Paper No.
`Filed: July 24, 2015
`
`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
`
`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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`
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`THE MANGROVE PARTNERS MASTER FUND, LTD.
`Petitioner
`
`v.
`
`VIRNETX INC.
`Patent Owner
`
`
`
`
`
`
`
`Case IPR2015-01047
`Patent 7,490,151
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`
`
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`
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`Patent Owner’s Preliminary Response
`to Petition for Inter Partes Review
`of U.S. Patent No. 7,490,151
`
`
`
`
`Filed on behalf of: VirnetX Inc.
`By:
`
`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
`
`
`
`

`
`
`
`I.
`
`II.
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`
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`Case No. IPR2015-01047
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`Table of Contents
`
`Introduction ...................................................................................................... 1
`
`The Petition Fails to Meet the Requirements for Instituting an
`Inter Partes Review ......................................................................................... 2
`
`A.
`
`The Petition Fails to Name All of the Real Parties-in-Interest ............. 2
`
`1.
`
`2.
`
`3.
`
`4.
`
`The Mangrove Partners Hedge Fund and Nathaniel
`August ......................................................................................... 3
`
`The US Feeder, the Cayman Feeder, and Mangrove
`Capital ......................................................................................... 8
`
`The Unnamed Investors ............................................................ 10
`
`The Petition Should Be Denied For Failing to Identify
`All RPIs ..................................................................................... 11
`
`B.
`
`C.
`
`D.
`
`E.
`
`The Petition Was Filed for an Improper Purpose ............................... 13
`
`The Petition Fails to Show a Reasonable Likelihood That
`Petitioner Will Prevail With Respect to Any Claim ........................... 15
`
`The Petition Should Be Denied Under 35 U.S.C. § 325(d) ................ 16
`
`The Petition Improperly Relies on Material That It Fails to
`Establish Is Statutory Prior Art ........................................................... 18
`
`F.
`
`The Petition Presents Redundant Grounds .......................................... 26
`
`III. The Petition’s Claim Constructions Are Flawed and Should Be
`Rejected ......................................................................................................... 28
`
`A. Overview of the ’151 Patent ................................................................ 29
`
`B.
`
`C.
`
`D.
`
`E.
`
`Level of Ordinary Skill in the Art ....................................................... 30
`
`“Domain Name” (Not a Separate Claim Term) .................................. 31
`
`“DNS Request” (Claims 1, 7, and 13) ................................................. 33
`
`“Determining” (Claims 1, 7, 13) ......................................................... 34
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`i
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`Case No. IPR2015-01047
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`F.
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`G.
`
`H.
`
`I.
`
`“Secure Server” (Claims 1, 2, 6-8, 12-14) .......................................... 36
`
`“Automatically Initiating/Creating an Encrypted/Secure
`Channel” (Claims 1, 6, 7, 12, 13) ........................................................ 37
`
`“Client” (Claims 1, 2, 6-8, 12-14) ....................................................... 40
`
`“Between [A] and [B]” (Claims 1, 2, 6-8, 12-14) ............................... 44
`
`IV. Conclusion ..................................................................................................... 45
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`ii
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`
`
`Case No. IPR2015-01047
`
`TABLE OF AUTHORITIES
`
` Page(s)
`
`Cases
`A.R.M., Inc. v. Cottingham Agencies Ltd.,
`IPR2014-00671, Paper No. 10 (Oct. 3, 2014) .................................................... 18
`
`Actavis, Inc. v. Research Corp. Techs., Inc.,
`IPR2014-01126, Paper No. 22 (Jan. 9, 2015) ..................................................... 19
`
`Apple Inc. v. Contentguard Holdings, Inc.,
`IPR2015-00450, Paper No. 9 (June 29, 2015) .................................................... 21
`
`Cisco Sys., Inc. v. C-Cation Techs., LLC,
`IPR2014-00454, Paper No. 12 (Aug. 29, 2014) ................................................. 21
`
`Elec. Frontier Found. v. Pers. Audio, LLC,
`IPR2014-00070, Paper No. 21 (Apr. 18, 2014) .................................................. 25
`
`EMC Corp. v. Personal Web Techs., LLC,
`IPR2013-00087, Paper No. 25 (June 5, 2013) .............................................. 26, 27
`
`Galderma S.A. v. Allergan Industrie, SAS,
`IPR2014-01422, Paper No. 14 (Mar. 5, 2015) ................................................. 4, 7
