The United States District Court for the Middle District of North Carolina recently granted summary judgment dismissing defendant’s invalidity claims, based in part on the Patent Trial and Appeal Board’s (“PTAB”) refusal to institute inter partes review (“IPR”). Precision Fabrics Group, Inc. v. TieTex International, Nos. 1:13-cv-645/650, 2016 WL 6839394 (M.D. N.C. Nov. 21, 2016). This raises strategic questions of whether pursuing weak patentability challenges at the PTAB, which the PTAB then declines to institute, creates an evidentiary disadvantage in District Court even though estoppel under 35 U.S.C. § 315(e)(2) does not technically apply. See, e.g., Shaw Indus. Grp., Inc. v. Automated Creel Sys., Inc., 817 F.3d 1293, 1300 (Fed. Cir. 2016) (holding that estoppel does not apply for grounds of challenge that are denied institution by the PTAB).
In Precision Fabrics, Defendant TieTex asserted a counterclaim for declaratory judgment of invalidity against the asserted ‘639 and ‘162 patents. Plaintiff PFG sought summary judgment on the invalidity claims.
The District Court found that TieTex was not only estopped from asserting three references against the ‘639 patent which had been the basis of patentability challenges rejected by the PTAB in a final written decision, but also found that TieTex was estopped from challenging the ‘639 patent based on three additional references because 35 U.S.C. § 315(e)(2) bars assertion of invalidity grounds that “reasonably could have [been] raised” during the IPR. The District Court did not elaborate as to any factual findings on why the references could have been raised with the PTAB.
The District Court’s findings concerning the ‘162 patent have potentially more far reaching implications for infringement defendants. The PTAB had declined to institute TieTex’s petition to commence an IPR of the ‘162 patent. The Court first acknowledged that the estoppel provisions of 35 U.S.C. § 315(e)(2) did not apply to TieTex’s invalidity challenge to the ‘162 patent. Nevertheless, the court found that “the PTAB’s refusal to institute inter partes review is indicative of the weakness of TieTex’s claim of invalidity as to the ‘162 patent, as the PTAB will not authorize an inter partes review unless ‘there is a reasonable likelihood’ that a petitioner would prevail in proving invalidity.” Precision Fabrics, 2016 WL 6839394 at *9 (citing 35 U.S.C. § 314(a) and Husky Injection Molding Sys. Ltd. v. Athena Automation Ltd., 838 F.3d 1236, 1246 (Fed. Cir. 2016)). Citing this and other factors, the court granted summary judgment against TieTex on its claim of invalidity of the ‘162 patent.
The District Court’s ruling may create friction with Federal Circuit precedent. In Shaw, the court stated that an IPR petitioner is not estopped from subsequently bringing a non-instituted ground “in either the PTO or the district courts” because the petitioner “did not raise – nor could it have reasonably raised [the non-instituted ground] during the IPR. [Emphasis in original.]” Shaw at 1300. While the District Court did not find that TieTex was estopped, one could argue that the practical effect of the ruling is to bar non-instituted challenges from being substantively considered in the District Court.
The Precision Fabrics ruling demonstrates that, even if not estopped from reasserting the same invalidity grounds in District Court, litigants who fail to persuade the PTAB to institute may have effectively created a difficult presumption against their invalidity case if the same grounds are asserted in District Court. This difficulty may be even further enhanced by the higher clear and convincing burden on invalidity that must be satisfied in District Court. Patent owners can be expected to argue that if an accused infringer cannot even get past institution at the PTAB, then the accused infringer’s case is clearly too weak to succeed in District Court.