`Filed: December 9, 2015
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`Naveen Modi
`Paul Hastings LLP
`875 15th Street NW
`Washington, DC 20005
`Telephone: (202) 551-1990
`Facsimile: (202) 551-0490
`E-mail: naveenmodi@paulhastings.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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`THE MANGROVE PARTNERS MASTER FUND, LTD.
`Petitioner
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`v.
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`VIRNETX INC.
`Patent Owner
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`Case IPR2015-01046
`Patent 6,502,135
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`Patent Owner’s Motion for Additional Discovery
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`Filed on behalf of: VirnetX Inc.
`By:
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`Joseph E. Palys
`Paul Hastings LLP
`875 15th Street NW
`Washington, DC 20005
`Telephone: (202) 551-1996
`Facsimile: (202) 551-0496
`E-mail: josephpalys@paulhastings.com
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`I.
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`II.
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`Case No. IPR2015-01046
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`Table of Contents
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`Introduction and Precise Relief Requested ...................................................... 1
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`Background ...................................................................................................... 1
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`A.
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`B.
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`The Mangrove Entities .......................................................................... 1
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`Petitioner’s Acknowledgements ............................................................ 3
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`III. Reasons for the Requested Relief .................................................................... 4
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`IV. Conclusion ....................................................................................................... 8
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`Case No. IPR2015-01046
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`TABLE OF AUTHORITIES
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` Page(s)
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`Cases
`Garmin Int’l, Inc. v. Cuozzo Speed Techs. LLC,
`IPR2012-00001, Paper No. 26 (Mar. 5, 2013) ............................................. 5, 6, 8
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`In re Guan, Control No. 95/001,045,
`Decision Vacating Filing Date (Aug. 25, 2008) ................................................... 5
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`Reflectix, Inc. v. Promethean Insulation Tech. LLC,
`IPR2015-00039, Paper No. 18 (Apr. 24, 2015) .................................................... 5
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`Federal Statutes
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`35 U.S.C. § 312(a)(2) ................................................................................................. 5
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`Federal Rules
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`37 C.F.R. § 42.51(b)(2) .............................................................................................. 1
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`37 C.F.R. § 42.52(a) ................................................................................................... 1
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`Other Authorities
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`77 Fed. Reg. 157 ........................................................................................................ 5
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`ii
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`I.
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`Case No. IPR2015-01046
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`Introduction and Precise Relief Requested
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`Patent Owner requests that the Board authorize the discovery contained in
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`Exhibits 2039-2040. See 37 C.F.R. §§ 42.51(b)(2), 42.52(a). The Board
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`authorized this motion in an email to the parties on December 4, 2015.
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`II. Background
`The Mangrove Partners Master Fund, Ltd. is an entity set up in the Cayman
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`Islands that has no control over its own actions. By design, it receives funding,
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`operates, and pays out profits entirely at the discretion of others, including (1)
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`Mangrove Partners (“the Mangrove Partners Hedge Fund”); (2) Nathaniel August
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`(President and majority owner of the Mangrove Partners Hedge Fund); (3) The
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`Mangrove Partners Fund, L.P. (“the US Feeder”); (4) The Mangrove Partners Fund
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`(Cayman), Ltd. (“the Cayman Feeder”); (5) Mangrove Capital (the General Partner
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`of the US Feeder); and (6) the investors in the US Feeder and the Cayman Feeder,
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`as explained below.
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`The Board previously found that there were insufficient facts to show that
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`these entities were real-parties-in-interest (“RPIs”). See generally Paper No. 19.
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`While Patent Owner respectfully disagrees, the underlying facts do show at a
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`minimum that there is more than a possibility and mere allegation that each of
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`these entities is a RPI, thus supporting the requested discovery.
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`A. The Mangrove Entities
`Nathaniel August is President and majority owner of the Mangrove Partners
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`Hedge Fund. (See Ex. 2002 at 1-2; Ex. 2001 at 3.) In its role as “investment
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`manager,” the Mangrove Partners Hedge Fund has “complete discretion” to control
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`the investments of the US Feeder, the Cayman Feeder, and Petitioner. (Ex. 2001 at
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`3, 17.) The Mangrove Partners Hedge Fund requires investors to provide a
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`“minimum initial investment of $1,000,000,” (Ex. 2001 at 6). Pursuant to a
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`master-feeder structure, the investments would be fed into the US Feeder or the
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`Cayman Feeder, and in turn funneled to Petitioner. (Ex. 2001 at 3-4; Ex. 2041 at
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`6-10; Ex. 2015 at 34-35.) Petitioner has not disputed that the funds from its
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`investors were used for this proceeding.
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`The Mangrove Partners Hedge Fund and Nathaniel August have repeatedly
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`signed documents on behalf of Petitioner, the US Feeder, the Cayman Feeder, and
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`Mangrove Capital.1 (See, e.g., Ex. 2007 at 11-12; Ex. 2008 at 12; Ex. 2009 at 11;
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`Ex. 2010 at 11; Ex. 2011 at 11; Ex. Ex. 2012 at 11; Ex. 2013 at 5, 11.) These
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`entities have also in the past publicly acted as a collective, referring to themselves
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`as “Mangrove.” (Ex. 2014 at 1, 3, 4.) Thus, it is likely that these entities also
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`acted collectively in controlling and funding this proceeding, including preparing
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`1 Mangrove Capital is an “affiliate” of the Mangrove Partners Hedge Fund and
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`“serves as the general partner of the US Feeder.” (Id. at 3.) The Mangrove
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`Partners Hedge Fund and Mangrove Capital are “under common control.” (Ex.
