`Filed: November 19, 2019
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`UNITED STATES PATENT AND TRADEMARK OFFICE
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`––––––––––––––––––
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
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`––––––––––––––––––
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`THE MANGROVE PARTNERS MASTER FUND, LTD. and APPLE INC.,
`Petitioners,
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`v.
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`VIRNETX INC.,
`Patent Owner.
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`––––––––––––––––––
`
`Case No. IPR2015-010461
`U.S. Patent No. 6,502,135
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`––––––––––––––––––
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`PETITIONERS’ OPPOSITION TO PATENT OWNER’S
`NOVEMBER 6, 2019 REQUEST FOR REHEARING
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`1 Apple Inc., who filed a petition in IPR2016-00062, has been joined as a Petitioner
`in the instant proceeding.
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`IPR2015-01046
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`U.S. Patent No. 6,502,135
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`TABLE OF CONTENTS
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`I.
`Introduction ................................................................................................ 1
`Background ................................................................................................. 1
`II.
`III. VirnetX’s Request for Rehearing under a New Panel Should Be Denied 2
`A. Discovery Orders, like Institution Decisions, Do Not Implicate the
`Same Constitutional Concerns as Final Written Decisions .................. 2
`Arthrex Left Intact Multiple Other Non-Final Orders Analogous to the
`Discovery Order Here ......................................................................... 4
`IV. Conclusion ................................................................................................... 5
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`B.
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`U.S. Patent No. 6,502,135
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`TABLE OF AUTHORITIES
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` Page(s)
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`Cases
`Arthrex, Inc. v. Smith & Nephew, Inc.,
`No. 18-2140, 2019 WL 5616010 (Fed. Cir. Oct. 31, 2019) ....................... passim
`Bedgear, LLC v. Fredman Bros. Furniture Co.,
`No. 2018-2082, 2019 WL 5806893 (Fed. Cir. Nov. 7, 2019) ............................. 5
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`Smith & Nephew, Inc. v. Arthrex, Inc.,
`IPR2017-00275 ................................................................................................. 4
`Statutes
`35 U.S.C. § 141(c) .................................................................................................. 2
`35 U.S.C. § 314 ...................................................................................................... 3
`35 U.S.C. § 316(a)(5) .......................................................................................... 3, 4
`35 U.S.C. § 316(c) .................................................................................................. 4
`35 U.S.C. § 318(a) .............................................................................................. 2, 4
`35 U.S.C. § 319 ...................................................................................................... 2
`Other Authorities
`37 C.F.R. § 42.4(a) ................................................................................................. 3
`37 C.F.R. § 42.51 .................................................................................................... 3
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`IPR2015-01046
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`I.
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`Introduction
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`U.S. Patent No. 6,502,135
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`Patent Owner VirnetX Inc.’s (“VirnetX”) latest rehearing request argues that
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`rehearing of the Board’s October 23, 2019 Order (Paper 88, “October 23 Order”) is
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`“necessary in light of the Federal Circuit’s recent decision Arthrex, Inc. v. Smith &
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`Nephew, Inc., No. 18-2140, 2019 WL 5616010 (Fed. Cir. Oct. 31, 2019), so that a
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`new panel could consider VirnetX’s original motion to remove constitutional
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`concerns.” See Paper 92, 1 (“Reh’g Req.”).
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`The predicate of VirnetX’s request—that “any action taken” in an IPR
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`proceeding must now be redone after Arthrex (Reh’g Req. 6)—is simply incorrect.
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`Instead, the Federal Circuit in Arthrex left intact the institution decision because it
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`did not implicate the same constitutional concerns as a final written decision, and
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`maintained other non-final orders. The October 23 Order is a decision that likewise
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`raises no constitutional concerns. VirnetX’s rehearing request should be denied.2
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`II. Background
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`The Federal Circuit’s Arthrex decision held that “APJs have substantial
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`power to issue final decisions on behalf of the United States without any review by
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`a presidentially-appointed officer,” reasoning that “[t]here is no provision or
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`2 The Board authorized this opposition via email on November 15. Petitioners
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`previously opposed VirnetX’s other rehearing argument. See Paper 82 at 11–14.
