by Dennis Crouch

The pending case of Jump Rope Systems v. Coulter Ventures is fascinating to me as someone who teaches both property and civil procedure. The basic questions: (1) As an inter partes review (IPR) proceeding draws to a close – toward cancellation – at what point are the claims no longer enforceable? (2) What is the effect of cancellation, in particular, is it like canceling a magazine subscription where the former subscriber isn’t off the hook for past-due bills; or, is it like an annulment – an Ab Initio Extinguishment?  The case also (3) raises a straight-up due process challenge to the IPR system.

A typical IPR where the petitioner prevails includes the following three-step sequence:

1. Unpatentable Decision: PTAB issues a final written decision concluding that the challenged claim has been proven unpatentable with a preponderance of the evidence.
2. Affirmed on Appeal: On appeal, the Federal Circuit affirms that judgment.
3. Certificate of Cancellation: Once the appeal is complete, the USPTO Director then issues a certificate canceling the claim. 35 U.S.C. 316.

The first question — if the patentee is involved in concurrent district court infringement litigation, at what step is the patent no longer enforceable?

Clearly, the patent claim is canceled at Step-3 and by that point cannot be enforced going forward. The Federal Circuit though has held that the claim is already unenforceable at Step-2 based upon the court’s questionable application of collateral estoppel.   I call it questionable because of the different standards  of proof applied in the PTAB vs the District Court.  The affirmed PTAB decision found the claim invalid with a preponderance of the evidence.  But, in district court litigation invalidation requires clear and convincing evidence, a substantially higher standard. And, a conclusion of invalidity under a lower standard does not conclusively tell us that the same claim would have been proven invalid under a higher standard.  Using a standard approach such as found in the Restatement (Second) of Judgments, collateral estoppel would not apply here because of the difference in standards.  Here, we tend to use an exacting standard for res judicata principles because of their due process implications — the result bars a party from making their argument in court.  The Federal Circuit’s fudging of the rule makes some practical sense – the statute appears to make the issuance of the cancellation certificate a ministerial process with its “Director shall” language.  And yet, fudging the rules in a way that undermines due process is troubling.  I’ll note here that courts appear to generally be waiting for the appeal decision before announcing preclusion, although it is unclear whether that approach is somehow required or simply prudential (since district courts generally see the Federal Circuit as unpredictable).  I’ll also note that I previously called out the Federal Circuit for improper expansion of preclusion law with regard to the Kessler Doctrine – they did not listen to me there either.

The second question at issue in Jump Rope Systems involves the impact of cancellation — what about infringement that occurred (and lawsuits pending) prior to the cancellation?

The reissue system is a somewhat-close relative to inter partes review and has the benefit of 150 years of case law, including numerous Supreme Court decisions.  With reissues, courts have clearly held that cancellation of claims during reissue render those claims entirely moot.  See, for instance, Moffitt v. Garr, 66 U.S. 273, 283 (1861) and Meyer v. Pritchard, 23 L. Ed. 961 (1877).  But, the reissue system has a significant difference — a reissue begins with a patentee surrendering its patent as required by statute. 35 U.S.C. 251.  It is that surrendering that makes the cancellation of claims in a reissue so dramatic.

With inter partes review, the patentee does not surrender the patent and so we have a potentially different situation.  Still, courts have regularly treated cancellation of claims as voiding the claims backward and forward through time.  But, it is not so clear that approach is correct and there are many situations where the courts have given “cancel” to only prospective effect.  In its briefing, Jump Rope cites a long string of cases in various areas of law as well as simple plain meaning of the word:

Plain English is in accord. “Canceling” a magazine subscription stops future deliveries, but past issues remain in hand.

Jump Rope Reply Brief. If Jump Rope wins on this, an IPR petition that cancels claims would only cut-off prospective damages and injunctive relief.  The patentee could still recover pre-cancellation damages so long as the defendant failed to prove the claims invalid in district court at the higher standard.

= = =

The briefing also includes an important due process challenge — arguing that the use of IPRs to prevent infringement lawsuits violate due process.  In Oil States, various the patentee raised various challenges to the system, but did not bring a due process challenge. Oil States Energy Servs., LLC v. Greene’s Energy Group, LLC, 138 S. Ct. 1365 (“We emphasize the narrowness of our holding. . . . Oil States [has not] raised a due process challenge.”).

Here, the patentee makes two arguments:

1. “First, front-line adjudicators are not sufficiently insulated from political forces. United States v. Arthrex, Inc., 141 S. Ct. 1970, 1993 (2021) (Gorsuch, J., concurring in part & dissenting in part) (‘The Court’s decision in Oil States allowing executive officials to assume an historic judicial function was always destined to invite familiar due process problems. . . . [P]owerful interests are capable of amassing armies of lobbyists and lawyers to influence (and even capture) politically accountable bureaucracies.’) (citations and internal quotation marks omitted).”
2. “Second, by not permitting traditional live cross-examination of witnesses
   (instead, relying on written depositions), IPR procedures violate due process in view of the importance of the property right at issue. See Goldberg v. Kelly, 397 U.S. 254, 269 (1970) (‘In almost every setting where important decisions turn on questions of fact, due process requires an opportunity to confront and cross-examine adverse witnesses.’)”

Great questions from petitioner.

Robert Greenspoon (Dunlap Bennett) is counsel for the patentee Jump Rope Systems. Louis DiSanto (Banner Witcoff) is representing the accused infringer Coulter Ventures.   Their offices are a few blocks apart in downtown Chicago.