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`2041 at 5.)
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`2
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`and filing the petition here.
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`Indicative of this collective effort in the petition, Ward Dietrich held himself
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`out as an “authorized person” to sign the Power of Attorney on behalf of Petitioner.
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`See Paper No. 2 at 2. Ward Dietrich is Chief Operating Officer of the Mangrove
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`Partners Master Fund. (See Ex. 2002 at 2.) However, he has no public role in
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`Petitioner, with only Nathaniel August, Kevin Phillip, and David Bree listed as
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`Petitioner’s Directors in SEC filings. (Ex. 2041 at 6.)
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`Petitioner’s Acknowledgements
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`B.
`Petitioner has never denied involvement of the other Mangrove entities in
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`this proceeding. To the contrary, Petitioner appears to have conceded as much.
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`For example, when Patent Owner raised the RPI issue in a Request for Rehearing,
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`Petitioner offered to file a “contingent motion to amend the real parties in interest.”
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`Paper No. 18 at 2. Given that the determination of whether “a party who is not
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`named as a participant in a given proceeding constitutes an RPI is a highly fact
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`dependent question,” see Paper No. 19 at 3, Petitioner’s willingness to change RPI
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`demonstrates that there is more than a possibility and mere allegation that it
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`incorrectly identified the RPIs in this proceeding.
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`During a meet-and-confer process suggested by the Board (see Ex. 2042 at
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`27:3-12), Petitioner’s counsel indicated that Petitioner was willing to name all of
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`the entities discussed in Section II.A, other than the investors, as RPIs, and was
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`3
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`also willing to provide additional discovery. In fact, Petitioner’s counsel indicated
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`Case No. IPR2015-01046
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`that Petitioner had already collected certain material responsive to draft discovery
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`requests provided by Patent Owner. Petitioner’s counsel further conceded an
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`individual named Jeffrey Kalicka (the Mangrove Partners Hedge Fund’s Senior
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`Analyst) was involved in the preparation of the petition here, despite the fact that,
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`like Ward Dietrich, he has no public role in Petitioner. (Ex. 2041 at 6.)
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`Despite the concessions during the meet-and-confer process, Petitioner was
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`only willing to correct its RPI designation and/or provide additional discovery if
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`Patent Owner agreed to waive its right to challenge Petitioner’s failure to properly
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`identify the RPIs. Patent Owner did not agree to Petitioner’s proposal. For one,
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`Patent Owner does not believe it is required to waive its rights so that Petitioner
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`can meet its statutory obligation. In addition, as Patent Owner’s counsel explained
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`to Petitioner’s counsel, RPI is a highly fact-specific inquiry that cannot be
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`negotiated. It would be improper for some RPIs to be named and others to be
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`omitted based on an agreement between the parties. Petitioner’s willingness to
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`negotiate the identified RPIs shows that it failed to consider the necessary factual
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`inquiries prior to filing its petition and now recognizes that there is an issue.
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`III. Reasons for the Requested Relief
`Patent Owner requests discovery that will further show that Mangrove
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`Partners, Nathaniel August, the US Feeder, the Cayman Feeder, Mangrove Capital,
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`and the investors (collectively, “the other Mangrove entities”), are RPIs, and
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`therefore, that Petitioner violated the statutory requirements of 35 U.S.C.
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`§ 312(a)(2). Aside from being a statutory requirement, the Board relies on “RPI to
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`determine conflicts of interest for the Office [and] the credibility of evidence
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`presented in a proceeding,” Reflectix, Inc. v. Promethean Insulation Tech. LLC,
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`IPR2015-00039, Paper No. 18 at 8 (Apr. 24, 2015) (citing GEA Process Eng’g Inc.
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`v. Steuben Foods, Inc., IPR2014-00041, Paper No. 140 at 24 (Feb. 11, 2015)), and
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`to “assure proper application of the statutory estoppel provisions.” 77 Fed. Reg.
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`157 at 48759; see also In re Guan, Control No. 95/001,045, Decision Vacating
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`Filing Date (Aug. 25, 2008). As discussed in turn below, Patent Owner’s
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`discovery requests meet the factors set forth in Garmin Int’l, Inc. v. Cuozzo Speed
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`Techs. LLC, IPR2012-00001, Paper No. 26 (Mar. 5, 2013).
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`More Than a Possibility and Mere Allegation: Patent Owner’s discovery
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`narrowly focuses on the nature and scope of the relationship between Petitioner
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`and the other Mangrove entities as it pertains to this proceeding. (See Exs. 2039-
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`2040.) The discovery is based on known aspects of the relationship between
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`Petitioner and the other Mangrove entities discussed above (more than a possibility
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`and mere allegation), and is calculated to render useful information that is
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`favorable to Patent Owner’s contention that this proceeding should be dismissed
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`under 35 U.S.C. § 312(a)(2) for failing to identify the other Mangrove entities as
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`5
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`RPIs. See Garmin, IPR2012-00001, Paper No. 26 at 7.
