008) (quoting Montana v. U.S., 440 U.S. 147, 154 (1979)).
`
`If control were required under all categories, then Taylor’s categories would
`
`collapse into a single category requiring control. Thus, as one court discussing
`
`Taylor put it, “[c]ontrol of the prior litigation may be grounds for finding privity in
`
`some circumstances, but control is not a necessary element of privity.” Lightfoot v.
`
`Arkema, Inc. Ret. Benefits Plan, 2013 WL 3283951 at *9 n.11 (D.N.J. June 27,
`
`2013). Indeed, when it promulgated the AIA rules, the Office itself recognized
`
`that “[w]hat constitutes a real party-in-interest or privy is a highly fact-dependent
`
`question” and “many factors can lead to a determination that a petitioner was a real
`
`party-in-interest or privy.” “Rules of Practice for Trials Before the PTAB,” 77
`
`
`
`
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Fed. Reg. at 48617; “Office Patent Trial Practice Guide,” 77 Fed. Reg. 48759
`
`(“TPG”). As a result, the Board need not focus only on control or Taylor’s second
`
`or fifth categories. But even if it does, Apple is an RPI and a privy of RPX.
`
`II. Apple Is an RPI and RPX’s Privy1 Under Taylor
`Taylor’s Second Category Does Not Require Control
`A.
`Taylor explains that non-party preclusion is justified by “a variety of
`
`pre-existing ‘substantive legal relationship[s]’ between the person to be bound and
`
`a party to the judgment.” Taylor, 553 U.S. at 894 (internal citation omitted).
`
`Contractual relationships—including those in which a contracting party has had no
`
`“control” over litigation involving the other party—are “substantive legal
`
`relationships” that bar later suits, especially when a later suit implicates or arises
`
`from the parties’ contractual relationship. See Nationwide Mut. Fire Ins. Co. v.
`
`George V. Hamilton, Inc., 571 F.3d 299, 310-11 (3d Cir. 2009).
`
`In one example, a court found a party in privity with its insurance broker,
`
`where the insurance broker provided an insurance contract that was alleged to be
`
`insufficient or fraudulent. Myrus Hack, LLC v. McDonald’s Corp., No. 05-2700,
`
`2009 WL 872176 at *1, 8 (D.N.J. Mar. 30, 2009). The court held that
`
`1 Taylor applies to both RPI and privity. See TPG at 48759. But because
`
`Taylor refers to “privity,” this paper refers to privity more than RPI. The same
`
`facts and analysis, however, also demonstrates that Apple is an unnamed RPI.
`
`2
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`“corporations engaged in the contractual relationship about which litigation
`
`revolves, such as [one party’s] insurance broker relationship with [the other party],
`
`satisf[ies] the privity requirement.” Id. at *8. The court did not rely on or discuss
`
`control. See generally id. It was irrelevant once the court found an appropriate
`
`substantive legal relationship. See also McCarroll v. U.S. Fed. Bureau of Prisons,
`
`No. 3:11-cv-934, 2012 WL 3940346 at *9 (D. Conn. Sept. 10, 2012) (finding
`
`privity where contract to provide services to prisoners formed the basis for suit; the
`
`court did not require or mention control).
`
`Courts have also extended privity to encompass those bound by agreement
`
`to finance a litigation, regardless of whether the financing parties had the
`
`opportunity to exert control over the litigation. In Midway Youth Football Ladies
`
`Auxiliary, Inc. v. Strickland, the court found that contributing to a “defense fund”
`
`that financed an earlier litigation barred the contributors from pursuing a second
`
`action because they were privies to a party in the earlier action. 449 F. Supp. 418,
`
`423 (N.D. Ga. 1978). There was no evidence of control. Instead, the court found
`
`privity based on a “quasi-contractual agreement or a verbal contract” that required
`
`the privies to “contribute to the defense fund.” Id.
`
`B. Apple Is an RPI and RPX’s Privy Under Taylor’s Second
`Category
`The facts here are even more compelling than the cases finding privity
`
`above.
`
`
`
`3
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`
`
`In addition, RPX is providing legal services much like a law firm,
`
`
`
`
`
` RPX even refers
`
`warranting preclusion.
`
`to itself as serving “as an extension of a client’s in-house legal team.” (Ex. 2006.)
`
`Law firms, however, cannot relitigate issues for
`
`
`
` See, e.g., Riley v. Giguiere, 631 F. Supp. 2d 1295, 1307-08 (E.D. Cal.
`
`2009) (finding attorney precluded from defending against an allegation of
`
`improper service where client had already contested the issue and lost).
