Non-Infringing Parties May Be Able to Challenge a Patent in an IPR, but Not Appeal the Result

Brandon Scruggs

By Brandon Scruggs. A member of our Litigation Practice Group

February 2017 IP Update

A recent court decision leaves some patent challengers using the inter-partes review (IPR) process facing a conundrum: They may be allowed to challenge a patent’s validity in an IPR, but not to appeal an adverse result.

The IPR is a procedure for challenging the validity of a U.S. patent on the basis of it being either anticipated or obvious in light of prior art.  A challenge can be made by any third party who requests the Patent Trial and Appeal Board (PTAB) to initiate an IPR.  The PTAB will initiate the IPR if it believes that there is a reasonable likelihood that the challenger will prevail with respect to at least one challenged claim.

Phigenix, Inc. sought an IPR of a U.S. patent owned by ImmunoGen, Inc. covering methods for treating certain cancers. Phigenix alleged that certain claims were unpatentable as obvious over various prior art references.

The PTAB instituted an IPR and eventually issued a final decision that the claims are valid and non-obvious. When Phigenix appealed, the Federal Circuit dismissed the appeal for lack of standing.

One of the elements of standing, a constitutional requirement for federal court, is “injury in fact.” This means that a party appearing in federal court must point to an injury that exists or is imminent and is particularized (i.e., that it affects that party in an individual way).  By contrast, to appear before an administrative agency like the PTAB, constitutional standing is not necessarily a requirement.

In Phigenix, Inc. v. ImmunoGen, Inc., the Federal Circuit addressed the legal standard for demonstrating standing in an appeal from a final agency action, something the court had not done in the 35 years of its existence.

First, the court decided that where a party seeks review of a final agency action and its standing comes into doubt, the party must supply good evidence of specific facts to support its standing.  Second, a party who appeals an IPR must demonstrate standing at the earliest opportunity, generally in response to a motion to dismiss the appeal or in its opening brief.

A party’s standing can be “self-evident” in some cases, said the court, like when the patent owner has accused the party of infringement. Otherwise the party pursuing an appeal must demonstrate its standing.  To do so, it may proffer arguments, affidavits or other evidence, whether already in the record in the IPR or supplied during the appeal itself.

Did Phigenix have standing to appeal?  Phigenix admitted it did not manufacture any products, so it could not claim that it faced any risk of infringing ImmunoGen’s patent.  Indeed, Phigenix could point to no business plans that would involve the patent.

Phigenix did however claim to have a strong patent portfolio that covered the same subject matter as ImmunoGen’s patent.  As competitors in the same field, went the argument, Immunogen diverted substantial licensing revenue away from Phigenix by licensing a patent that Phigenix claimed to be invalid.  Phigenix said that this was sufficient injury to give it standing.

The Federal Circuit found that Phigenix’s evidence of injury was too thin.  Critically, Phigenix mustered no evidence that it had licensed its key patent to anyone.  Since there was no proven market for that Phigenix patent, there could be no injury to that illusory market.

The Federal Circuit rejected Phigenix’s argument that 35 U.S.C. § 141(c) provided a statutory basis for appeal.  That statute provides that “[a] party to an inter partes review … who is dissatisfied with the final written decision of the [PTAB] … may appeal the [PTAB]’s decision only to the … Federal Circuit.”  The court said that a statute passed by Congress cannot erase the standing limitation, which is rooted in the higher authority of the U.S. Constitution.  Providing no comfort to Phigenix, the court suggested that the statute had been satisfied in any event since Phigenix was in fact permitted to file its appeal, even though it was later dismissed due to lack of standing.

This case leaves open a fundamental question:  Can a non-infringing competitor ever have standing for an IPR appeal?  The court implied that standing could be shown under a loss-of-licensing-revenue theory if the competitor had licensed one of its patents to the same entity that had licensed the patent challenged in an IPR.

This situation can arise when a licensee insists on a royalty stacking provision that would reduce the royalties to the challenger.  If the challenged patent were invalidated, the stacking provision would no longer apply, resulting in greater royalties to the challenger.

One can imagine as well a challenger who is rebuffed in its licensing efforts because the challenged patent blocks access to the deployment of the challenger’s technology. If proof were at hand, such as correspondence from potential licensees raising questions about their freedom to operate, the challenger might be able to demonstrate injury even if it had not actually licensed its own patent.

Exactly what evidence will support standing in an appeal from an IPR remains to be seen.  Meanwhile, patent owners facing IPRs initiated by entities with uncertain stakes in the outcome should take full advantage of the Phigenix decision wherever possible.