In Kroy IP Holdings v. Groupon, The Federal Circuit issued a decision that should come as a comfort to patent owners, addressing the interplay between decisions of the Patent Trial and Appeal Board (“PTAB”) in inter partes review (“IPR”) and subsequent district court litigation.
The Federal Circuit held that a final IPR decision by the PTAB invalidating some claims of a patent does not bar the patent owner from later asserting other materially similar claims of that same patent in federal district court. The Federal Circuit explained this result by noting that the burden of proof for invalidity findings in IPR proceedings is lower than it is in district court, justifying an exception to the doctrine collateral estoppel, a doctrine that generally prevents a party from re-litigating a decided issue.
The District Court Litigation and IPRs
Kroy owns U.S. Patent No. 6,061,660 (the “’660 patent”) directed to providing customer incentive programs over a computer network. Kroy asserted infringement of 13 claims of the ’660 patent against Groupon in district court. Groupon then filed two IPR petitions challenging those claims as unpatenable. Ultimately, in the IPRs, the PTAB found all of the challenged ’660 patent claims invalid, thus not able to be asserted in district court against Groupon or any other alleged infringer.
After the IPRs, Kroy filed an amended complaint removing the invalidated claims and adding other ’660 patent claims that were never at issue in the IPRs. Groupon moved to dismiss the amended complaint, arguing that the newly added claims were “immaterially different” from the previously invalidated claims therefore Kroy should be barred by collateral estoppel from asserting infringement of them.
The district court agreed with Groupon that collateral estoppel barred Kroy from asserting the newly added claims. In doing so, it relied on a Federal Circuit decision from 2013, Ohio Willow Wood v. Alps South, which it interpreted as holding that collateral estoppel applies to patent claims that were not previously litigated if they are so similar to previously litigated patent claims that they “do not materially alter the question of invalidity” that has already been decided. It found that the newly added claims were materially the same as the ones invalidated in the IPR, applied collateral estoppel, and dismissed Kroy’s amended complaint.
The Federal Circuit Reverses
Kroy appealed to the Federal Circuit, arguing that the district court misconstrued the holding in Ohio Willow Wood. The Federal Circuit agreed with Kroy and reversed the district court’s dismissal, holding that collateral estoppel does not apply in district court when the previously litigated, materially similar claims were invalidated in an IPR rather than in district court. Its rationale for this reversal was that the burden of proof for findings of invalidity in an IPR is a preponderance of the evidence, whereas a district court invalidation applies the stricter clear and convincing evidence standard. This, in the Federal Circuit’s view, precludes the application of collateral estoppel.
The Federal Circuit also cautioned that the context of the Ohio Willow Wood decision is crucial to understanding the scope of that holding, because Ohio Willow Wood concerned a “district-court-to-district-court scenario” where the previously litigated patent claims and newly asserted patent claims were both litigated in district courts, not in IPRs. The Federal Circuit explained that this decision in Kroy is consistent with its previous decision in ParkerVision v. Qualcomm, which held that collateral estoppel does not apply in instances where the current litigation and previous litigation involved different burdens of proof for resolving the same issue.
Considerations for Litigants After Kroy
Patent owners wishing to enforce their rights after an adverse ruling in an IPR proceeding should review whether any patent claims not invalidated in the IPR can reasonably and timely be asserted against the infringer.
Defendants initiating an IPR should include all patent claims that could be asserted against them to avoid fighting a second invalidity battle in district court under a heightened “clear and convincing evidence” standard.
Kroy should not be read too broadly. In Kroy, the Federal Circuit reminded litigants of its previous decision in XY v. Trans Ova Genetics, which held that the same patent claims previously invalidated in IPR cannot later be asserted in district court because the final judgment in IPR retroactively cancels the claims as a matter of law such that, technically, they never existed.
In addition, ParkerVision teaches that when patent claims are found to be invalid in district court, collateral estoppel may apply to materially similar patent claims in subsequent district court proceedings even if they were not previously litigated.