`
`
`
`4
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`
`
` Thus, the privity result remains.
`
`Taylor’s Fifth Category Does Not Require Control
`C.
`Under Taylor’s fifth category, “a party bound by a judgment may not avoid
`
`its preclusive force by relitigating through a proxy.” Taylor, 553 U.S. at 895. As
`
`the Board acknowledged, “Taylor refers to a proxy as a ‘representative or agent of
`
`a party who was a party to the prior adjudication.’” Paper No. 37 at 3 (quoting
`
`Taylor, 553 U.S. at 905). Taylor treats “representatives” and “agents” differently.
`
`See Taylor, 553 U.S. at 895 (first discussing representatives, and then separately
`
`discussing agents, noting that “our decisions have not addressed the [agent] issue
`
`directly”). Thus, Taylor provides separate paths to a finding of privity under the
`
`fifth category. Apple and RPX qualify under both.
`
`Turning first to “representatives,” Taylor does not require any control, and
`
`never mentions control when discussing representatives. See Taylor, 553 U.S. at
`
`895. To the contrary, parties have been deemed representatives acting in concert
`
`with others without any control. For example, in Aevoe Corp. v. AE Tech. Co., the
`
`Federal Circuit found distributors who had notice of an injunction to be privies of
`
`an enjoined seller by virtue of a distribution agreement. 727 F.3d 1375, 1384 (Fed.
`
`5
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Cir. 2013). The distributors “did not act independently of [the enjoined party], and
`
`were, thus, subject to the original injunction.” Id. Put another way, the distributors
`
`were acting as representatives of the enjoined party, so they were privies. See also
`
`In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig., 504
`
`Fed. Appx. 900, 907 (Fed. Cir. 2013) (finding privity based on a contract without
`
`requiring or analyzing control).
`
`Turning next to “agents,” contracts can create agency relationships, and
`
`“[a]n agent has a duty to act in accordance with the express and implied terms of
`
`any contract between the agent and the principal.” Restatement 3d of Agency,
`
`§ 8.07. Although the law requires some level of control over an agent, the control
`
`need not be complete. Id. at § 1.01, Comment C. Instead, “a person may be an
`
`agent although the principal lacks the right to control the full range of the agent’s
`
`activities, how the agent uses time, or the agent’s exercise of professional
`
`judgment.” Id. Accordingly, the degree of control alone is not determinative of
`
`whether an agency relationship exists, and lesser degrees of control may still
`
`establish agency. In McCarroll v. U.S. Federal Bureau of Prisons, the court
`
`deemed contractors to be agents based on a contract to provide services, and it did
`
`so without otherwise analyzing the level of control the contract provided. No.
`
`3:11-cv-934, 2012 WL 3940346 at *9 (D. Conn. Sept. 10, 2012).
`
`6
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Applying agency principles, courts have found parties to be proxies (and
`
`thus privies) where a related party raised substantially the same arguments and
`
`sought to vindicate the same rights as a precluded party, and where shared team
`
`members provided sufficient overlap that the parties were deemed in privity. See
`
`Powell v. Gorham, No. 2:13-cv-0055-LSC, 2013 WL 3151632, at *13-14 (N.D.
`
`Ala. June 14, 2013); Pension Fund v. Wasatch Front Elec. and Const., LLC, No.
`
`2:09-CV-0632, 2012 WL 2090061, at *6-7 (D. Utah June 8, 2012).
`
`D. Apple Is an RPI and RPX’s Privy Under Taylor’s Fifth Category
`The facts here are similar to Aevoe in that if a court had issued an injunction
`
`
`
`prohibiting Apple from filing its IPRs, there is little doubt that
`
`Here, the injunction was issued by Congress in Section 315(b), but the same privity
`
` See Aevoe, 727 F.3d at 1384.
`
`
`
`result should apply.
`
` and provided RPX with access to its own
`
`counsel and experts (Ex. 2043 at 14; Ex. 2045 at 5). See also Paper No. 35 at 2-17.
`
`RPX is serving both as Apple’s representative and agent for purposes of this
`
`proceeding
`
` (see Aevoe Corp.,
`
`7
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Cyclobenzaprine, and McCarroll), which is further supported by their raising of
`
`similar arguments against the same patents (see Powell) and by their shared team
`
`members at Sidley Austin who had an obligation to act in the interest of both
`
`parties simultaneously (see Pension Fund).
