Apple doesn't automatically win IPR just because opponent sent an exparte letter to the President

Updated: Dec 22, 2020

Apple Inc., Appellant v., Inc., Appellee Andrei Iancu, Under Secretary of Commerce for

Intellectual Property and Director of the

United States Patent and Trademark Office, Intervenor 2018-1456, 2018-1457

September 25, 2020

Case Summary

This dispute involving IPRs filed by Apple against the owner of two voice over IP patents had almost everything: ex parte letters sent to the PTAB with copies to the President of the United States; three different Board Panels; sanctions; alleged violations of the Administrative Procedures Act and the U.S. Constitution; claims mooted by findings of ineligibility in parallel litigations; litigation over the preclusive effect that certain rulings might have on future litigations; and even an obviousness challenge.

This case had a typical start: patent owner asserted two voice over IP patents against Apple. Apple then challenged those patents at the PTAB, arguing that their claims are invalid as obvious over a combination of two prior art references. When a panel of the Board instituted IPR proceedings, the district court stayed the case pending the outcome of the IPR.

Things took a turn for the bizarre when Voip-Pal’s CEO sent several letters to various individuals, but not to Apple. These ex parte letters—copies of which were sent to the President, members of Congress, federal judges, and administrative patent judges at the PTAB—complained about the Board’s patent cancellation rate, criticized IPR procedures as unfair, and requested either: (a) judgment in favor of Voip-Pal; or (b) dismissal of Apple’s IPR petitions. The letters said nothing about the merits of Apple’s IPR petitions.

For reasons not memorialized in the record, the original Board panel was replaced by a second panel with three different administrative patent judges. In November 2017, this second panel issued final written decisions that ruled in favor of the patent owner; these decisions explained that Apple’s obviousness arguments failed because they did not explain why an artisan of ordinary skill would have been motivated to combine the two prior art references to arrive at the claimed inventions.

This was not the end of the matter. After its defeat at the PTAB, Apple cried foul when it learned of the ex parte letters sent to the PTAB, the President, and others; it argued that these unusual letters violated its due process rights and the Administrative Procedures Act—and that Voip-Pal should be punished. The consumer electronics giant requested that the Board either: (a) enter adverse judgment against the patent owner; or (b) vacate the final written decisions and assign a new panel to preside over “constitutionally correct” new IPR proceedings.

For the sanctions proceedings, a third Panel of administrative patent judges replaced the second Panel. This third panel agreed that Voip-Pal should be sanctioned for sending the ex parte letters, but rejected Apple’s request for a directed judgment in its favor. It also denied Apple’s alternative request for de novo proceedings before a new panel. Instead, the third Panel said that it would preside over Apple’s petition for rehearing, a solution that “achieves the most appropriate balance when considering both parties’ conduct as a whole.”

Apple’s petition for rehearing failed; the third Panel said that the second Panel had been correct: Apple simply had not shown that the challenged claims were invalid as obvious over the two prior art references it had asserted.

This appeal followed; and while the appeal of the IPRs was pending, the parties agreed to lift the stay at the district court. That case (which had originally been pending in the District of Nevada) was then transferred to the Northern District of California. The California court: (a) consolidated the Apple case with other cases involving the same Voip-Pal patents; and (b) required the patent owner to select a maximum of 20 claims to assert against all of the accused defendants.

Apple and other defendants filed a consolidated motion to dismiss, arguing that the twenty asserted claims were ineligible under 35 U.S.C. § 101. The trial judge granted the motion, and in March 2020 the Federal Circuit affirmed the district court’s judgment that the 20 asserted claims were patent ineligible.

This was still not the end of the matter, because the IPR proceedings included 35 claims—not just the 20 claims that had been found patent ineligible. The Federal Circuit held that (with respect to the present appeal related to the IPRs) the Board’s decision should be vacated—but only with respect to the claims that had been found patent ineligible. For the remaining 15 claims pending in the IPR appeal, Apple tried to get those thrown out as well, arguing that the patent owner is precluded from asserting them against Apple because they are “essentially the same” as the 20 claims held patent ineligible, and Voip-Pal had admitted as much at the district court.

The Federal Circuit was not persuaded; under the doctrine of claim preclusion, “a judgment on the merits in a prior suit involving the same parties or their privies bars a second suit based on the same cause of action.” But both Federal Circuit and Supreme Court precedent explain that a court conducting an action cannot determine the preclusive effect of a judgment; that can only be determined by a court in any future action brought by Voip-Pal over the same patents. Until then, any determination as to whether the patent owner is precluded from filing an infringement action concerning the 15 remaining claims—claims that no court has determined are patent ineligible—would be advisory in nature, and therefore falls outside of the Federal Circuit’s Article III jurisdiction.

Turning next to the appeal of the PTAB’s sanctions decision, Apple argued that the Board violated the Administrative Procedures Act (by imposing sanctions that were not among the eight authorized sanctions identified in 37 C.F.R. § 42.12(b)), and that the Board had violated Apple’s Fifth Amendment due process rights. Regarding the alleged APA violation, Apple said that when the Board imposes sanctions, it must apply one of the eight sanctions listed in that CFR section; and in this case, the appropriate sanction for sending the ex parte letters to the President and others is to enter judgment in Apple’s favor. The Court of Appeals found this argument to be absurd; § 42.12(b) plainly says that the Board “may” impose a sanction against a party for misconduct, and that sanctions “include” the eight enumerated punishments listed in that section. Because § 42.12(b) gives the Board broad discretion to issue appropriate sanctions, it did not commit an APA violation when it issued a sanction not explicitly listed under that section.

Regarding the alleged constitutional violation, Apple asserted that the Board violated its Fifth Amendment due process rights by failing to punish Voip-Pal (for its ex parte letters) by ordering de novo proceedings with a new Panel. The Federal Circuit noted that there can be no due process violation without the deprivation of a property interest. What was this property interest? According to the iPhone maker, it was the money Apple had spent requesting the IPRs. But because Apple only made this argument for the first time on appeal, the Court of Appeals held that it had been waived. Moreover, Apple had complained bitterly that Voip-Pal’s six ex parte letters (which again, essentially grumbled about the unfairness of the IPR process) had “tainted” the IPR proceedings. But when the Board gave Apple the opportunity to respond to the substance of these letters, the company declined. Given this refusal to directly address the allegations in the ex parte letters, the Federal Circuit “fail[ed] to see how the Board’s sanctions orders deprived Apple of due process.”

Turning finally to the substance of Apple’s obviousness argument in the underlying IPRs, the company claimed that the Board legally erred because when it considered Apple’s motivation-to-combine argument, it applied the now-rejected teaching, suggestion, motivation test—rather than using the considerably more flexible obviousness analysis required under the Supreme Court’s KSR decision. The Federal Circuit was not persuaded; it noted that the PTAB did not fault Apple for failing to meet the old teaching, suggestion, motivation test for obviousness. Instead, the Board said that Apple’s expert provided only “conclusory and insufficient” reasons for combining the two asserted references and failed to “articulate[] reasoning with some rational underpinning.” The Board therefore did not commit legal error, “but rather held Apple to the proper evidentiary standard.”

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.10 Case summary of Apple Inc v Voi

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