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`Paper No.
`Filed: May 21, 2020
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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., APPLE INC., and
`BLACK SWAMP IP, LLC,
`Petitioner
`v.
`VIRNETX INC.,
`Patent Owner
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`
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`Case IPR2015-010471
`Patent 6,502,135
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`
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`Patent Owner’s Responsive Brief Addressing Whether the Board Should
`Maintain Application of the General Order to This Proceeding
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`1 Apple Inc. and Black Swamp IP, LLC, who filed petitions in IPR2016-00063 and
`IPR2016-00167, respectively, have been joined as a Petitioner in the instant
`proceeding.
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`Case No. IPR2015-01047
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`TABLE OF CONTENTS
`Background ...................................................................................................... 2
` Argument ......................................................................................................... 3
`A.
`The Chief Judge Properly Stayed This Case in Light of Arthrex ......... 3
`B. Overturning the Stay Would Improperly Prejudice VirnetX ................ 6
` Conclusion ....................................................................................................... 6
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`i
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`Case No. IPR2015-01047
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`TABLE OF AUTHORITIES
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` Page(s)
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`Cases
`Arthrex, Inc. v. Smith & Nephew, Inc.,
`941 F.3d 1320 (Fed. Cir. 2019) .................................................................... 1, 4, 5
`BioDelivery Scis. Int’l, Inc. v. Aquestive Therapeutics, Inc.,
`935 F.3d 1362 (Fed. Cir. 2019) ............................................................................ 5
`Caterpillar Paving Prods., Inc. v. Wirtgen America, Inc.,
`957 F.3d 1342 (Fed. Cir. 2020) ............................................................................ 4
`Commc’n Workers of Am., Local 5008 v. NLRB,
`784 F.2d 847 (7th Cir. 1986) ................................................................................ 5
`Customedia Techs., LLC v. Dish Network Corp.,
`941 F.3d 1173 (Fed. Cir. 2019) ............................................................................ 6
`Freytag v. Comm’r,
`501 U.S. 868 (1991) .............................................................................................. 4
`VirnetX Inc. v. Cisco Sys., Inc.,
`--- F.3d ----, No. 2019-1671, 2020 WL 2462797
`(Fed. Cir. May 13, 2020) .................................................................................. 1, 5
`VirnetX Inc. v. Mangrove Partners Master Fund, Ltd.,
`778 F. App’x 897 (Fed. Cir. 2019) ................................................................... 2, 6
`VirnetX, Inc. v. Cisco Sys., Inc.,
`767 F.3d 1308 (Fed. Cir. 2014) ............................................................................ 2
`Statutes
`35 U.S.C. § 315(b) ..................................................................................................... 6
`Other Authorities
`Pet. for Writ of Certiorari, Arthrex, Inc. v. Smith & Nephew, Inc.,
`No. 19-1204, 2020 WL 1817716 (U.S. Apr. 20, 2020) ........................................ 6
`
`ii
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`Case No. IPR2015-01047
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`The Chief Judge properly exercised his discretion in staying this case, among
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`others, pending potential Supreme Court review in Arthrex, Inc. v. Smith & Nephew,
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`Inc., 941 F.3d 1320 (Fed. Cir. 2019). Paper 117 (“General Order”) at 1-2. VirnetX
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`has raised an Appointments Clause challenge to a Board discovery order issued
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`before the Federal Circuit decided Arthrex, when the panel members were
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`unconstitutionally appointed principal officers. See Paper 101. Under Arthrex, that
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`order was invalid; it must be vacated and reconsidered by a new, properly appointed
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`panel. The Supreme Court, however, may provide guidance that further clarifies the
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`law or counsels a different approach. Awaiting review in Arthrex thus may avoid
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`the risk of a costly do-over (either now or following a later appeal).
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`Petitioners err in urging that Arthrex applies only to final written decisions.
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`Because “APJs are unconstitutionally appointed principal officers …, vacatur [is]
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`appropriate for all agency actions rendered by those APJs,” including the discovery
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`order here. VirnetX Inc. v. Cisco Sys., Inc., --- F.3d ----, No. 2019-1671, 2020 WL
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`2462797, at *1 (Fed. Cir. May 13, 2020) (emphasis added). Petitioners’ arguments
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`that VirnetX’s Appointments Clause challenge is waived and foreclosed by the
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`mandate rule are themselves waived and meritless. Petitioners did not argue waiver
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`or the mandate rule when VirnetX challenged the discovery order. That order also
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`issued after remand from the prior appeal in this case—VirnetX could not have
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`challenged it in that appeal. And whether Appointments Clause claims are waivable
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`1
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`is before the Supreme Court on certiorari. That alone justifies a stay.