`
`Garmin Int’l, Inc. v. Cuozzo Speed Techs. LLC,
`IPR2012-00001, Paper No. 15 (Jan. 9, 2013) ..................................................... 29
`
`GEA Process Eng., Inc. v. Steuben Foods, Inc.,
`IPR2014-00041, Paper No. 15 (Dec. 23, 2014) .................................................. 12
`
`Heckler v. Chaney, 470 U.S. 821, 831 (1985) ......................................................... 14
`
`Idle Free Sys., Inc. v. Bergstrom, Inc.,
`IPR2012-00027, Paper No. 26 (June 11, 2013) .................................................. 26
`
`In re Klopfenstein, 380 F.3d 1345 (Fed. Cir. 2004) ................................................ 18
`
`In re Zletz, 893 F.2d 319 (Fed. Cir. 1989) ............................................................... 28
`
`Integrated Global Concepts, Inc. v. Advanced Messaging Techs., Inc.,
`IPR2014-01028, Paper No. 13 (Dec. 22, 2014) .................................................. 17
`
`
`
`iii
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`

`
`
`Intelligent Bio-Systems, Inc. v. Illumina Cambridge Ltd.,
`IPR2013-00324, Paper No. 19 (Nov. 21, 2013) ................................................. 17
`
`Case No. IPR2015-01047
`
`L-3 Comm. Holdings, Inc. v. Power Survey, LLC,
`IPR2014-00832, Paper No. 9 (Nov. 14, 2014) ................................................... 19
`
`LaRose Indus., LLC v. Capriola Corp.,
`IPR2013-00120, Paper No. 20 (July 22, 2013) .................................................. 27
`
`Liberty Mut. Ins. Co. v. Progressive Cas. Ins. Co.,
`CBM2012-00003, Paper No. 7 (Oct. 25, 2012) .................................................. 26
`
`Microsoft Corp. v. Proxyconn, Inc.,
`No. 2014-1542, -1543, 2015 U.S. App. LEXIS 10081 (Fed. Cir.
`Jun. 16, 2015) ...................................................................................................... 28
`
`Motorola Solutions, Inc. v. Mobile Scanning Techs., LLC,
`IPR2013-00093, Paper No. 28 (Apr. 29, 2013) .................................................. 29
`
`Phillips v. AWH Corp.,
`415 F.3d 1303 (Fed. Cir. 2005) (en banc) .......................................................... 28
`
`RPX Corp. v. VirnetX, Inc.,
`IPR2014-00171, Paper No. 52 (June 23, 2014) .................................................. 11
`
`Samsung Elecs. Co. v. Rembrandt Wireless Techs., LP,
`IPR2014-00514, Paper No. 18 (Sep. 9, 2014) .............................................. 24, 25
`
`ScentAir Techs., Inc. v. Prolitec, Inc.,
`IPR2013-00180, Paper No. 18 (Aug. 26, 2013) ................................................. 27
`
`Square, Inc. v. Unwired Planet, LLC,
`CBM2014-00156, Paper 22 (Feb. 26, 2015) ................................................ 20, 21
`
`Taylor v. Sturgell, 553 U.S. 880, 894 (2008) ........................................................... 11
`
`VirnetX, Inc. v. Cisco Sys., Inc.,
`767 F.3d 1308 (Fed. Cir. 2014) ...................................................................... 5, 15
`
`Zerto Inc. v. EMC Corp.,
`IPR2014-01329, Paper No. 33 (Mar. 3, 2015) ................................................... 10
`
`
`
`iv
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`

`
`
`Zetec, Inc. v. Westinghouse Elec. Co.,
`IPR2014-00384, Paper No. 10 (July 23, 2014) .................................................. 14
`
`Case No. IPR2015-01047
`
`Zoll Lifecor Corp. v. Philips Elecs. N. Am. Corp.,
`IPR2013-00606, Paper No. 13 (Mar. 20, 2015) ................................................. 13
`
`Federal Statutes
`
`35 U.S.C. § 311(b) ............................................................................................. 18, 23
`
`35 U.S.C. § 312(a)(2) ....................................................................................... 1, 2, 11
`
`35 U.S.C. § 313 .......................................................................................................... 1
`
`35 U.S.C. § 314(a) ............................................................................................. 14, 15
`
`35 U.S.C. § 316 ........................................................................................................ 14
`
`35 U.S.C. § 325(d) ................................................................................... 1, 16, 17, 18
`
`Federal Rules
`
`37 C.F.R. § 42.6(a)(3) .............................................................................................. 21
`
`37 C.F.R. § 42.11 ..................................................................................................... 13
`
`37 C.F.R. § 42.65(a) ................................................................................................. 22
`
`37 C.F.R. § 42.107 ..................................................................................................... 1
`
`37 C.F.R. § 42.100(b) .............................................................................................. 28
`
`Other Authorities
`
`77 Fed. Reg. 157 (Aug. 14, 2012) .............................................................. 3, 7, 10, 17
`
`157 Cong. Rec. S1041-42 (daily ed. Mar. 1, 2011) ................................................. 17
`
`
`
`v
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`