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`procedure providing the Director the power to single-handedly review, nullify or
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`reverse a final written decision issued by a panel of APJs.” Arthrex at *5, *4; see
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`also 35 U.S.C. §§ 141(c), 318(a), 319. Because this meant the current structure of
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`the Board had violated the Appointments Clause, the court vacated the final written
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`decision and remanded the case for hearing by a new panel. Arthrex at *8-10.
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`The court, however, clearly limited the remedy it ordered: only the Board’s
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`final written decision was vacated and remanded to a new panel. As the court
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`stated, “[t]o be clear, on remand the decision to institute is not suspect; we see no
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`constitutional infirmity in the institution decision as the statute clearly bestows
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`such authority on the Director pursuant to 35 U.S.C. § 314.” Id. at *12. The court
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`also saw “no error in the new panel proceeding on the existing written record …,”
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`id., which included three non-final orders, none of which were vacated. See Smith
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`& Nephew, Inc. v. Arthrex, Inc., IPR2017-00275, Papers 8, 16, 26.
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`III. VirnetX’s Request for Rehearing under a New Panel Should Be Denied
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`A. Discovery Orders, like Institution Decisions, Do Not Implicate the
`Same Constitutional Concerns as Final Written Decisions
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`VirnetX’s request for rehearing by a new panel ignores the narrow remedy
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`actually ordered in Arthrex. See Reh’g Req. 5–9. In that case, the Federal Circuit
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`limited the decisions that required rehearing by a new panel to those implicating
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`the same constitutional concerns as final written decisions. Discovery orders like
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`the Board’s October 23 Order are not such decisions.
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`Most notably, the Court found “no constitutional infirmity in the institution
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`decision as the statute clearly bestows such authority on the Director pursuant to 35
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`U.S.C. § 314.” Arthrex at 12; 35 U.S.C. § 314(a) (“The Director may not authorize
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`an inter partes review to be instituted unless …”). The Director has delegated his
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`authority to decide whether to institute inter partes reviews to the Board, but
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`retains the ability to promulgate regulations. See 37 C.F.R. § 42.4(a). Because it
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`did not implicate the same constitutional concerns as final decisions, Arthrex’s
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`institution decision was thus not vacated and will remain in effect upon remand.
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`The statute likewise provides the Director with the authority to promulgate
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`regulations governing discovery in an inter partes review. Section 316(a) states
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`that “[t]he Director shall prescribe regulations— … (5) setting forth standards and
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`procedures for discovery of relevant evidence ….” 35 U.S.C. § 316(a)(5)
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`(emphasis added). The rules promulgated to define these “procedures for
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`discovery” currently give the Board the authority to decide motions for additional
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`discovery, 37 C.F.R. § 42.51, but nothing in the statute precludes alternative
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`procedures that would give the Director the authority to review Board discovery
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`orders.3 The Director could, even though he has not, give himself “the power to
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`3 The statute requires that “[t]he Patent Trial and Appeal Board … conduct each
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`inter partes review instituted under this chapter,” but that conduct is regulated
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`single-handedly review, nullify or reverse a [discovery] decision issued by a panel
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`of APJs” by enacting procedures for discovery that include such authority. See
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`Arthrex at *4. The Board’s October 23 Order is therefore more like an institution
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`decision than a final written decision within Arthrex’s framework.
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`Because the Director retains the authority to promulgate regulations such as
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`a final review for discovery orders, discovery orders under § 316(a)(5) do not
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`implicate the same constitutional concerns as final written decisions under
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`§ 318(a). Thus, Arthrex cannot be read to require that the Board’s October 23
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`Order be reheard by a new panel.