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`Case No. IPR2015-01047
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`One Petitioner—Apple—claims that the stay will cause it prejudice in
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`infringement litigation. But Apple unsuccessfully pressed the same invalidity
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`arguments in both district court and the Federal Circuit, and was (improperly) joined
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`to this proceeding. Apple cannot credibly claim any prejudice.
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`
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`Background
`In 2010, VirnetX sued Apple for infringement of the ’135 and ’151 patents.
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`Apple challenged the patents as invalid in light of Kiuchi, the reference at issue here.
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`The district court upheld the patents, and the Federal Circuit affirmed. VirnetX, Inc.
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`v. Cisco Sys., Inc., 767 F.3d 1308, 1313, 1315, 1323-1324 (Fed. Cir. 2014).
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`In June 2013, Apple filed multiple IPR petitions challenging the patents:
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`IPR2013-00348, -00349, and -00354. The Board denied them as time-barred. In
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`November 2013, RPX Corporation (“RPX”) filed three more petitions against the
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`same patents: IPR2014-00171, -00172, and -00173. After VirnetX showed Apple
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`was using RPX as a proxy, the Board denied those petitions as time-barred too.
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`In April 2015, The Mangrove Partners Master Fund, Ltd. (“Mangrove”)
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`initiated these proceedings. VirnetX uncovered a connection between Mangrove
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`and RPX, but the Board refused discovery. It then found the claims unpatentable.
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`On appeal, the Federal Circuit vacated the Board’s unpatentability findings. It also
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`held the Board erred in refusing discovery. VirnetX Inc. v. Mangrove Partners
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`2
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`Master Fund, Ltd., 778 F. App’x 897, 903-04, 911 (Fed. Cir. 2019).
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`Case No. IPR2015-01047
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`On remand, VirnetX again sought discovery. On October 23, 2019—before
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`the Federal Circuit’s Arthrex decision—the Board largely denied the proposed
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`discovery. Paper 97. Arthrex then issued on October 31, 2019. VirnetX promptly
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`sought rehearing (and reiterated its argument in its remand briefs), arguing that the
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`discovery order was issued by an unconstitutionally appointed panel and, under
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`Arthrex, the case should be assigned to a new, properly appointed panel for
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`reconsideration. Paper 101 at 5-9; see also Paper 103 at 1-3; Paper 105 at 29.
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`Petitioners opposed, arguing that Arthrex does not apply to discovery orders. Paper
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`102 at 2-5; Paper 106 at 32. They never argued that VirnetX’s argument was waived
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`or foreclosed by the mandate rule. The rehearing request remains pending.
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` Argument
`A. The Chief Judge Properly Stayed This Case in Light of Arthrex
`Petitioners launch a wholesale attack on the Chief Judge’s General Order,
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`asserting that any stay in light of Arthrex “is inconsistent with Congress’s mandate
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`that IPR proceedings be resolved expeditiously.” Paper 118 at 6; see id. at 1. But
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`nothing prevents the Board from managing its dockets “[t]o avoid burdening the
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`Office and the parties” in remanded cases—particularly where, as here, anticipated
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`Supreme Court guidance may dictate those cases’ outcomes. General Order at 1-2.
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`Nor was it “arbitrary and capricious,” Paper 118 at 1, 6, for the Chief Judge
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`3
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`to stay this case in light of Arthrex. VirnetX has raised an Appointments Clause
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`Case No. IPR2015-01047
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`challenge to a pre-Arthrex Board ruling, and resolution of that challenge likely
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`depends on the continued vitality of Arthrex. If Arthrex remains the law, VirnetX is
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`entitled to a new, properly appointed panel. If not, some other approach may be
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`appropriate. Staying this case “avoid[s] burdening the Office and the parties” with
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`proceedings that may prove unwarranted once the dust settles. General Order 1-2.
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`Petitioners wrongly assert that there is “no valid Appointments Clause” issue.
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`The discovery order was plainly rendered by an unconstitutionally appointed panel.
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`Paper 101. Contrary to Petitioners’ assertion, Paper 118 at 5, Arthrex applies with
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`full force to that order. As Arthrex observed, “oversee[ing] discovery” is one of the
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`Board’s core functions. 941 F.3d at 1328. Moreover, the “Appointments Clause
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`problem exists even if ruling on discovery motions is a task that could be assigned
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`to ‘inferior officers.’” Paper 101 at 6. Under Supreme Court precedent, a principal
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`officer for one purpose is a principal officer for all purposes. Id. (discussing Freytag
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`v. Comm’r, 501 U.S. 868, 882 (1991)).2 The Federal Circuit thus has observed that,
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`“if the[] APJs are unconstitutionally appointed principal officers … , it would appear
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`2 In Caterpillar Paving Products, Inc. v. Wirtgen America, Inc., 957 F.3d 1342 (Fed.