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`
`
`I.
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`Case No. IPR2015-01047
`
`Introduction
`The Petition for Inter Partes Review (the “Petition”) filed by The Mangrove
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`Partners Master Fund, Ltd. against Patent Owner’s U.S. Patent No. 7,490,151 (“the
`
`’151 patent”) is part of a rapidly expanding group of controversial filings by hedge
`
`funds using the inter partes review process to move stock prices and reap profits.
`
`Patent Owner VirnetX Inc. respectfully submits this Preliminary Response in
`
`accordance with 35 U.S.C. § 313 and 37 C.F.R. § 42.107. Patent Owner requests
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`that the Board not institute inter partes review for several reasons.
`
`First, the Petition fails to name all of the real parties-in-interest (“RPIs”) as
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`required by 35 U.S.C. § 312(a)(2). As explained below, various entities associated
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`with a hedge fund named Mangrove Partners should have been named as RPIs.
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`Second, the Petition was filed in an attempt to manipulate the publicly traded stock
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`of Patent Owner’s parent company, VirnetX Holding Corporation, which is an
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`improper purpose that the Board should not condone. Third, the Petition has not
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`met its burden of demonstrating a reasonable likelihood of prevailing in proving
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`unpatentability of any challenged claim of the ’151 patent. Fourth, because the
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`same or substantially the same prior art has been before the Office, and because the
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`Petition represents the eighth attempt to challenge the validity of the ’151 patent at
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`the Office, the Petition should be denied under 35 U.S.C. § 325(d). And finally,
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`the Petition proposes a number of incorrect claim constructions upon which it
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`bases its unpatentability grounds. Each of these reasons requires denial of
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`Case No. IPR2015-01047
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`institution.
`
`II. The Petition Fails to Meet the Requirements for Instituting an
`Inter Partes Review
`A. The Petition Fails to Name All of the Real Parties-in-Interest
`A petition may only be considered if it “identifies all real parties in interest.”
`
`35 U.S.C. § 312(a)(2). The Petition names The Mangrove Partners Master Fund,
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`Ltd. (“Petitioner,” a.k.a. “Cayman Master”) as the only RPI. This allegation is
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`inconsistent with filings made by the Petitioner and parties that control the
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`Petitioner at the Securities and Exchange Commission (“SEC”). In particular, as
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`described in more detail below, the Petitioner is part of a complex web of entities
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`that are linked to a hedge fund registered in the Cayman Islands called Mangrove
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`Partners (hereinafter referred to as “the Mangrove Partners Hedge Fund”), a
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`different entity than similarly named Petitioner. (Ex. 2001, Mangrove Partners
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`Brochure at 3-4; Ex. 2002, Schedule A at 1-2; Ex. 2003, Cayman Islands Search
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`Report at 1.) The Petition fails to name a number of RPIs, including at least (1) the
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`Mangrove Partners Hedge Fund; (2) Nathaniel August (President and majority
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`owner of the Mangrove Partners Hedge Fund); (3) The Mangrove Partners Fund,
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`L.P. (“the US Feeder”); (4) The Mangrove Partners Fund (Cayman), Ltd. (“the
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`Cayman Feeder”); (5) Mangrove Capital (the General Partner of the US Feeder);
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`and (6) the unnamed investors in the US Feeder and the Cayman Feeder. Below is
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`2
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`a chart exemplifying the relationship between these entities (collectively referred
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`Case No. IPR2015-01047
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`to as “the Mangrove entities”).
