Mojave Desert Holdings, LLC, Appellant v. Crocs, Inc., Appellee
February 11, 2021
Case summary by Frederick Hadidi
If a patent challenger declares bankruptcy during a proceeding before the PTO’s Board of Patent Appeals and Interferences, may the patent challenger’s successor-in-interest appeal an adverse ruling to the Court of Appeals for the Federal Circuit? In this very fact-specific decision on a FRAP Rule 43(a) motion to substitute on appeal, the Federal Circuit held that it could.
Crocs, Inc. owns US Design Patent D517,789, which covers the company’s popular slip-on plastic footwear design. In 2012, Crocs sued U.S.A. Dawgs, Inc. in Colorado for allegedly infringing this patent. Later that year, U.S.A. Dawgs filed a third-party request for inter partes reexamination of the ‘789 patent, which the PTO granted.
During the next 5+ years, the District Court stayed the pending infringement litigation, the examiner rejected the ‘789 patent’s single claim as anticipated under 35 USC §102(b), and Crocs appealed the rejection to the Patent Trial and Appeal Board.
In late January 2018, patent challenger U.S.A. Dawgs filed for Chapter 11 bankruptcy. A few months later, U.S.A. Dawgs moved for the bankruptcy court to approve the sale of all of its assets to a recently formed entity, Dawgs Holdings, LLC. In July of that year, the bankruptcy court approved the sale, which assigned to Dawgs Holdings all of U.S.A. Dawgs’s assets. And in its order approving the sale, the bankruptcy court said that “the Sale [was] not free and clear of any Claims Crocs, Inc. . . . may hold for patent infringement occurring post-Closing Date by any person including the Prevailing Bidder….”
The following month, Dawgs Holdings (the company that had purchased all U.S.A. Dawgs’s assets) assigned all rights—including the claims asserted by U.S.A. Dawgs in both the District Court action and the inter partes reexamination—to a third entity, Mojave Desert Holdings, LLC. In October 2018, U.S.A. Dawgs dissolved, but continued to exist mainly for the purposes of continuing the District Court litigation and the inter partes reexamination, and to otherwise wind up its affairs.
In the summer of 2019, Mojave filed a petition with the PTAB titled, "Request to Change the Real-Party-in-Interest from Third-Party Requestor U.S.A. Dawgs, Inc. to Mojave Desert Holding, LLC in Inter Partes Reexamination/Hearing." The Board rejected this petition on the grounds that: (a) Mojave was not a proper successor in interest, because the initial transfer of assets from U.S.A. Dawgs to Dawgs Holdings appeared to be silent about rights to pursue the inter partes reexamination proceeding; and (b) Mojave’s motion was not filed within 20 days of the change in the real-party-in-interest, as required by 37 C.F.R. §41.8(a).
Shortly thereafter, the PTAB reversed the examiner’s rejection of the ‘789 patent’s only claim. U.S.A. Dawgs (the entity that had declared bankruptcy and was winding up its affairs) then appealed the PTAB’s decision to the Federal Circuit. In its Notice of Appeal, U.S.A. Dawgs stated that Mojave intended to file a FRAP Rule 43(b) motion for substitution of parties; U.S.A. Dawgs and Mojave filed that motion on December 13, 2019.
In its opposition to this motion, Crocs presented five arguments, all of which the Federal Circuit rejected.
First, the patent owner complained that Mojave was not a proper successor-in-interest to U.S.A. Dawgs, because the original bankruptcy sale (from U.S.A. Dawgs to Dawgs Holdings) did not properly transfer U.S.A. Dawgs’s interest in the reexamination proceedings to Dawgs Holdings. The Federal Circuit rejected this position, holding that Mojave is therefore the legitimate successor-in-interest to U.S.A. Dawgs because: (a) the assignment between these two entities was comprehensive (it included “[a]ll of [U.S.A. Dawgs's] right, title and interest in, to and under all of the assets, properties and rights of every kind and nature), and therefore included U.S.A. Dawgs’s interest in the reexamination proceeding; and (b) the second sale (from Dawgs Holdings to Mojave) explicitly mentioned the rights to the reexamination.
Second, Crocs claimed that even if Mojave is a proper successor-in-interest to U.S.A. Dawgs, Mojave waited too long to seek substitution in the proceedings before the PTAB, which had correctly ruled that Mojave’s motion to substitute was untimely under 37 C.F.R. §41.8(a). The panel disagreed, noting that if “the Board were permitted to preclude substitution on the basis of a transfer in interest because of a late filing, this would defeat the important interest in having the proper party before the Board.”
Third, the patent owner argued that 35 U.S.C. §141, the statute governing appeals from inter partes reexaminations, prohibits any requester from assigning its interest in a reexamination. In response, the Federal Circuit said it was aware of no case that suggests a federal claim is lost when it is transferred together with the assignor’s entire business; moreover, refusal to recognize such a transfer would “create a situation in which the assets remained potentially liable for infringement, but the transferee would have lost the right to challenge patent validity.”
Fourth, Crocs asserted that even if Mojave is the successor-in-interest to U.S.A. Dawgs, Mojave does not face a potential suit for infringement, and therefore lacks Article III standing. Again, the Federal Circuit disagreed, explaining that the three requirements for standing—injury in fact, causation, and redressability—were all present in this case. To establish an Article III injury on an appeal from an inter partes reexamination, the Court had previously held that an appellant must show that it has “engaged in an activity that would give rise to a possible infringement suit.” Here, Mojave has standing as U.S.A. Dawgs’s successor-in-interest because the original sale agreement approved by the bankruptcy court explicitly stated that the transferred assets “[were] not free and clear of any Claims Crocs, Inc. . . . may hold for patent infringement occurring post-Closing Date by any person including the Prevailing Bidder.” This establishes injury in fact (that is, potential liability for patent infringement), and this injury is both traceable to the ‘789 patent, and could be redressed if the Federal Circuit reversed the PTAB’s decision upholding the validity of that patent. All three conditions for Article III standing are therefore met here.
Fifth and finally, the patent owner urged the Federal Circuit to reject Mojave’s motion because that entity did not file a notice of appeal from the PTAB’s decision. Although this is true—because the PTAB refused to add Mojave as a party to the reexamination proceedings—the panel explained that, under Nevada law, U.S.A. Dawgs retained the ability to file a protective notice of appeal, and did so in a timely manner. This was sufficient to confer jurisdiction to the Federal Circuit.
The Court of Appeals concluded by granting Mojave’s FRAP Rule 43(b) motion to substitute on appeal, allowing it to proceed with its challenge to the PTAB’s decision upholding the ‘789 patent’s validity. There is, however, a postscript to this decision: a few days later, in a nonprecedential decision, the Federal Circuit summarily affirmed the PTAB’s decision.