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`Case No. IPR2014-00173
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`Paper No.
`Filed: March 24, 2014
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`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
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` naveen.modi@finnegan.com
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`UNITED STATES PATENT AND TRADEMARK OFFICE
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
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`RPX CORPORATION
`Petitioner
`v.
`VIRNETX INC.
`Patent Owner
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`Case IPR2014-00173
`Patent 7,490,151
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`Patent Owner’s Response to the Board’s March 17, 2014 Order
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`Case No. IPR2014-00173
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`Table of Contents
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`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
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`E.
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`Case No. IPR2014-00173
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`Table of Authorities
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`STATUTES
`35 U.S.C. § 315(b) ..................................................................................................... 7
`CASES
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`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
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`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
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`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
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`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
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`Case No. IPR2014-00173
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`I.
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`Introduction
`The Board requested briefing regarding Taylor v. Sturgell’s second and fifth
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`categories of nonparty preclusion, including what level of control, if any, is
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`required under them to find that a party is a real party-in-interest (“RPI”) or privy
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`of another party. Paper No. 36 at 2-3. No control is necessary when the
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`appropriate relationship exists between the parties, such as by having a pre-existing
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`substantive legal relationship under Taylor’s second category (e.g., the relationship
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`between RPX and Apple), or by having a party act as a proxy under Taylor’s fifth
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`category (e.g., RPX acting as a proxy for Apple). Taylor suggests as much, as its
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`fourth category does require some control. Taylor v. Sturgell, 553 U.S. 880, 895
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`(2008) (quoting Montana v. U.S., 440 U.S. 147, 154 (1979)).
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`If control were required under all categories, then Taylor’s categories would
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`collapse into a single category requiring control. Thus, as one court discussing
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`Taylor put it, “[c]ontrol of the prior litigation may be grounds for finding privity in
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`some circumstances, but control is not a necessary element of privity.” Lightfoot v.
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`Arkema, Inc. Ret. Benefits Plan, 2013 WL 3283951 at *9 n.11 (D.N.J. June 27,
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`2013). Indeed, when it promulgated the AIA rules, the Office itself recognized
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`that “[w]hat constitutes a real party-in-interest or privy is a highly fact-dependent
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`question” and “many factors can lead to a determination that a petitioner was a real
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`party-in-interest or privy.” “Rules of Practice for Trials Before the PTAB,” 77
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`Fed. Reg. at 48617; “Office Patent Trial Practice Guide,” 77 Fed. Reg. 48759
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`(“TPG”). As a result, the Board need not focus only on control or Taylor’s second
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`or fifth categories. But even if it does, Apple is an RPI and a privy of RPX.
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`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
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`pre-existing ‘substantive legal relationship[s]’ between the person to be bound and
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`a party to the judgment.” Taylor, 553 U.S. at 894 (internal citation omitted).
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`Contractual relationships—including those in which a contracting party has had no
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`“control” over litigation involving the other party—are “substantive legal
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`relationships” that bar later suits, especially when a later suit implicates or arises
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`from the parties’ contractual relationship. See Nationwide Mut. Fire Ins. Co. v.
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`George V. Hamilton, Inc., 571 F.3d 299, 310-11 (3d Cir. 2009).
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`In one example, a court found a party in privity with its insurance broker,
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`where the insurance broker provided an insurance contract that was alleged to be
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`insufficient or fraudulent. Myrus Hack, LLC v. McDonald’s Corp., No. 05-2700,
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`2009 WL 872176 at *1, 8 (D.N.J. Mar. 30, 2009). The court held that
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`1 Taylor applies to both RPI and privity. See TPG at 48759. But because
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`Taylor refers to “privity,” this paper refers to privity more than RPI. The same
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`facts and analysis, however, also demonstrates that Apple is an unnamed RPI.
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`“corporations engaged in the contractual relationship about which litigation
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`revolves, such as [one party’s] insurance broker relationship with [the other party],
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`satisf[ies] the privity requirement.” Id. at *8. The court did not rely on or discuss
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`control. See generally id. It was irrelevant once the court found an appropriate
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`substantive legal relationship. See also McCarroll v. U.S. Fed. Bureau of Prisons,
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`No. 3:11-cv-934, 2012 WL 3940346 at *9 (D. Conn. Sept. 10, 2012) (finding
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`privity where contract to provide services to prisoners formed the basis for suit; the
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`court did not require or mention control).