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`
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`The Mangrove Partners Hedge Fund and Nathaniel August
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`1.
`The control and funding of an IPR are important factors that the Board must
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`consider in determining whether a party is an RPI. Office Patent Trial Practice
`
`Guide, 77 Fed. Reg. 157 at 48759-60 (Aug. 14, 2012). “Evidence that a non-party
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`wields ‘substantial control’ in a matter ‘may be overt or covert, and the evidence of
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`3
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`it may be direct or circumstantial—so long as the evidence as a whole shows that
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`Case No. IPR2015-01047
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`the nonparty possessed effective control over a party’s conduct . . . as measured
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`from a practical, as opposed to a purely theoretical, standpoint.” Galderma S.A. v.
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`Allergan Industrie, SAS, IPR2014-01422, Paper No. 14 at 7 (Mar. 5, 2015) (citing
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`Gonzalez v. Banco Cent. Corp., 27 F.3d 751, 759 (1st Cir. 1994)).
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`The Mangrove Partners Hedge Fund is “the investment manager for The
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`Mangrove Partners Fund, L.P., a Delaware limited partnership (the ‘US Feeder’),
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`The Mangrove Partners Fund (Cayman), Ltd., a Cayman Islands exempted
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`company (the ‘Cayman Feeder’), [and Petitioner,] The Mangrove Partners Master
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`Fund, Ltd., a Cayman Islands exempted company (the ‘Cayman Master’) [i.e., the
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`Petitioner].” (Ex. 2001 at 3.) All of the funds have a “shared investment objective
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`. . . [to] compound their net worth while minimizing the chances of a permanent
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`loss of capital.” (Ex. 2001 at 4.) In order to achieve this “shared investment
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`objective,” the Mangrove Partners Hedge Fund has “complete discretion regarding
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`the investment of [the US Feeder’s, the Cayman Feeder’s, and Petitioner’s] assets
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`in accordance with the investment objectives, policies and parameters set forth in
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`the applicable offering documents of each Fund.” (Ex. 2001 at 3, 17 (emphasis
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`added).) The Mangrove Partners Hedge Fund views itself as having a “fiduciary
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`duty” to invest in a manner that increases profits for its investors. (Ex. 2001 at 13.)
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`Case No. IPR2015-01047
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`In exercising their investment objectives and fiduciary duties, the Mangrove
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`entities pursued short positions in the publicly traded stock of Patent Owner’s
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`parent company, VirnetX Holding Corporation (“VHC”). In particular, on
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`February 17, 2015, prior to when Petitioner, The Mangrove Partners Master Fund,
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`Ltd., filed the Petition, the Mangrove Partners Hedge Fund held a short position of
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`270,000 shares of VHC stock via put options. (Ex. 2004, Form 13-F dated
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`February 17, 2015 at 2.) A “put option buyer hopes the stock will drop in price,”
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`increasing the value of the put option. (Ex. 2005 at 3.) On April 14, 2015, in an
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`apparent attempt to encourage such a drop in VHC’s stock price, Petitioner filed
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`the Petition in this proceeding as well as another petition in IPR2015-01046,
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`targeting two patents the Federal Circuit confirmed as valid and infringed. See
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`VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1313-14 (Fed. Cir. 2014). On May
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`15, 2015, after any volatility created by the Petition would have subsided, the
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`Mangrove Partners Hedge Fund no longer held the short position in VHC’s stock.
