Controlling, or Having the Ability to Control, the Preparation of a Petition Leads to a Finding that the Non-Party Is a Real Party-In-Interest and that the Petition is Time Barred

October 28, 2014

In IPR proceeding First Data Corporation v. Cardsoft (Assignment for the Benefit of Creditors), LLC, the petitioner, First Data Corporation, attempted to file a petition on April 30, 2014 seeking review of U.S. Patent No. 6,934,945 assigned to Cardsoft (Assignment for the Benefit of Creditors), LLC. On May 20, 2014, the petitioner filed a corrected petition to address certain formatting issues, but, in doing so, also served the petition on the patent owner of record at the address listed in the USPTO PAIR records rather than the patent owner's corporate address, the address where the original petition was served. On August 7, 2014, the patent owner filed its preliminary response, raising the defense that the petition was time barred under Section 315(b) because the real party in interest, VeriFone, was served with a complaint more than one year before the May 20, 2014 filing of the petition.

In 2008, the patent owner has sued VeriFone alleging infringement of the '945 patent. On June 8, 2012, a jury determined that VeriFone infringed the '945 patent and that the patent was valid. That decision was appealed to the Federal Circuit.

The Board began by pointing out the following facts related to the instant petition:

• "VeriFone is indemnifying Petitioner regarding certain claims in the 2013 Litigation.
• "As part of the indemnification, VeriFone can choose counsel to defend Petitioner.
• "Petitioner is represented in the 2013 Litigation by the same counsel who represented VeriFone in the 2008 Litigation, first the law firm of Jones Day and later the law firm of Orrick, Herrington & Sutcliffe.

• "Counsel representing Petitioner in this proceeding are registered practitioners from the law firm of Kilpatrick Townsend & Stockton.

• "VeriFone sought unsuccessfully to invalidate the '945 patent in the 2008 Litigation.

• "VeriFone provided copies of prior art from the 2008 Litigation to Petitioner for this IPR and consulted with Petitioner's counsel about prior art that may invalidate the '945 patent.

• "VeriFone agreed to fund this IPR.

• "VeriFone's funding covers attorney's fees and costs associated with this IPR."

The Board also focused on an April 28, 2014 letter agreement stating that "VeriFone currently is indemnifying Petitioner in relation to certain claims asserted in the 2013 Litigation per a 'Master Engagement Agreement' and "that VeriFone has agreed to indemnify Petitioner for the attorney's fees and costs associated with this IPR, citing a provision of the Master Engagement Agreement, that VeriFone 'shall have the right at its expense to employ counsel . . . to defend against Claims that VeriFone is responsible for . . . and to compromise, settle and otherwise dispose of such claims.'"

The letter agreement also included a provision that appeared designed to refute any assertion that VeriFone was controlling the IPR and thus a real party-in-interest (RPI):

While VeriFone has agreed to this associated indemnification as to the IPR, the purpose of this Letter Addendum is to clarify that notwithstanding any language contained in the Agreement or elsewhere concerning VeriFone and First Data's rights and obligations pursuant to any provision providing for indemnification, First Data shall have the exclusive and sole right to control any and all actions taken in connection with or related to the IPR, including but not in any way limited to the choice of counsel for preparing any IPR, and that VeriFone shall have no such right of control.

The Board began its analysis by discussing the factors relevant to the issue of whether a non-party may be recognized as a RPI or "privy," including whether the non-party exercised or could have exercised control over a party's participation in a proceeding. The Board explained that "[t]he concept of control generally means that 'it should be enough that the nonparty has the actual measure of control or opportunity to control that might reasonably be expected between two formal coparties.' The non-party's participation may be overt or covert, and evidence of that participation may be direct or circumstantial, but the evidence as a whole must show that the non-party possessed effective control from a practical standpoint. The inquiry is not based on isolated facts, but rather must consider the totality of the circumstances."