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`Courts have also extended privity to encompass those bound by agreement
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`to finance a litigation, regardless of whether the financing parties had the
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`opportunity to exert control over the litigation. In Midway Youth Football Ladies
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`Auxiliary, Inc. v. Strickland, the court found that contributing to a “defense fund”
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`that financed an earlier litigation barred the contributors from pursuing a second
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`action because they were privies to a party in the earlier action. 449 F. Supp. 418,
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`423 (N.D. Ga. 1978). There was no evidence of control. Instead, the court found
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`privity based on a “quasi-contractual agreement or a verbal contract” that required
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`the privies to “contribute to the defense fund.” Id.
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`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
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`above.
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`In addition, RPX is providing legal services much like a law firm,
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`warranting preclusion.
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`to itself as serving “as an extension of a client’s in-house legal team.” (Ex. 2006.)
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`Law firms, however, cannot relitigate issues for
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` See, e.g., Riley v. Giguiere, 631 F. Supp. 2d 1295, 1307-08 (E.D. Cal.
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`2009) (finding attorney precluded from defending against an allegation of
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`improper service where client had already contested the issue and lost).
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` Thus, the privity result remains.
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`Taylor’s Fifth Category Does Not Require Control
`C.
`Under Taylor’s fifth category, “a party bound by a judgment may not avoid
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`its preclusive force by relitigating through a proxy.” Taylor, 553 U.S. at 895. As
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`the Board acknowledged, “Taylor refers to a proxy as a ‘representative or agent of
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`a party who was a party to the prior adjudication.’” Paper No. 36 at 3 (quoting
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`Taylor, 553 U.S. at 905). Taylor treats “representatives” and “agents” differently.
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`See Taylor, 553 U.S. at 895 (first discussing representatives, and then separately
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`discussing agents, noting that “our decisions have not addressed the [agent] issue
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`directly”). Thus, Taylor provides separate paths to a finding of privity under the
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`fifth category. Apple and RPX qualify under both.
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`Turning first to “representatives,” Taylor does not require any control, and
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`never mentions control when discussing representatives. See Taylor, 553 U.S. at
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`895. To the contrary, parties have been deemed representatives acting in concert
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`with others without any control. For example, in Aevoe Corp. v. AE Tech. Co., the
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`Federal Circuit found distributors who had notice of an injunction to be privies of
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`an enjoined seller by virtue of a distribution agreement. 727 F.3d 1375, 1384 (Fed.
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`Cir. 2013). The distributors “did not act independently of [the enjoined party], and
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`were, thus, subject to the original injunction.” Id. Put another way, the distributors
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`were acting as representatives of the enjoined party, so they were privies. See also
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`In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig., 504
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`Fed. Appx. 900, 907 (Fed. Cir. 2013) (finding privity based on a contract without
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`requiring or analyzing control).
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`Turning next to “agents,” contracts can create agency relationships, and
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`“[a]n agent has a duty to act in accordance with the express and implied terms of
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`any contract between the agent and the principal.” Restatement 3d of Agency,
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`§ 8.07. Although the law requires some level of control over an agent, the control
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`need not be complete. Id. at § 1.01, Comment C. Instead, “a person may be an
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`agent although the principal lacks the right to control the full range of the agent’s
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`activities, how the agent uses time, or the agent’s exercise of professional
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`judgment.” Id. Accordingly, the degree of control alone is not determinative of
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`whether an agency relationship exists, and lesser degrees of control may still
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`establish agency. In McCarroll v. U.S. Federal Bureau of Prisons, the court
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`deemed contractors to be agents based on a contract to provide services, and it did
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`so without otherwise analyzing the level of control the contract provided. No.
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`3:11-cv-934, 2012 WL 3940346 at *9 (D. Conn. Sept. 10, 2012).
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`Applying agency principles, courts have found parties to be proxies (and
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`thus privies) where a related party raised substantially the same arguments and
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`sought to vindicate the same rights as a precluded party, and where shared team
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`members provided sufficient overlap that the parties were deemed in privity. See
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`Powell v. Gorham, No. 2:13-cv-0055-LSC, 2013 WL 3151632, at *13-14 (N.D.
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`Ala. June 14, 2013); Pension Fund v. Wasatch Front Elec. and Const., LLC, No.
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`2:09-CV-0632, 2012 WL 2090061, at *6-7 (D. Utah June 8, 2012).
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`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
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`prohibiting Apple from filing its IPRs, there is little doubt that
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`Here, the injunction was issued by Congress in Section 315(b), but the same privity
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` See Aevoe, 727 F.3d at 1384.
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`result should apply.
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` and provided RPX with access to its own
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`counsel and experts (Ex. 2039 at 14; Ex. 2041 at 5). See also Paper No. 34 at 2-17.