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`(Ex. 2006, Form 13-F dated May 15, 2015 at 2.) This demonstrates that the
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`Petition was part of a coordinated investment strategy by at least the Petitioner and
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`the Mangrove Partners Hedge Fund to manipulate VHC’s stock price.
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`The Mangrove Partners Hedge Fund’s complete discretionary control over
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`Petitioner is not merely theoretical given that The Mangrove Partners Hedge Fund
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`has repeatedly demonstrated that, in practice, it exercises total control over
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`5
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`Petitioner. For example, the Mangrove Partners Hedge Fund and Nathaniel August
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`Case No. IPR2015-01047
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`(President of the Mangrove Partners Hedge Fund and owner of somewhere
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`between 50-75% of the Mangrove Partners Hedge Fund (see Ex. 2002at 1-2)) have
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`signed, on behalf of Petitioner, every single public document associated with
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`Petitioner that is available in the U.S. Securities and Exchange Commission’s
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`EDGAR database. (See, e.g., Ex. 2007 at 12; Ex. 2008 at 12; Ex. 2009 at 11; Ex.
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`2010 at 11; Ex. 2011 at 11; Ex. Ex. 2012 at 11; Ex. 2013 at 5.)1 As another
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`example, when Petitioner issued a press release that it was nominating individuals
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`to the Board of Directors of a company in which it was a significant shareholder,
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`Petitioner (1) nominated Nathaniel August (the Mangrove Partners Hedge Fund’s
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`President and majority owner), and (2) issued the press release on behalf of “The
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`Mangrove Partners Master Fund, Ltd.[,] [the US Feeder,] [the Cayman Feeder,]
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`[the] Mangrove Partners[ Hedge Fund,] Mangrove Capital[, and] Nathaniel
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`August” (in addition to four other individuals), referring to itself “together with the
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`other participants named herein [as] collectively, ‘Mangrove’.” (Ex. 2014 at 1, 3,
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`4.) Thus, in addition to their current legal ability to control this proceeding, the
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`1 In these documents, the Mangrove Partners Hedge Fund also signed on
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`behalf of the other RPIs, including the US Feeder, the Cayman Feeder, and
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`Mangrove Capital. (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. 2012 at 11; Ex. 2013 at 11.)
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`6
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`past behavior of the Mangrove Partners Hedge Fund and Nathaniel August
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`Case No. IPR2015-01047
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`demonstrates that they have the actual power to control this proceeding.
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`The facts at hand are similar to those in Galderma. In particular, in
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`Galderma, the Board found that where a President of a parent entity was also at the
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`helm of the parent entity’s subsidiary, this “strongly implies ‘an involved and
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`controlling parent corporation representing the unified interests of itself and
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`Petitioner.” Galderma S.A., IPR2014-01422, Paper No. 14 at 12 (citing Zoll
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`Lifecor Corp. v. Philips Elecs. N. Am. Corp., IPR2013-00606, Paper No. 13 at 10
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`(Mar. 20, 2015)). The same is true for the relationship between Petitioner and the
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`Mangrove Partners Hedge Fund, with Nathaniel August at the helm of both
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`entities.
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`The Board has acknowledged that it “need not consider whether [a party] did
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`or did not, directly or indirectly, exercise [its] control.” Galderma S.A., IPR2014-
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`01422, Paper No. 14 at 12. Rather, for purposes of finding that a party is an RPI, it
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`is sufficient that the party had the power “to call the shots.” Id. (citing Gonzalez,
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`27 F.3d at 758); see also 77 Fed. Reg. at 48759 (“The concept of control generally
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`means that ‘it should be enough that the nonparty has the . . . opportunity to control
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`. . . .’”) (emphasis added). As demonstrated by their past actual control and current
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`ability to control, Mangrove Partners Hedge Fund and Nathaniel August have the
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`power “to call the shots” in this proceeding. Therefore, both parties are RPIs and
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`both Mangrove Partners Hedge Fund and Nathaniel August should have been
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`Case No. IPR2015-01047
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`named as real parties-in-interest.
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`The US Feeder, the Cayman Feeder, and Mangrove Capital
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`2.
