Burden: IPR Petitioner must Prove it is the Real-Party-In-Interest

by Dennis Crouch

Worlds Inc. v. Bungie, Inc. (Fed. Cir. 2018)

The appeal here stems from three Inter Partes Review (IPR) proceedings — each cancelling the claims of aseparate Worlds’ patent. U.S. Patent Nos. 7,945,856; 8,082,501; and 8,145,998. The Worlds’ patents involve methods and systems for displaying avatars within a virtual environment and claim priority back to a 1995 provisional patent application.

The appeal here does not focus on the merits of the case but rather whether the IPR proceedings were time barred.  I.e., whether the patentee’s still-pending lawsuit against Bungie’s contracting partner Activision will block Bungie from pursuing its IPR. 

35 U.S.C. § 315(b) is fairly clear — “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.”

Here, the petitioner Bungie was never sued for infringing the patents.  However, game distributor Activision was sued for infringement 2012 for its World of
Warcraft games.  Bungie develops virtual-world games such as Halo — and distributes those games through a deal with Activision. Back in 2014, Worlds notified Activision that it planned to add the Bungie products to the lawsuits.  Within six months, Bungie filed the IPRs at issue here. The Activision lawsuit is ongoing – though it was conveniently stayed pending outcome of the Bungie IPR.

In the IPR, the patentee Worlds requested discovery on the connection between Bungie and Activision in order to determine whether Activision could be considered a “real party in interest” or “privy.” However, that request was summarily denied and the PTAB concluded that the patentee “has not demonstrated that Activision is an unnamed real party in interest in this proceeding.”

On appeal, the Federal Circuit has vacated and remanded — holding that the PTAB should have investigated the relationship between the IPR petitioner (Bungie) and the prior litigant (Activision) and that the PTAB should have explained its reasoning.

Absent from the Board’s analysis of the real-party-in interest issue is any clear statement of what, if any, burden framework the Board used to analyze the evidence presented in these IPRs, including an identification of which party the Board viewed as bearing the burden of persuasion.

In its decision, the court made several important findings:

  • An “IPR petitioner bears the ultimate burden of persuasion to show that its petitions are not time-barred under § 315(b).” However, an IPR petitioner’s identification of the real parties in interest in the petition papers will ordinarily serve as prima facie evidence meeting this burden.  At that point, the patentee must produce some evidence to support its contention otherwise.
  • Note here, that the initial statement by the patentee does not create a “presumption” but only serves as an initial starting point for the analysis. The court explains: “[i]nstead of viewing this as a presumption, we simply view this as practical. In short, we see no reason for the Board to question an IPR petitioner’s identification of the real parties in interest unless and until a patent owner has chosen to raise the issue.”
  • In order to properly “raise the issue”, a patentee will need to provide “some evidence” showing that a particularly third-party should be named as a real-party-in-interest. The court expressly refused to state the “quantum” of evidence required — but suggested that it might follow the PTAB’s prior ruling that evidence should “reasonably brings into question the accuracy of a petitioner’s identification of the real parties in interest.”  Note — this requirement is clearly less than a preponderance of the evidence.

Here, the court found that the patent owner “presented more than enough evidence to sufficiently put this issue into dispute.”  The evidence here was:

  1. Worlds pointed to a particular party it saw as a real-party-in-interest — Activision.
  2. Worlds provided evidence of a development-distribution agreement between petitioner Bungie and Activision. This agreement placed an obligation on Bungie to clear-rights for its products distributed by Activision and also provided Activision with ability to review and approve the clearance;
  3. Worlds provided evidence that it had provided notice to Activision regarding its intent to add Bungie products to the Activision litigation; and
  4. The patents challenged by Bungie are the exact same patents that are the subject matter of the pending litigation with Activision.

The Federal Circuit saw this evidence as sufficient to force the Board’s hand and no longer simply rely upon the petition’s statement in a conclusory judgment.  Rather, at that point the Board should have considered the evidence and expressly made “the factual determinations necessary to evaluate whether Bungie had satisfied its burden to demonstrate that its petition was not time-barred based on the complaints served upon Activision, the alleged real party in interest.”

