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`Paper No.
`Filed: November 22, 2019
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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., and APPLE INC.,
`AND BLACK SWAMP, LLC,
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`Petitioner
`v.
`VIRNETX INC.,
`Patent Owner
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`
`
`Case IPR2015-010471
`Patent No. 7,490,151
`
`
`
`
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`Reply in Support of Patent Owner’s Request for Rehearing
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`1 Apple Inc. and Black Swamp, LLC, who filed petitions in IPR2016-00063 and
`IPR2016-00167, respectively, have been joined as Petitioners in the instant
`proceeding.
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`Petitioners ask the Board to deny Patent Owner VirnetX Inc.’s (“VirnetX’s”)
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`request for rehearing with respect to the issues VirnetX raised under Arthrex, Inc. v.
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`Smith & Nephew, Inc., No. 18-2140, 2019 WL 5616010 (Fed. Cir. Oct. 31, 2019).
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`Petitioners raise two arguments. First, Petitioners analogize the Board’s discovery
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`orders to institution decisions, and argue they do not raise the same constitutional
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`concerns as final written decisions. Second, Petitioners contend that because
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`Arthrex left undisturbed other non-final orders, it does not require vacatur of
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`discovery order here. Both arguments miss the mark.
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`First, discovery orders are not analogous to institution decisions from the
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`standpoint of the Appointments Clause. The Federal Circuit in Arthrex found “no
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`constitutional infirmity” in the institution decisions because “the statute clearly
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`bestows such authority on the Director,” who is properly appointed as a principal
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`officer. 2019 WL 5616010, at *12 (citing 35 U.S.C. § 314) (emphasis added). While
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`the Director has “delegated that authority to the Board,” Arthrex, 2019 WL 5616010,
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`at *1 n.1, the statute explicitly vests the authority to institute inter partes reviews
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`with the Director. See 35 U.S.C. § 314(a) (“The Director may not authorize an inter
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`partes review to be instituted unless … .”). Congress did not vest the Director with
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`similar authority with respect to orders governing discovery. These orders are
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`entered by the Board pursuant to its statutorily conferred authority to “conduct inter
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`partes reviews.” 35 U.S.C. § 6(b)(4); see also 35 U.S.C. § 316(c) (“The Patent Trial
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`1
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`and Appeal Board shall, in accordance with section 6, conduct each inter partes
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`Case No. IPR2015-01046
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`
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`review instituted under this chapter.”). The Board does not enter discovery orders
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`pursuant to any delegation from the Director (who lacks any statutory authority over
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`such orders in the first place).
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`Implicitly conceding this fact, Petitioners contend that the Director could
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`theoretically grant to himself “the authority to review Board discovery orders” by
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`virtue of his ability to “promulgate regulations governing discovery in an inter partes
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`review.” Opp’n 3 (citing 35 U.S.C. § 316(a)(5)). But Section 316(a)(5) only
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`authorizes the Director to issue regulations on the “standards and procedures for
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`discovery.” 35 U.S.C. § 316(a)(5). Nothing in this provision permits the Director
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`to arrogate to himself authority to review the Board’s discovery decisions.
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`Petitioners’ argument, moreover, is contrary to Arthrex. There, the Federal
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`Circuit considered the Director’s analogous “authority to promulgate regulations
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`governing the conduct of inter partes review.” 2019 WL 5616010, at *5 (citing 35
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`U.S.C. § 316); see also 35 U.S.C. § 316(a)(4) (“The Director shall prescribe
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`regulations … establishing and governing inter partes review under this chapter
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`… .”). The Federal Circuit nevertheless concluded that this supervisory authority
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`did not outweigh the other factors—such as the absence of review or removal
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`power—that counseled towards finding that the APJs were principal officers under
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`the Appointments Clause. 2019 WL 5616010, at *8. Under Petitioners’ logic, the
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`2
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`Director could issue a regulation allowing him to review the Board’s final written
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`Case No. IPR2015-01046
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`decisions. But Arthrex held that the statute does not allow him to do so. Id. at *5.
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`Second, Arthrex’s observation that the new Board panel may proceed “on the
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`existing written record,” 2019 WL 5616010, at *12, in no way suggests that
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`discovery orders are immune from an Appointments Clause challenge. As an initial
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`matter, Petitioners offer no response to VirnetX’s explanation (Reh’g Request 6)
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`that, even if a principal officer “on occasion performs duties that may be performed
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`by” an inferior officer, that “does not transform his status under the Constitution.”
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`Freytag v. Comm’r, 501 U.S. 868, 882 (1991). Under Freytag, any action by a
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`principal officer whose appointment does not comport with the Appointments
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`Clause is constitutionally infirm. See Reh’g Request 6.
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`Nor are the ministerial orders in Arthrex—a scheduling order, an order
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`granting pro hac vice motion, and an order on the scope of the hearing, Opp’n 4—
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`analogous to discovery orders. As Arthrex observed, the Board’s ability to “oversee
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`discovery” goes to the very heart of what gives APJs “significant discretion.” 2019
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`WL 5616010, at *3. Moreover, nothing in Arthrex precluded the parties from
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`seeking reconsideration of these orders by the newly constituted panel. And at least
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`two of those orders—the scheduling order and the order on the scope of the
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`hearing—were effectively vacated given Arthrex’s instruction for the Board to hold
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`“a new hearing” on remand. 2019 WL 5616010, at *12.
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`3
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`Dated: November 22, 2019
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`
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`Case No. IPR2015-01046
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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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`4
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`CERTIFICATE OF SERVICE
`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 Reply
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`in Support of Request for Rehearing by electronic means on the date below at the
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`following addresses of record:
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`Abraham Kasdan (akasdan@wiggin.com)
`James T. Bailey (jtb@jtbaileylaw.com)
`IP@wiggin.com
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`Jeffrey P. Kushan
`Scott Border
`Thomas A. Broughan III
`iprnotices@sidley.com
`
`Thomas H. Martin
`Wesley C. Meinerding
`tmartin@martinferraro.com
`docketing@martinferraro.com
`
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`Dated: November 22, 2019
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`By: /Joseph E. Palys/
`Joseph E. Palys
`Registration No. 46,508
`
`Counsel for VirnetX Inc.
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