`The US Feeder and the Cayman Feeder “are constituents of a ‘master-
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`feeder’ structure for which [Petitioner] serves as the master fund.” (Ex. 2001 at 3-
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`4.) Mangrove Capital, a Cayman Islands exempted company, is an “affiliate” of
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`the Mangrove Partners Hedge Fund and “serves as the general partner of the US
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`Feeder.” (Id. at 3.) “Mangrove Capital is allocated 20% of the annual increase in
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`the net worth of an Investor’s interest in a Fund.” (Id. at 4.) Moreover, “[a]ny
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`persons acting on behalf of Mangrove Capital are subject to the supervision and
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`control of [the Mangrove Partners Hedge Fund] in connection with any investment
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`advisory activities.” (Id. at 13.)
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`A master-feeder structure is commonly used by hedge funds to “permit[] the
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`pooling of domestic and offshore capital in a single master fund, while affording
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`flow-through tax treatment for U.S. taxable investors in the domestic feeder.” (Ex.
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`2015 at 34.) “The hedge fund manager usually receives management fees and
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`performance allocations from the domestic feeder fund in its role as that fund’s
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`general partner or manager, and management and performance fees as an
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`investment adviser pursuant to an investment contract with the offshore feeder
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`fund.” (Id.) Consistent with the master-feeder structure, investments in the US
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`8
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`and Cayman Feeders are “allocated initially to the Cayman Master [i.e.,
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`Case No. IPR2015-01047
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`Petitioner],” and Petitioner is “owned by the US Feeder and the Cayman Feeder.”
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`(Ex. 2001 at 15.) Because the US Feeder and the Cayman Feeder fund all of the
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`activities of Petitioner (e.g., funding the investment in the filing of the Petition in
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`this proceeding), receive management and investment fees from investors, and are
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`co-owners of the Petitioner, the US Feeder and Cayman Feeder control Petitioner’s
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`activities. (See id. at 15.) Indeed, all of the funds work together, having a “shared
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`investment objective . . . [to] compound their net worth while minimizing the
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`chances of a permanent loss of capital.” (Id. at 4.) Since the US Feeder and the
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`Cayman Feeder both fund and have control over this proceeding, they are both
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`RPIs.
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`In addition, the Cayman Feeder shares a common mailing address and
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`registration address with Petitioner in the Cayman Islands (see Ex. 2016 at 1, Ex.
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`2017 at 1, Ex. 2018 at 1, Ex. 2019 at 1), and the US Feeder and Mangrove Capital
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`share a common mailing address with the Mangrove Partners Hedge Fund in New
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`York City (see Ex. 2020 at 1-2). Moreover, similar to the discussion above in Part
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`II.A.1, the Mangrove Partners Hedge Fund, the US Feeder, the Cayman Feeder,
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`Mangrove Capital, and Petitioner, have repeatedly acted as a single “entity,”
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`blurring the lines between where one entity ends and another begins. (See, e.g.,
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`Ex. 2014 at 1, 3, 4.) For instance, at least with respect to Mangrove Capital, the
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`9
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`President (Nathaniel August), Chief Operating Officer (Ward Dietrich), and Senior
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`Case No. IPR2015-01047
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`Analyst (Jeffrey Kalicka) are identical to those of the Mangrove Partners Hedge
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`Fund. (See Ex. 2002 at 2.) In this very proceeding, 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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`further blurring the lines between Petitioner and the other RPIs. See Paper No. 2 at
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`2. Therefore, the US Feeder, the Cayman Feeder, and Mangrove Capital would
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`have had an actual measure of control over this proceeding. See Zerto Inc. v. EMC
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`Corp., IPR2014-01329, Paper No. 33 at 10 (Mar. 3, 2015) (where entities are “so
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`intertwined it is difficult for both insiders and outsiders to determine precisely
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`where one ends and the other begins, there exists an actual measure of control or
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`opportunity to control that reasonably might be expected between entities in such a
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`relationship”).
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`The Unnamed Investors
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`3.
`As noted above, the funding of an IPR is an important factor that the Board
`
`must consider in determining whether a party is an RPI. Office Patent Trial
`
`Practice Guide, 77 Fed. Reg. 157 at 48760 (Aug. 14, 2012). Petitioner does not
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`name the investors funding the Petition. However, the investors would have each
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`provided substantial funding for the Petition since the Mangrove Partners Hedge
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`Fund requires investors to provide a “minimum initial investment of $1,000,000.”
