“VirnetX’s success on its recent petitions to terminate these reexamination proceedings is the latest bit of positive news for the patent owner in a legal battle which has taken many turns.”

On October 16, the U.S. Patent and Trademark Office (USPTO) issued two decisions granting renewed petitions filed by patent owner VirnetX to terminate inter partes reexamination proceedings at the USPTO that were petitioned by consumer electronics giant Apple. The decisions terminating the reexaminations with respect to many of VirnetX’s patent claims are based on estoppel provisions arising from the previous adjudication of infringement findings against Apple upheld on appeal to the U.S. Court of Appeals for the Federal Circuit.

The decisions to grant VirnetX’s petitions involve two of VirnetX’s patents asserted in that firm’s infringement case against Apple and Cisco Systems:

S. Patent No. 6502135, Agile Network Protocol for Secure Communications With Assured System Availability.

S. Patent No. 7490151, Establishment of a Secure Communication Link Based on a Domain Name Service (DNS) Request.

Apple filed for the reexamination proceedings to challenge the validity of claims from the ‘135 and ‘151 patents in July 2011, a little less than one year after VirnetX asserted claims from those and two other patents against Cisco and Apple in U.S. district court. The district court found that VirnetX’s asserted patent claims were both infringed and not invalid and, in September 2014, the Federal Circuit upheld the finding on no invalidity for all four patents and the infringement findings on the ‘135 and ‘151 patents. Although that Federal Circuit decision vacated and remanded some of the district court’s findings, Apple didn’t file a request for rehearing at the Federal Circuit or a petition for writ of certiorari at the U.S. Supreme Court on the infringement and no invalidity findings that were upheld by the Federal Circuit.

VirnetX II, Fairchild Lead to Positive Outcome for VirnetX

Despite the findings at the district court and the Federal Circuit, inter partes reexamination continued at the USPTO on the other two patents asserted by VirnetX in the patent infringement litigation; those patents are U.S. Patent No. 7418504, Agile Network Protocol for Secure Communications Using Secure Domain Names, and U.S. Patent No. 7921211 (same title as the ‘504 patent). In those reexaminations, the examiner found all challenged claims to be unpatentable and the examiner’s findings were upheld on appeal to the Patent Trial and Appeal Board (PTAB). However, the PTAB’s decision was appealed to the Federal Circuit, which this August found that the Federal Circuit’s September 2014 decision upholding the validity of all four patents (VirnetX I) rendered the earlier district court’s judgment as final within the meaning of pre-AIA 37 U.S.C. § 317(b), which states that the USPTO will not maintain inter partes reexamination proceedings on bases which the petitioning party raised or could have raised in the district court proceeding leading to a final judgment of no invalidity. The reexaminations were upheld for claims on which the Section 317(b) estoppel provision didn’t apply.

The USPTO had previously dismissed petitions from VirnetX to terminate the reexaminations with respect to the claims that had been determined to be not invalid in the earlier district court proceeding. However, the August 2019 Federal Circuit decision (VirnetX II) and the Federal Circuit’s 2017 decision in Fairchild (Taiwan) Corp. v. Power Integrations led the USPTO to grant renewed petitions to terminate filed by VirnetX. In Fairchild, the Federal Circuit similarly applied Section 317(b) estoppel effect to an inter partes reexamination proceeding looking at claims which had been upheld by both a district court and the Federal Circuit in parallel litigation in the federal courts.

Section 317(b) Analysis: Was the Validity Decision Final After All Appeals?

In analyzing whether to terminate inter partes reexamination proceedings under Section 317(b), the USPTO looks at four elements, including whether the third party requester was a party to the district court litigation, whether the decision was final after all appeals, whether the district court decided that the requester had not carried its burden of proving the invalidity of claims that are also at issue in the reexamination, and whether the issues raised in the reexamination proceeding are the same that were raised or could have been raised in the district court proceeding. Three of the elements were deemed to be satisfied without much discussion: Apple was a party in the district court infringement litigation; Apple didn’t meet its burden of proving invalidity of the challenged claims in district court; and Apple was aware of all prior art raised in the reexamination proceeding prior to trial in the district court and didn’t raise any new prior art in the reexamination after the district court trial.

On the second element – whether the decision was final after all appeals – VirnetX contended that the district court finding of no invalidity prior to VirnetX I was final and that Apple didn’t timely request rehearing or file a petition for writ of certiorari with the Supreme Court. While Apple didn’t dispute that the remand to the district court didn’t involve any issues of invalidity for the ‘135 and ‘151 patents, it argued that there were some invalidity issues at stake in the remand that would be subject to appellate review once the district court renders its judgment. Apple cited to the Federal Circuit’s 2013 decision in Fresenius USA, Inc. v. Baxter International, Inc. for support that an appeal hasn’t terminated if the action is remanded for further proceedings, even if the appellate court affirms a finding of no invalidity in the decision to remand.

When differentiating the impacts of Fairchild and Fresenius on the estoppel provisions of Section 317(b), the USPTO noted that the issue in the case of VirnetX’s petitions to terminate was whether the judgment was final for the purposes of appeal. In Fresenius, the issue was whether the district court’s judgment was final for purposes of res judicata, not for the purposes of appeal. The USPTO also noted the Federal Circuit’s decision in VirnetX II, which dispenses of Apple’s argument based on Fresenius along similar lines of reasoning. Further, the USPTO noted that pre-AIA Section 317(b) was not at issue in Fresenius, which dealt with the effects of an ex parte reexamination and isn’t governed by Section 317(b). By contrast, Fairchild dealt with the same issue present in VirnetX’s petition regarding the estoppel effects of a final judgment on validity.

Petitions to Terminate Latest Round of Good News for VirnetX

As a result of the granted petitions, the USPTO will no longer maintain Apple’s challenges to claims 1 through 9 of the ‘135 patent in Inter Partes Reexamination No. 95001682, nor will it maintain the challenges to claims 1 through 6 and 13 through 16 of the ‘151 patent in Inter Partes Reexamination No. 95001697. Prosecution will continue regarding claims 10 through 18 of the ‘135 patent and claims 7 through 12 of the ‘151 patent. Further, VirnetX’s petition regarding the ‘151 patent severed the ‘1697 reexamination from Inter Partes Reexamination 95001714 and prosecution of claims 1 through 16 of the ‘151 patent in that reexam will continue.

VirnetX’s success on its recent petitions to terminate reexamination proceedings is the latest bit of positive news for the patent owner in a legal battle which has taken many turns since VirnetX won $368 million in a district court infringement case against Apple back in November 2014. On October 8 of this year, the Federal Circuit issued a mandate finalizing its previous Rule 36 judgment against Apple after the consumer tech giant attempted to stay the Federal Circuit’s judgment. On October 1, the day that the Federal Circuit denied Apple’s motions, shares of VirnetX stock rose by more than 20%, up to $6.28 per share.

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