STANDING FOR A SUBSTITUTED PARTY IS NOT A CROCK
| April 26, 2021
MOJAVE DESERT HOLDINGS, LLC, v. CROCS, INC.
Decided February 11, 2021
NEWMAN, DYK, and O’MALLEY (Opinion by Dyk)
This precedential decision further clarifies that article III standing exists for a successor in interest. Article III standing had also been an issue in another recent decision from the CAFC in General Electric Company v. Raytheon Technologies Corporation decided on December 23, 2020 as reported by Miki Motohashi. The issue arises in the present case due to a change in the real party in interest while an appeal was pending in an inter partes reexamination.
The following timeline illustrates how this issue arose.
August 6, 2012 – Crocs sued U.S.A. Dawgs, Inc. for patent infringement of U.S. Design No. D517,789. Many should be familiar with this design:
August 24, 2012 – U.S.A. Dawgs filed a third-party request for inter partes reexamination.
November 19, 2012 – The USPTO orders reexamination. The district court stays the infringement proceedings in light of the reexamination.
2012 – 2018 – Reexamination proceeds with an anticipation rejection under 35 U.S.C. 102(b), which is appealed by Crocs.
January 31, 2018 – U.S.A. Dawgs files for Chapter 11 bankruptcy.
July 20, 2018 – The bankruptcy court approves the sale of all of U.S.A. Dawgs’s assets to Dawgs Holdings. The bankruptcy court stated that the sale was not free and clear of any claims Crocs may hold for patent infringement post-closing date.
August 15, 2018 – Dawgs Holdings assigns all rights, including explicitly the claims asserted by U.S.A. Dawgs in the infringement action and the inter partes reexamination, to Mojave Desert Holdings.
October 23, 2018 – U.S.A. Dawgs dissolves but continues to exist for limited purposes including “prosecuting and defending suits.”
July 18, 2019 – Mojave files a petition with the Board to change the real party in interest from U.S.A. Dawgs to Mojave.
August 19, 2019 – The Board dismisses and expunges the petition based on three reasons: (1) the initial transfer of assets from U.S.A. Dawgs to U.S.A. Dawgs Holdings appears to be silent about rights to the reexamination, (2) based on its interpretation of the transfer of assets, Mojave was not a party to the reexamination and did not have standing to update the real party in interest[1], and (3) Mojave did not file its submission within 20 days of any change of the real party-in-interest as required by 37 C.F.R. § 41.8(a), making it untimely.
September 10, 2019 – The Board reverses the Examiner’s rejection; U.S.A. Dawgs appeals to the CAFC sometime after.
December 13, 2019 – U.S.A. Dawgs and Mojave file a motion to substitute (under Federal Rule of Appellate Procedure 43(b)).
The CAFC addresses the motion to substitute in its decision. Although Crocs asserts that the motion should be denied for several reasons, the CAFC disagrees. The decision addresses why five different reasons for denial fail.
I. Crocs asserts the bankruptcy sale did not transfer U.S.A. Dawgs interest as a requester to Dawgs Holdings. This argument fails because the assignment was comprehensive in transferring all the “right, title and interest in, to and under all of the assets, properties and rights of every kind and nature, whether real, personal or mixed, tangible or intangible …”. Crocs had argued that this case was like Agilent Technologies, Inc. v. Waters Technology Corp., 811 F.3d 1326 (Fed. Cir. 2016). In Agilent, however, “substantially all” of the assets were transferred such that it was unclear whether Agilent was the successor in interest, unlike the present case which clearly conveyed all.
II. Crocs asserts that the substitution was not timely in that Mojave did not seek substitution for almost a year after it acquired the interest, well beyond the 20 days required by 37 C.F.R. § 41.8(a). In addressing this issue, the CAFC did not read 37 C.F.R. § 41.8(a) as permitting the Board to ignore a transfer of interest, pointing out that the rule is intended to detect conflicts of interest and to enable enforcement of estoppel provisions. The CAFC also pointed out that the rule is not directly related to substitution where in federal courts there is no time limit for a party moving for substitution. In addition, the CAFC pointed out that the Board has permitted parties to continue appeals after a change in the real party-in-interest despite the parties not filing the notices. Thus, the Board erred by not substituting Mojave as the third-party requester while the inter partes reexamination was pending before the Board.