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`(Ex. 2001 at 6.) The undisclosed investors that provided substantial funding for
`
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`10
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`the Petition are the parties that stand to gain or lose, and, therefore, are RPIs. See
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`Case No. IPR2015-01047
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`RPX Corp. v. VirnetX, Inc., IPR2014-00171, Paper No. 52 at 9 (June 23, 2014)
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`(finding the petitioner to be “at most, a ‘nominal plaintiff’ with ‘no substantial
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`interest’ in these IPR challenges apart from those of its client,” which was held to
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`be an RPI).
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`In addition, the Mangrove Partners Hedge Fund views itself as having a
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`“fiduciary duty to [its] clients.” (Ex. 2001 at 13; see also id. at 5 (providing that
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`the Mangrove Partners Hedge Fund will “from time to time enter into agreements
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`with certain Fund investors that may provide for terms of investment that are more
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`favorable than the terms described in the relevant Fund offering documents”).)
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`The fiduciary relationship between the unnamed investors and the Mangrove
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`Partners Hedge Fund further compels a finding that the investors are RPIs. See
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`Taylor v. Sturgell, 553 U.S. 880, 894 (2008) (finding “fiduciaries” to be part of the
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`third of six categories that create an exception to the common law rule that
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`normally forbids nonparty preclusion in litigation); see also RPX Corp., IPR2014-
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`00171, Paper No. 52 at 6 (relying on the six categories in Taylor to determine the
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`scope of RPI).
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`4.
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`The Petition Should Be Denied For Failing to Identify All
`RPIs
`The requirement to identify all RPIs was created by statute. See 35 U.S.C.
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`§ 312(a)(2). Failure to disclose all RPIs is a substantive defect. See, e.g., GEA
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`11
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`Process Eng., Inc. v. Steuben Foods, Inc., IPR2014-00041, Paper No. 15 at 10-13
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`Case No. IPR2015-01047
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`(Dec. 23, 2014). Although the Board has the discretion to authorize the correction
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`of some deficiencies in a petition, the Board should not exercise its discretion to do
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`so here. The Petitioner’s incorrect identification of the RPI is not a close question
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`and should not be excused. Material information available to—and in fact
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`produced by—Petitioner and its officers clearly establishes the Mangrove Partners
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`Hedge Fund, Nathaniel August, the US Feeder, the Cayman Feeder, Mangrove
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`Capital, and the unnamed investors in the US Feeder and the Cayman Feeder, as
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`RPIs. See supra Part II. In light of this, Petitioner’s identification of itself as the
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`only RPI is simply not objectively reasonable.
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`The only conclusion that can be drawn from Petitioner’s attempt to hide
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`these RPIs is that it was doing so in an attempt to shield them from any liability
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`arising out of the filing of the Petition.2 But whether this is the case or not,
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`Petitioner’s misidentification of the RPI violates its duty of candor to the Office.
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`2 Consider, for example, the complaint filed against Ferrum Ferro Capital,
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`LLC, an investment fund that filed the petition in IPR2015-00858, apparently
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`employing a similar strategy to that of Petitioner and its RPIs. In the Complaint,
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`Allergan (the patent owner) alleges that Ferrum Ferro Capital, LLC’s conduct
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`“constitutes attempted civil extortion and malicious prosecution under California
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`law in addition to violating California’s Unfair Competition Law.” See Ex. 2021.
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`12
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`See 37 C.F.R. § 42.11. Failure to identify all RPI frustrates the Office’s ability to
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`Case No. IPR2015-01047
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`determine any potential conflicts-of-interest and undermines the credibility of the
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`evidence presented in the proceeding. Zoll Lifecor Corp. v. Philips Elecs. N. Am.
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`Corp., IPR2013-00606, Paper No. 13 at 7-8 (Mar. 20, 2015). Petitioner’s
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`unreasonable identification of RPI should not be endorsed. The Petition should be
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`denied to discourage similar petitioners from likewise attempting to deceive the
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`Office and to also encourage petitioners to make a reasonable and honest
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`assessment of RPI before filing a petition.