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`Cir. 2020) (cited at Paper 118 at 5), appellant did not challenge any Board action
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`that issued before Arthrex’s remedy. See ECF #18 in No. 20-1261 (Fed. Cir.).
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`4
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`that under Freytag vacatur would be appropriate for all agency actions rendered by
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`Case No. IPR2015-01047
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`those APJs.” VirnetX, 2020 WL 2462797, at *1 (emphasis added). If there is doubt
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`about what precedent requires, that only confirms the need to await Supreme Court
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`guidance.
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`Petitioners argue that VirnetX’s challenge is somehow waived or “barred by
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`the mandate rule” because it was not raised in the prior Federal Circuit appeal. Paper
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`118 at 4. Petitioners waived those arguments by failing to raise them when VirnetX
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`asserted its Appointments Clause challenge. See Paper 102; Paper 106 at 32.
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`Petitioners also misconstrue the mandate rule. Their authorities (Paper 118 at 4)
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`show only that district courts (over which courts of appeals have supervisory
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`authority) generally may not consider on remand issues that could have been, but
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`were not, raised on appeal. The mandate rule does not prevent an agency from
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`considering on remand issues that were “not squarely presented for resolution” on
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`appeal. Commc’n Workers of Am., Local 5008 v. NLRB, 784 F.2d 847, 849 (7th Cir.
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`1986); see also BioDelivery Scis. Int’l, Inc. v. Aquestive Therapeutics, Inc., 935 F.3d
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`1362, 1366 (Fed. Cir. 2019). Moreover, VirnetX challenges a post-remand
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`discovery order. Because VirnetX could not have challenged that order in the earlier
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`appeal, the mandate rule cannot bar it from challenging the order now.
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`VirnetX has not waived its challenge to the discovery order, because it raised
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`that challenge before the first body capable of “correct[ing] the problem.” Arthrex,
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`5
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`941 F.3d at 1327. In Customedia Techs., LLC v. Dish Network Corp., 941 F.3d
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`Case No. IPR2015-01047
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`1173, 1174 (Fed. Cir. 2019) (cited at Paper 118 at 4), the court declined to consider
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`an Appointments Clause challenge not raised in an opening brief. It did not suggest
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`that a party that wins vacatur on other grounds is barred from raising an Appoint-
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`ments Clause violation, involving later action, on remand.3
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`B. Overturning the Stay Would Improperly Prejudice VirnetX
`Apple’s claim of prejudice (Paper 118 at 5-6) ignores its prolonged, unsuc-
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`cessful effort to invalidate the patents here, both in litigation and in this case. (Supra
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`Section I.) Moreover, Apple is time-barred under 35 U.S.C. § 315(b). To escape
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`the time bar, Apple sought to join Mangrove’s petition. As VirnetX argued, this
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`joinder itself was unlawful. The Federal Circuit did not decide the issue in the prior
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`appeal because it found the joinder had not (yet) prejudiced VirnetX. 778 F. App’x
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`at 902. But if the General Order is lifted because of alleged harm to Apple alone,
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`that would clearly prejudice VirnetX and warrant relief in a future appeal.
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` Conclusion
`The Board should maintain the General Order as to these proceedings.
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`3 Customedia’s waiver rule is also being challenged in connection with Arthrex. Pet.
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`for Writ of Certiorari, Arthrex, Inc. v. Smith & Nephew, Inc., No. 19-1204, 2020 WL
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`1817716, at *32-33 (U.S. Apr. 20, 2020). That further counsels a stay.
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`6
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`Case No. IPR2015-01047
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`Dated: May 21, 2020
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`Respectfully submitted,
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`By: /Joseph E. Palys/
`Joseph E. Palys
`Registration No. 46,508
`Counsel for VirnetX Inc.
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`7
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`Case No. IPR2015-01047
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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 Petitioners a true and correct copy of the foregoing Patent Owner’s
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`Responsive Brief Addressing Whether the Board Should Maintain Application of
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`the General Order to This Proceeding by electronic means on the date below at the
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`following address of record:
`
`Abraham Kasdan
`Wiggin and Dana LLP
`akasdan@wiggin.com
`IP@wiggin.com
`
`James T. Bailey
`jtb@jtbaileylaw.com
`
`Jeffrey P. Kushan
`Scott Border
`Thomas A. Broughan III
`Sidley Austin LLP
`iprnotices@sidley.com
`
`Thomas H. Martin
`Wesley C. Meinerding
`Martin & Ferraro, LLP
`tmartin@martinferraro.com
`docketing@martinferraro.com
`
`Dated: May 21, 2020
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`Respectfully submitted,
`
` /Joseph E. Palys/
`Joseph E. Palys
`Counsel for VirnetX Inc.
`
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