Summary: The Court of Appeals for the Federal Circuit (“Federal Circuit”) recently addressed the issue of privity relationships and the inter partes review (“IPR”) institution time bar set forth in 35 U.S.C. § 315(b) in Power Integrations, Inc. v. Semiconductor Components Industries, No. 2018-1607 (Fed. Cir. June 13, 2019).  The Federal Circuit held that privity and real party in interest relationships of an IPR petitioner arising after the filing of the petition for IPR and before the institution decision must be considered for the purpose of the time-bar set forth in § 315(b). Id. at 14, 21-22.  In particular, the Court found that an IPR may not be instituted when a merger between a petitioner and a time-barred party closes after the filing of a petition but before the institution decision. Id.

IPR proceedings are often used as a separate mechanism to challenge the validity of a patent once it is asserted in litigation.  35 U.S.C. § 315 governs the relationships between IPRs and other proceedings, and in particular, § 315(b) provides a one year time bar for petitioning for IPR. 35 U.S.C. § 315 (2011).  Section 315(b) reads in relevant part: “An inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.” Id. at § 315(b).  “Section 315(b) is the gatekeeper to deny institution of petitions from time barred petitioners, their real parties in interest, and their privies.” Applications in Internet Time, LLC v. RPX Corp., 897 F.3d 1336, 1365 (Fed. Cir. 2018) (Reyna, J., concurring), cert. denied, 19 S. Ct. 1366 (2019).

Power Integrations owns U.S. Patent No. 6,212,079 (“the ‘079 patent”), directed to switched-mode power supplies and a switching regulator for electronic devices. ‘079 patent col. 1 ll. 7, 11-26 (filed June 30, 2000).  Power Integrations sued Fairchild Semiconductor Corp. and Fairchild (Taiwan) Corp. (collectively, “Fairchild”) for infringement of the ‘079 patent and served Fairchild with the complaint for infringement on November 6, 2009. Power Integrations, slip op. at 3.  A jury found several claims of the ‘079 patent not invalid and infringed by Fairchild. Id.; Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 2017 U.S. Dist. LEXIS 37956, at *2 (N.D. Cal. March 10, 2017).  Fairchild appealed, and the Federal Circuit affirmed the jury’s verdict of infringement but vacated the damages award and remanded for further proceedings, which remain pending. Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 904 F.3d 965, 974 (Fed. Cir. 2018), cert. denied, 139 S. Ct. 1265 (2019).

In the meantime, Fairchild entered into an agreement to merge with Semiconductor Components Industries, LLC, doing business as ON Semiconductor (“ON Semiconductor”), on November 14, 2015. Power Integrations, slip op. at 3.  ON Semiconductor then filed a petition for IPR on March 29, 2016, challenging the same claims of the ‘079 patent that the jury found to be infringed by Fairchild, well more than one year after Fairchild was served with the complaint by Power Integrations alleging infringement of the ‘079 patent. Id. at 3-4.  The Fairchild-ON Semiconductor merger closed on September 19, 2016, and the U.S. Patent Trial and Appeal Board (the “Board”) instituted the IPR four days later, on September 23, 2016. Id. at 4-5.  Notably, because Fairchild was served with the complaint years prior to the date that ON Semiconductor filed its IPR petition, Fairchild was undisputedly time-barred from challenging the ‘079 patent in an IPR. Id.

Power Integrations argued throughout the IPR proceedings that the petition filed by ON Semiconductor should be time-barred under 35 U.S.C. § 315(b).  Power Integrations argued that the merger agreement put ON Semiconductor and Fairchild in privity at the time of filing the petition and, also, that the IPR was time-barred under § 315(b) because Fairchild was an admitted real party in interest at least by the time the merger closed, before institution of the IPR. Id. at 4-6.  Consistent with prior nonprecedential Board decisions, the Board rejected Power Integrations’ arguments and held that real-party-in-interest and privity relationships for the purposes of the § 315(b) time-bar are relevant only up to the date the petition is filed. Id. at 6; see also Arris Grp. Inc. v. TQ Delta LLC, No. IPR2016-00430, Paper 9 at 6 (P.T.A.B. July 1, 2016); Synopsys, Inc. v. Mentor Graphics Corp., No. IPR2012-00042, Paper 60 at 12 (P.T.A.B. Feb. 19, 2014). Because there was insufficient evidence of record to establish that Fairchild had any control in ON Semiconductor’s IPR petition, the Board found there was insufficient evidence to establish privity between Fairchild and ON Semiconductor at the time the petition was filed. Power Integrations, slip. op. at 5.  On the merits, the Board found the challenged claims unpatentable as obvious, and Power Integrations appealed. Power Integrations, slip op. at 6-7.

On appeal to the Federal Circuit, Power Integrations argued that under § 315(b), the IPR should be time-barred “because Fairchild, a time-barred party, became a real-party-in-interest after ON [Semiconductor] filed [the] petition but before institution,” while ON Semiconductor contended that such relationships “should be assessed only at the time the IPR petition is filed and that this IPR [should] not [be] time-barred.” Id.

The Federal Circuit ultimately adopted Power Integrations’ interpretation of § 315(b). Id. at 14.  Specifically, the Federal Circuit concluded that privity and real-party-in-interest relationships arising after filing but before institution must be considered for purposes of the § 315(b) time-bar. Id. at 12-14, 21.  The Federal Circuit explained that “§ 315(b) states that an IPR may not be instituted if . . . the petition is filed more than 1 year after a petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent.” Id. at 14 (internal quotation marks omitted).  As such, the court found that the statute specifically precludes institution, not filing, of an IPR. Id.  This reading of the statutory language of § 315(b) is consistent with prior decisions that have characterized the time-bar “[a]s a statutory limit on the Director’s ability to institute IPR” and common law principals that consider preclusive effects of post-complaint formation of privity relationships. Wi-Fi One, LLC v. Broadcom Corp., 878 F.3d 1364, 1374 (Fed. Cir. 2018) (en banc) (emphasis added); Power Integrations, slip op. at 16.  Thus, the court found that ON Semiconductor’s IPR challenging the ‘079 patent was time-barred because ON Semiconductor and Fairchild closed their merger prior to institution, making Fairchild a real party in interest prior to institution (even though it was not prior to filing). Power Integrations, slip op. at 14, 21-22.

The court rejected ON Semiconductor’s argument that evaluating real-party-in-interest and privity relationships after filing but before institution of an IPR would be too unpredictable or burdensome for the Board. Id. at 18-19.  The court highlighted that an IPR petitioner’s obligation to identify all real parties in interest in its petition and to update the Board of any changes to the real parties in interest would make little sense unless it was relevant to the ongoing proceedings. Id. (citing 35 U.S.C. § 312(a)(2); 37 C.F.R. § 42.8(a)(3), (b)(1)).  Further, the court noted that although the exact date the Board institutes an IPR proceeding is beyond the petitioner’s control, “the terms and timeline of a possible merger are not.” Id.  Notably, however, the court stated that it did not consider or address the impact of a change in real parties in interest, privity, or ownership occurring after the institution of an IPR. Id. at n.8.

Accordingly, when preparing to file a petition for inter partes review, it is important for a petitioner to carefully consider any possible privity or real-party-in-interest relationships that may arise after filing but before institution.  Likewise, when performing due diligence for a merger, it may be important for a party to consider whether the target company has ever been served with a complaint alleging infringement of any patent that the party may consider challenging by filing a petition for IPR.