On remand, the Board will reconsider its the real-party-in-interest decision — placing the ultimate burden of persuasion on the IPR petitioner.

Vacated and Remanded.

= = = = =

Claim 1 of the ‘856 patents is listed below:

1. A method for enabling a first user to interact with second users in a virtual space, wherein the first user is associated with at first avatar and a first client process, the first client process being configured for communication with a server process, and each second user is associated with a different second avatar and a second client process configured for communication with the server process, at least one second client process per second user, the method comprising:

(a) receiving by the first client process from the server process received positions of selected second avatars; and

(b) determining, from the received positions, a set of the second avatars that are to be displayed to the first user;

wherein the first client process receives positions of fewer than all of the second avatars.

16 thoughts on “Burden: IPR Petitioner must Prove it is the Real-Party-In-Interest

  1. 2

    The Petitioner’s real-party-in-interest or privy issue here [besides who has the burden of persuasion and when] is the denial of discovery on the issue. The former got somewhat clarified in this Fed. Cir. Worlds Inc. v. Bungie decision, but for some reason the discovery denial was not appealed here, this decision states. The IPR system depends on strict limitations on discovery for its speed and efficiency. IPRs thus often deny discovery on real-party-in-interest or privy issues unless the petitioner already has strong evidence of control of the IPR by someone else BEFORE asking for discovery. What was needed here was a challenge to the discovery denial to get that clarified. [A narrowly tailored discovery request on this issue should not be that burdensome.]
    This decision also notes that mere attorney denials are attorney argumentation, not evidence.

    1. 2.1

      Paul,
      I disagree with your characterization. Given the judicial discretion applied by the CAFC….any patent owners attempt to contest the denial of discovery would…by itself… have most likely been shot down due to the burden needed to overturn judicial discretion (an almost impossible burden without the “smoking gun” documentation already in hand)…so the ACTUAL controversy was correctly on who had the Burden of Persuasion and how to apply it….which the court properly recognized (for once…) and was much more fundamentally needed by the patent bar community than purely a narrow discovery order in this single case.

      The IPR systems “success” entirely depends on BYPASSING CONSTITUTIONAL DUE PROCESS concerns such as limiting proper discovery on this and several other issues and forcing patent owners into a timed kangaroo court designed by various corporate interests who wanted to reduce their risk and the cost of infringement others patents (Google being the most obvious). People seem to conveniently forget that the District Courts were used fine for two hundred years to determine patent cases before the re-examination experiment wedged open a door that should NEVER have been opened and led to the now-Niagra Falls level cascading erosion of patent rights we have seen in the past decade.

      1. 2.1.1

        People seem to conveniently forget that the District Courts were used fine for two hundred years to determine patent cases before the re-examination experiment wedged open a door that should NEVER have been opened and led to the now-Niagra Falls level cascading erosion of patent rights we have seen in the past decade.

        Was it fine? If so, by what metric?

        1. 2.1.1.1

          CLEARLY Congress was convinced (rightfully or wrongfully) that such was NOT fine.

          That, however, plays no part in the determination as to whether or not what Congress did do passes scrutiny for OTHER protections under the Constitution.

          There are various points that earn attention, ranging from the effects of propaganda and the capture of Congress to the notion of how important those other protections are (and even IF such protections exist).

      2. 2.1.2

        Yes, an IPR discovery denial challenge on appeal might have to be based on a due process denial challenge.
        But as to your assertion that the entire IPR system depends on bypassing Constitutional due process, that is rebutted by numerous such challenges at the Fed. Cir., and the very small number of which have been successful, as well as in the Sup. Ct. Cuozzo case. Also of course an IPR has far less possible issues and evidence than a D.C. patent suit. Limited to only 102 and 103 re only patents and publications. No issues of infringement, IC, 112, any other prior art or bars, etc. Hence, less need for free-range discovery.

        Anon’s related question is answered in the decision. The decision accepts that the bare attorney assertion of the petitioner as being the only party in interest is accepted [albeit gagging at calling it a legal “presumption”] unless and until that assertion is factually challenged by the patent owner. [As is also normal for jurisdictional assertions in D.C. complaints.]