`
`Apple has further exerted its control over this proceeding at least by
`
`
`
` providing RPX with the very agents that Apple has entrusted
`
`with providing IPR services, Sidley Austin. Indeed, under agency principles,
`
`Sidley Austin acting on behalf of Apple is legally no different from Apple acting
`
`on behalf of itself. See Link v. Wabash R.R. Co., 370 U.S. 626, 633-34 (1962);
`
`Phelps v. Hamilton, 122 F.3d 1309, 1319 (10th Cir. 1997) (control through counsel
`
`is sufficient); Asahi Glass Co. v. Toledo Eng’g Co., 505 F. Supp. 2d 423, 436
`
`
`
`(N.D. Ohio 2007) (finding privity based in part on shared counsel).
`
` and the Board has deemed any post-filing
`
`presence or lack of control irrelevant in a privity analysis. Synopsys, Inc. v.
`
`Mentor Graphics Corp., IPR2012-00042, Paper No. 60 at 12 (February 19, 2014).
`
`8
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Since Apple and its agents at Sidley Austin exerted control over this IPR at least
`
`through the filing of the petition,
`
`
`
`The Taylor Court noted that “there is no evidence that Taylor controlled,
`
`financed, participated in, or even had notice of Herrick’s earlier suit.” Taylor, 553
`
`U.S. at 885. Nonetheless, the Court concluded that Taylor could still meet the fifth
`
`category of preclusion, and remanded for a further determination on that issue. Id.
`
`at 905-06.
`
`
`
` Had the Taylor Court been presented with the facts
`
`present here, there is no doubt that it would have found privity under category five.
`
`E.
`
`The Board Need Not Focus on Control, and Even If It Does, Apple
`Is an RPI and RPX’s Privy
`Some might read prior Board decisions as interpreting the law to require
`
`control to establish privity. See, e.g., Broadcom Corp. v. Telefonaktiebolaget LM
`
`Ericsson (Publ), IPR2013-00601, Paper No. 23 (Jan. 24, 2014). Cases requiring
`
`control, however, are directed to Taylor’s fourth category, and control is not a
`
`necessary element for establishing privity. See Sections II.A, II.C, supra; see also
`
`Riley v. Giguiere, 631 F. Supp. 2d at 1307 (finding earlier cases to be inconsistent
`
`with Taylor when they interpreted privity “narrowly as only applying where the
`
`non-party controlled the prior litigation”). Indeed, the Office itself has stated that a
`
`flexible, fact-dependent approach is to be used. 77 Fed. Reg. at 48617; TPG at
`
`48759-60. Thus, the Board need not focus on control.
`
`9
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Moreover, the prohibitions the Office identified in Guan align well with
`
`Taylor’s second and fifth categories, as well as the other cases cited above. In re
`
`Guan et al., Inter Partes Reexamination Proceeding, Control No. 95/001,045,
`
`Decision Vacating Filing Date at 8 (Aug. 25, 2008). Consistent with Midway
`
`Youth Football, the first two require nothing more than paying another party (either
`
`directly or through a foundation) to file a request. Id. The third prohibition
`
`references direction or control, but it is invoked through such minimal control as
`
`providing “the prior patents/printed publications on which the reexam is to be
`
`based.” Id.
`
`
`
` And even if the Board decides that some other
`
`level of control is required, Apple has had sufficient control to be classified as an
`
`RPI and a privy of RPX
`
`
`
` giving RPX access to its counsel at Sidley
`
`Austin and its expert). See Paper No. 35 at 3-17.
`
`III. Conclusion
`For these reasons and for those in Paper No. 35, the Board should find RPX
`
`and Apple to be in privity and that Apple is an unnamed RPI.
`
`Dated: March 24, 2014
`
`Respectfully submitted,
`
`By: /Joseph E. Palys/
`Joseph E. Palys (Reg. No. 46,508)
`
`Counsel for VirnetX Inc.
`
`
`
`10
`
`
`
`
`
`
`
`Case No. IPR2014-00172
`
`Certificate of Service
`I certify that I caused to be served on the counsel identified below a true and
`
`correct copy of the foregoing Patent Owner’s Response to the Board’s March 17,
`
`2014 Order, by electronic means on March 24, 2014:
`
`Oliver R. Ashe, Jr.
`Ashe, P.C.
`11440 Isaac Newton Sq. North, Suite 210
`Reston, VA 20190
`
`Gregory M. Howison
`Howison & Arnott, LLP
`Lincoln Centre II
`5420 LBJ Freeway, Suite 660
`Dallas, TX 75240
`
`
`Respectfully submitted,
`
`By: /Joseph E. Palys/
`Joseph E. Palys
`Reg. No. 46,508
`
`Counsel for VirnetX Inc.
`
`
`
`
`Dated: March 24, 2014