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`The Petition Was Filed for an Improper Purpose
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`B.
`As discussed above, Petitioner is an entity controlled by the Mangrove
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`Partners Hedge Fund. This proceeding was filed in an apparent attempt to
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`manipulate the financial markets to increase the value of the Mangrove Partners
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`Hedge Fund’s short position in VHC stock. (Ex. 2004 at 2; Ex. 2006 at 2.) In
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`doing so, the Mangrove Partners Hedge Fund, and its related entities discussed
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`above (including the Petitioner), followed the lead of the much-publicized and
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`controversial IPR petitions of Hayman Capital and Kyle Bass.3 (See, e.g., Ex.
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`3 To date, Hayman Capital/Kyle Bass have filed sixteen IPR petitions,
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`including IPR2015-00720, -00817, -00988, -00990, -01018, -01076, -01086, -
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`01092, -01093, -01096, -01102, -01103, -01136, -01169, -01241, and -01344.
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`13
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`2022 at 1 (“A well-known hedge-fund manager is taking a novel approach to
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`Case No. IPR2015-01047
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`making money: filing and publicizing patent challenges against pharmaceutical
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`companies while also betting against their shares.”).) The Mangrove Partners
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`Hedge Fund has even registered the Petitioner at an address that is identical to the
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`address used to register the entities filing the petitions in the Hayman Capital/Kyle
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`Bass petitions. (See, e.g., Ex. 2019 at 1; Ex. 2023 at 1.)4
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`The standard for institution of an inter partes review under 35 U.S.C.
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`§ 314(a) “is written in permissive terms. . . . Thus, Congress has given the office
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`discretion whether to institute a review or not institute a review.” Zetec, Inc. v.
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`Westinghouse Elec. Co., IPR2014-00384, Paper No. 10 at 5 (July 23, 2014); see
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`also Heckler v. Chaney, 470 U.S. 821, 831 (1985). Congress also stated that, in
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`prescribing regulations under 35 U.S.C. § 316, the Director shall consider the
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`effect of any such regulation on things such as “the economy” and “the integrity of
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`the patent system.” 35 U.S.C. § 316(b). The importance of these considerations is
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`reflected in 35 U.S.C. § 316(a)(6), where Congress authorized the Director to
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`Another investment fund, Ferrum Ferro Capital LLC, has also used a similar
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`strategy with IPR2015-00858.
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`4 This address appears to be that of a law firm based in the Cayman Islands.
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`(Ex. 2024 at 1-2.)
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`14
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`prescribe sanctions for “abuse of discovery, abuse of process, or any other
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`Case No. IPR2015-01047
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`improper use of the proceeding.”
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`Congress’ aim in establishing the IPR process was to “provid[e] quick and
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`cost effective alternatives to litigation[,] . . . not . . . [a] tool[] for harassment.” See
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`H.R. Rep. No. 112-98, pt. 1, at 48. There can be no dispute that allowing hedge
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`funds to use the IPR process to manipulate financial markets is inconsistent with
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`Congressional intent and the directives given to the Office. Instituting inter partes
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`review here will only encourage more such filings, which will burden additional
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`patent owners, their industries, and the Office. The Board should, therefore,
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`exercise its discretion under § 314(a) and refuse to institute this IPR.
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`C. The Petition Fails to Show a Reasonable Likelihood That
`Petitioner Will Prevail With Respect to Any Claim
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`The impropriety of the Petition does not stop at its purpose. The Petition
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`fails to even mention, let alone analyze, the fact that the Court of Appeals for the
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`Federal Circuit has already opined on whether Kiuchi anticipates, inter alia, the
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`claims of the ’151 patent. See VirnetX, Inc., 767 F.3d at 1323-24. This is despite
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`the fact that the Federal Circuit decision came seven months before the Petition
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`was filed.
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`According to the Federal Circuit, “with respect to the ’151 patent, there was
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`substantial evidence to support VirnetX’s argument that Kiuchi fails to disclose
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`the requirement that the DNS request be ‘sent by a clie