        1. 2.1.2.1

          As to your second paragraph then, Paul, are you saying that your statement above is not correct and that indeed an attorney argument “IS” evidence?

          (Gagging optional – just looking for clarification)

        2. 2.1.2.2

          Plus Paul, see the post below regarding [1] and [1] alone (with [2] being the “in the alternative” with sufficient facts that is distinct from [1]).

      3. 2.1.3

        Valuation Sty: the re-examination experiment wedged open a door that should NEVER have been opened and led to the now-Niagra Falls level cascading erosion of patent rights we have seen in the past decade.

        LOL

        The “erosion of patent rights” is the direct predictable result of the absurd expansion of the patent system into logic and information where it never belonged.

        My goodness where do these blithering whining id i 0ts keep coming from? Dry up and die already.

      4. 2.1.4

        Valuation Sty: The IPR systems “success” entirely depends on BYPASSING CONSTITUTIONAL DUE PROCESS concerns

        The odds that this c0rnh0le actually cares about or understands anything “Constitution due process” are zero.

        1. 2.1.4.1

          Mindless ad hominem making up 100% of Malcolm’s “reply.”

          I am shocked.

  2. 1

    properly “raise the issue”, a patentee will need to provide “some evidence” showing that a particularly third-party should be named as a real-party-in-interest. The court expressly refused to state the “quantum” of evidence required — but suggested that it might follow the PTAB’s prior ruling that evidence should “reasonably brings into question…

    Question for litigator-mainly types:

    Would “upon information or belief” type of statements in raising the issue be “proper?”

    If not, why would such statements then EVER be proper?

    1. 1.1

      “Would ‘upon information or belief’ type of statements in raising the issue be “proper?”

      May very well be. Information and belief is not supposed to be pure speculation. It would be more along the lines of information that Activision distributes Bungie games and thus (reasonable) belief that there is a development-distribution agreement between Activision and Bungie that creates privity. Only in this situation Worlds had actually obtained a copy of the development-distribution agreement and provided it to the PTAB (fn. 4).

      “The Twombly plausibility standard … does not prevent a plaintiff from pleading facts alleged ‘upon information and belief’ [1] where the facts are peculiarly within the possession and control of the defendant, or [2] where the belief is based on factual information that makes the inference of culpability plausible.” Arista Records, LLC v. Doe 3, 604 F.3d 110 (2d Cir. 2010) (2d Cir. 2010).

      1. 1.1.1

        Thanks DRJlaw – that was helpful.

        How does the Twombly [1] point interface with Paul’s “mere attorney denials are attorney argumentation, not evidence“…? Since [2] is in the alternative (and need not be present for [1]), how does the “mere attorney aspect of [1] survive what Paul advances?

        I mean, I “get” the [2] and having facts sufficient to make a plausible inference, but my thrust is how does [1] – and [1] alone – ever suffice?

        1. 1.1.1.1

          It doesn’t. Paul’s reference is not germane to point 1:

          “As an aside, we have some concern that the Board
          may have relied on attorney argument as evidence that
          Activision was not controlling or funding these IPRs. See
          J.A. 510, 3877, 5095 (citing Bungie’s briefing and stating
          that “[o]n this record, we accept Petitioner’s express
          representations that Activision is not controlling or funding
          this proceeding”);” see also Icon Health & Fitness, Inc.
          v. Strava, Inc., 849 F.3d 1034, 1043 (Fed. Cir. 2017)
          (“Attorney argument is not evidence.”). This is particularly
          concerning given that the Board’s apparent reliance on
          such statements seemed to outweigh the actual evidence
          presented by Worlds.”

          That was attorney argument concerning information within that party’s own possession. That was not attorney argument by Worlds concerning how Activision and Bungie were handling the IPRs within the framework of the development-distribution agreement.

          You want to plead as many facts as you can to “paper up to the gap,” but so long as the gap is relatively small, at the pleading stage U.S. courts will allow it where the gap information is held or likely to be held only by the other side. That is what discovery exists to resolve.

          1. 1.1.1.1.1

            Thanks DRJ, and your last paragraph is particularly cogent for PTO inter partes proceedings, where obtaining discovery on issues like this requires obtaining APJ permission for it. My point at 2 above.

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