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`Case No. IPR2015-01046
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`There is a strong likelihood that the requested material exists. For example,
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`the material sought in Request For Production (“RFP”) No. 1 is likely to exist
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`given the legal relationships between the Mangrove entities and the involvement of
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`Ward Dietrich and Jeffrey Kalicka in the preparation and filing of the petition in
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`this proceeding (despite the fact that neither is officially affiliated with Petitioner).
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`The material sought in RFP No. 2 is likely to exist given that, by its very nature as
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`a master fund, Petitioner is only intended to profit on behalf of others (i.e., the US
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`Feeder and the Cayman Feeder, and, in turn, the investors in the US Feeder and the
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`Cayman Feeder), and thus arrangements as to funds, stock, stock options, or other
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`consideration are likely to exist. The material sought in RFP Nos. 3-4 is almost
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`certain to exist given that, for example, law firms enter into engagement
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`agreements or retainer agreements prior to commencing work, and generate
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`invoices as work is performed, and are likely to be highly probative of whether
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`Petitioner or the other Mangrove entities engaged the counsel listed in the petition
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`for this proceeding and who is funding the proceeding.
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`The material sought in Interrogatory No. 1 is likely to exist for the same
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`reasons discussed above for RFP Nos. 1-4. As to Interrogatory Nos. 2-4, the
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`persons or entities covered by the requests necessarily exist (e.g., someone
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`necessarily was involved in the preparation and filing of the petition here), should
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`be readily identifiable as a simple factual query, and are highly probative of RPI.
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`In addition to the requests in Exhibits 2039-2040, Patent Owner also
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`requests that, given Nathaniel August’s role in the Mangrove entities, he be made
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`available for a four hour deposition regarding the entities and individuals involved
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`in the control and funding of this proceeding. Patent Owner, however, is willing to
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`hold this request in abeyance until after Petitioner has responded to the other
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`requests and Patent Owner determines whether a deposition is still necessary.
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`Litigation Positions and Underlying Basis: Patent Owner, Petitioner, and
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`the other Mangrove entities are not in district-court litigation, and none of Patent
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`Owner’s requests implicate litigation positions or strategies of Petitioner or the
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`other Mangrove entities. Patent Owner also does not seek to prematurely learn
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`Petitioner’s or the other Mangrove entities’ positions in these IPRs.
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`Ability to Generate Equivalent Information by Other Means: Patent
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`Owner’s discovery requests narrowly target information about the relationship
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`between Petitioner and the other Mangrove entities that is not publicly available.
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`While public documents, including those filed with the SEC, suggest the other
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`Mangrove entities are likely RPIs, the Board found this was not enough to show
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`the other Mangrove entities were necessarily controlling or funding this
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`proceeding. See generally Paper No. 19.
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`Easily Understandable Instructions: Patent Owner’s instructions (see Exs.
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`2039-2040 at 1-2) are easily understandable and are based on the instructions
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`already approved by the Board in Garmin. IPR2012-00001, Paper No. 26 at 14.
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`Requests Not Overly Burdensome: The requested discovery is “sensible
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`and responsibly tailored according to a genuine need.” See Garmin at 14-16.
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`Petitioner’s compliance with the requested discovery will not require significant
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`expenditure of resources or place a significant burden on meeting deadlines in this
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`proceeding. Petitioner’s counsel in fact conceded that Petitioner had already
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`collected certain material responsive to draft discovery requests provided by Patent
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`Owner. Moreover, any alleged financial, human resource, or time burden merely
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`represents the cost of an RPI factual inquiry that should have been performed
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`before the petition in this proceeding was filed.
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`IV. Conclusion
`Based on the above, Patent owner respectfully requests that the Board allow
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`the discovery contained in Exhibits 2039-2040.
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`Dated: December 9, 2015
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`Respectfully submitted,
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`By: /Joseph E. Palys/
`Joseph E. Palys
`Registration No. 46,508
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`Counsel for VirnetX Inc.
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`8
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`Case No. IPR2015-01046
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`CERTIFICATE OF SERVICE
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`Pursuant to 37 C.F.R. § 42.6(e), I certify that I caused to be served on the
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`counsel for Petitioner a true and correct copy of the foregoing Patent Owner’s
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`Preliminary Response pursuant to 37 C.F.R. § 42.8 by electronic means on the date
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`below at the following address of record:
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`Abraham Kasdan (akasdan@wiggin.com)
`Wiggin and Dana LLP
`450 Lexington Avenue
`New York, NY 10017
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`James T. Bailey (jtb@jtbaileylaw.com)
`504 W. 136th St. #1B
`New York, NY 10031
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`IP@wiggin.com
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`Respectfully submitted,
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` /Joseph E. Palys/
`Joseph E. Palys
`Counsel for VirnetX Inc.
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`Dated: December 9, 2015