Turning to the instant case, the Board held that VeriFone was a RPI because had effective control over the IPR petition:

The evidence demonstrates that VeriFone desires an inter partes review of the '945 patent and has controlled, and/or has had an opportunity to control, the events leading up to the filing of the Petition. Petitioner acknowledges that "VeriFone, per an indemnity with [Petitioner], is providing the funding for this petition." Per the Letter Addendum, we understand this "funding" to include Petitioner's attorney fees and at least the nearly $24,000 petition fees associated with filing the Petition. We find that per this same indemnity agreement VeriFone had an opportunity to control all of the events leading up to the filing of the Petition. In particular, Section 6.1.3 of the Master Engagement Agreement indicates that VeriFone "shall have the right at its expense to employ counsel . . . to defend against Claims that VeriFone is responsible for . . . and to compromise, settle and otherwise dispose of such Claims." The Letter Addendum indicates that "VeriFone has agreed to this associated indemnification as to the IPR." Thus, up to April 28, 2014 (i.e., two days prior to the Petition being filed), VeriFone had every opportunity and right, per the indemnification agreement, to control the filing of the Petition and pursue an inter partes review of the challenged patent. That the opportunity to control ended just two days prior to filing the Petition, does not negate the control or opportunity to control the events leading up to the filing of the Petition. By Petitioner's own admission, and during the period leading up to the filing of the Petition, counsel for VeriFone communicated with counsel for Petitioner about initiating an IPR, including discussing what prior art to assert. Moreover, VeriFone agreed to, and did, pay for all costs associated with the filing of the Petition.
The Board also rejected the petitioner's assertion that it alone decided to use different prior art than the prior art used by VeriFone in the 2008 litigation because the foregoing facts demonstrate that VeriFone had control and had an interest in the review of the '945 patent because of the prior infringement verdict. The Board also pointed out that VeriFone could not institute review of the '945 patent by itself or in conjunction with the petitioner because it was time barred under Section 315(b) as a result of being served with a complaint in 2008.

The Board also rejected the petitioner's argument that it had exclusive control over the petition:

In support of that argument, however, Petitioner refers to the April 28, 2014 Letter Addendum. Per the Letter Addendum, the indemnification (pursuant to the Master Engagement Agreement) from VeriFone to Petitioner gave VeriFone full opportunity to control all aspects of preparing the Petition prior to April 28, 2014--just two days prior to the actual filing of the Petition. By then, presumably, most of the work had been done by both Petitioner and VeriFone in preparation of the 51-page Petition, assemblance of prior art, and gathering of witnesses and their declarations, and Petitioner does not indicate otherwise. That Petitioner and VeriFone agreed that Petitioner would have total control after April 28, 2014 is of no moment. A petition is a petitioner's main brief in an inter partes review, on which a petitioner relies to persuade us to institute an inter partes review and eventually to make a final written decision regarding the patentability of challenged claims. See 35 U.S.C. §§ 311, 314, 316. Petitioner, as a party who controlled or had the opportunity to control what went into the Petition, is a real party-in-interest despite turning over the reins to another party after all of the work has been done. For all of the above reasons, we conclude that VeriFone participated in, controlled, and/or had the opportunity to control the filing of the Petition in material respects and is a real party-in-interest to this proceeding

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This decision gives guidance about the level of control a non-party exercises, or could exercise, in an IPR proceeding, including the preparation of the petition, which will give rise to a finding that the non-party is a RPI. In this case, agreeing to fund the preparation of the IPR and actually funding it along with controlling, or having the ability to control, the preparation of the petition trumps an agreement that the petitioner would have exclusive control over the IPR beginning two days before the filing of the petition. First Data Corporation v. Cardsoft (Assignment for the Benefit of Creditors), LLC, Case IPR2014-00715 (PTAB Oct. 17, 2014) (Paper 9) (Per Curium) (Medley, Petravick, and Calve, A.P.J.s)

The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. The authors represent inventors, patent owners and technology companies in patent licensing and litigation in U.S. District Courts and in the United States Patent and Trademark Office, including numerous IPRs currently pending before the PTAB. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Greg Cordrey at 949.623.7236 or GCordrey@jmbm.com.