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`B. Arthrex Left Intact Multiple Other Non-Final Orders Analogous
`to the Discovery Order Here
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`The Board’s October 23 Order should be maintained for another reason.
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`Arthrex saw “no error in the new panel proceeding on the existing written record
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`….” Arthrex at *12. That “existing written record” included three non-final orders,
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`none of which were vacated. See Smith & Nephew, Inc. v. Arthrex, Inc., IPR2017-
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`00275, Papers 8 (scheduling order), 16 (order granting motions for PHV), 26
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`(order defining the scope of the oral hearing). Like the discovery order at issue
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`through the “standards and procedures for discovery” promulgated by the Director,
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`which could encompass a final review by the Director. See 35 U.S.C. § 316(c).
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`here, these orders are part of the “significant authority” exercised by APJs, see
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`Arthrex at *3 (identifying, e.g., overseeing discovery and hearing oral arguments as
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`examples), yet were maintained and not vacated by the court in Arthrex.
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`VirnetX’s theory that “any action taken by a principal officer whose
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`appointment does not comport with the requirements of the Appointment Clause is
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`constitutionally infirm under the Federal Circuit’s reasoning in Arthrex” and must
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`be reheard (Reh’g Req. 6) thus conflicts with the remedy actually ordered in
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`Arthrex, which did not require non-final orders be reheard by a new panel.
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`IV. Conclusion
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`For the foregoing reasons, VirnetX’s request for a rehearing under a
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`different panel should be denied.4
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`4 VirnetX’s request to dramatically expand the remedy ordered by the Federal
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`Circuit in Arthrex—from final written decisions to “any action taken” (Reh’g Req.
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`6)—is further undercut by recent negative treatment of even the narrow remedy
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`ordered in that case. E.g., Bedgear, LLC v. Fredman Bros. Furniture Co., No.
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`2018-2082, 2019 WL 5806893, at *5 (Fed. Cir. Nov. 7, 2019) (Dyk, J., concurring)
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`(suggesting that “Arthrex was wrongly decided on the issue of remedy. As a result
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`of the Arthrex construction, APJs were properly appointed by the Secretary of
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`Commerce and their prior decisions are not invalid.”).
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`U.S. Patent No. 6,502,135
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`Dated: November 19, 2019
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`Respectfully Submitted,
`
`/Jeffrey P. Kushan/
`Jeffrey P. Kushan
`Reg. No. 43,401
`Sidley Austin LLP
`1501 K Street, N.W.
`Washington, D.C. 20005
`T: 202-736-8000
`Attorney for Petitioner Apple Inc.
`
`/James T. Bailey/
`James T. Bailey
`Reg. No. 44,518
`The Law Office of James. T. Bailey
`504 W. 136th St. #1B
`New York, NY 10031
`T: 917-626-1356
`Attorney for Petitioner Mangrove
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`IPR2015-01046
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`U.S. Patent No. 6,502,135
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`CERTIFICATE OF SERVICE
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`Pursuant to 37 C.F.R. § 42.6(e), I hereby certify that on this 19th day of
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`November, 2019, I caused to be served a true and correct copy of the foregoing by
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`electronic mail on the following counsel:
`
`Joseph E. Palys
`josephpalys@paulhastings.com
`
`Naveen Modi
`Naveenmodi@paulhastings.com
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`
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`Dated: November 19, 2019
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`Respectfully Submitted,
`
`/Jeffrey P. Kushan/
`Jeffrey P. Kushan
`Reg. No. 43,401
`Sidley Austin LLP
`1501 K Street, N.W.
`Washington, D.C. 20005
`T: 202-736-8000
`Attorney for Petitioner Apple Inc.
`
`/James T. Bailey/
`James T. Bailey
`Reg. No. 44,518
`The Law Office of James. T. Bailey
`504 W. 136th St. #1B
`New York, NY 10031
`T: 917-626-1356
`Attorney for Petitioner Mangrove
`
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