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`RPX is serving both as Apple’s representative and agent for purposes of this
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`proceeding
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` (see Aevoe Corp.,
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`Cyclobenzaprine, and McCarroll), which is further supported by their raising of
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`similar arguments against the same patents (see Powell) and by their shared team
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`members at Sidley Austin who had an obligation to act in the interest of both
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`parties simultaneously (see Pension Fund).
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`Apple has further exerted its control over this proceeding at least by
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` providing RPX with the very agents that Apple has entrusted
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`with providing IPR services, Sidley Austin. Indeed, under agency principles,
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`Sidley Austin acting on behalf of Apple is legally no different from Apple acting
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`on behalf of itself. See Link v. Wabash R.R. Co., 370 U.S. 626, 633-34 (1962);
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`Phelps v. Hamilton, 122 F.3d 1309, 1319 (10th Cir. 1997) (control through counsel
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`is sufficient); Asahi Glass Co. v. Toledo Eng’g Co., 505 F. Supp. 2d 423, 436
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`(N.D. Ohio 2007) (finding privity based in part on shared counsel).
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` and the Board has deemed any post-filing
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`presence or lack of control irrelevant in a privity analysis. Synopsys, Inc. v.
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`Mentor Graphics Corp., IPR2012-00042, Paper No. 60 at 12 (February 19, 2014).
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`Since Apple and its agents at Sidley Austin exerted control over this IPR at least
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`through the filing of the petition,
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`The Taylor Court noted that “there is no evidence that Taylor controlled,
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`financed, participated in, or even had notice of Herrick’s earlier suit.” Taylor, 553
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`U.S. at 885. Nonetheless, the Court concluded that Taylor could still meet the fifth
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`category of preclusion, and remanded for a further determination on that issue. Id.
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`at 905-06.
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` Had the Taylor Court been presented with the facts
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`present here, there is no doubt that it would have found privity under category five.
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`E.
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`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
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`control to establish privity. See, e.g., Broadcom Corp. v. Telefonaktiebolaget LM
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`Ericsson (Publ), IPR2013-00601, Paper No. 23 (Jan. 24, 2014). Cases requiring
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`control, however, are directed to Taylor’s fourth category, and control is not a
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`necessary element for establishing privity. See Sections II.A, II.C, supra; see also
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`Riley v. Giguiere, 631 F. Supp. 2d at 1307 (finding earlier cases to be inconsistent
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`with Taylor when they interpreted privity “narrowly as only applying where the
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`non-party controlled the prior litigation”). Indeed, the Office itself has stated that a
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`flexible, fact-dependent approach is to be used. 77 Fed. Reg. at 48617; TPG at
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`48759-60. Thus, the Board need not focus on control.
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`Case No. IPR2014-00173
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`Moreover, the prohibitions the Office identified in Guan align well with
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`Taylor’s second and fifth categories, as well as the other cases cited above. In re
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`Guan et al., Inter Partes Reexamination Proceeding, Control No. 95/001,045,
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`Decision Vacating Filing Date at 8 (Aug. 25, 2008). Consistent with Midway
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`Youth Football, the first two require nothing more than paying another party (either
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`directly or through a foundation) to file a request. Id. The third prohibition
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`references direction or control, but it is invoked through such minimal control as
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`providing “the prior patents/printed publications on which the reexam is to be
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`based.” Id.
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` And even if the Board decides that some other
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`level of control is required, Apple has had sufficient control to be classified as an
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`RPI and a privy of RPX
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` giving RPX access to its counsel at Sidley
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`Austin and its expert). See Paper No. 34 at 3-17.
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`III. Conclusion
`For these reasons and for those in Paper No. 34, the Board should find RPX
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`and Apple to be in privity and that Apple is an unnamed RPI.
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`Dated: March 24, 2014
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`Respectfully submitted,
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`By: /Joseph E. Palys/
`Joseph E. Palys (Reg. No. 46,508)
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`Counsel for VirnetX Inc.
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`Case No. IPR2014-00173
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`Certificate of Service
`I certify that I caused to be served on the counsel identified below a true and
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`correct copy of the foregoing Patent Owner’s Response to the Board’s March 17,
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`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
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`Gregory M. Howison
`Howison & Arnott, LLP
`Lincoln Centre II
`5420 LBJ Freeway, Suite 660
`Dallas, TX 75240
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`Respectfully submitted,
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`By: /Joseph E. Palys/
`Joseph E. Palys
`Reg. No. 46,508
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`Counsel for VirnetX Inc.
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`Dated: March 24, 2014
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