III. Crocs argues that the interest of a requester cannot be assigned under 35 U.S.C § 141. The CAFC pointed out that it has previously concluded that “mere privies” cannot appeal a reexamination due to lacking a cause of action. Furthermore, the CAFC had observed in Agilent that “[w]hile the language of the statute does not explicitly forbid a change in the identity of the third-party requester over the course of the proceeding or on appeal, … it similarly does not appear to address whether and under what circumstances a change of the identity of the third-party requester can occur.” The CAFC noted two lines of Supreme Court cases related to assigning causes of action. Both lines of cases rely on a policy against separating the right to exclude from the right to sue for infringement. Notably, the CAFC states:
But we are aware of no case that suggests that a federal claim is lost when it is transferred together with the assignor’s entire business. Where, as here, the requester’s right has been transferred together with all other assets, there is no reason that the requester’s right to challenge the Board’s decision cannot be effectively transferred. To refuse to recognize such a transfer where the other assets remain subject to infringement liability 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.
Thus, the requester’s right (including its right to appeal) may be transferred at least when it occurs as part of the transfer of the requester’s entire business or assets.
The CAFC also noted that Vaillancourt v. Becton Dickenson & Co., 749 F.3d 1368 (Fed. Cir. 2014) is not contrary. In that case, the inventor had assigned his rights to a company while an inter partes reexamination was pending and before a decision on appeal. When the Board affirmed the examiner’s rejection, the individual could not appeal as the assignee was indisputably the owner when the individual had filed the appeal.
IV. Crocs argues that Mojave lacks standing because it does not face a potential suit for infringement. The CAFC pointed out that Article III of the Constitution limits judicial power to cases and controversies. Standing has three elements of injury in fact, causation and redressability, and these requirements apply on appeal, and with equal force to appeals from administrative agencies to the federal courts.
To establish an Article III injury on appeal from an inter partes reexamination, we have previously held that it is sufficient for an appellant to show that it has engaged in “activity that would give rise to a possible infringement suit.”
The sale agreement specifically provided that the transferred assets were not free and clear of any claims made by Crocs, so that the acquired assets face potential patent infringement claims, and Mojave could also face potential infringement liability because of activities after the bankruptcy sale. In addition, Mojave’s injury is traceable to the challenged patent and would be redressed by a favorable ruling by the CAFC reversing the patentability of the patent, meeting all elements of standing. In a footnote, the CAFC also noted that Mojave may also suffer an Article III injury as a result of false advertising counterclaims.
V. Lastly, Crocs argues that Mojave failed to file a notice of appeal from the Board’s decision. Mojave could not file a notice of appeal because it had not been added as a party. Under Nevada law, however, U.S.A. Dawgs had retained the ability to file a protective notice of appeal which was sufficient to confer jurisdiction to the CAFC.
Since the CAFC held that Mojave is the successor-in-interest, it has standing, and the Board had erred in not substituting Mojave as the third-party requester. Furthermore, the CAFC thought that there is no useful purpose served by remanding such that the appropriate course is to proceed with granting the motion to substitute while also updating the official caption of the decision to reflect Mojave.
Takeaways
Standing to continue as a successor-in-interest is established if it is clear all assets are transferred (a federal claim is not lost when it is transferred together with the assignor’s entire business).
Notice of a change in a real party in interest under 37 C.F.R. 41.8(a) differs from a motion to substitute under Federal Rule of Appellate Procedure 43(b) in that the former has a time limit (20 days) whereas the latter does not have a time limit. There is no apparent penalty for failure to comply with 37 C.F.R. 41.8(a) although this section is entitled “Mandatory notices.”
[1] For patent owners, an assignment is recorded to show that a party is the real party in interest. In this case, since Mojave was not a patent owner but instead a third-party requester.
