CAFC Issues Modified Order on Mojave’s Motion to Substitute in Reexam Proceeding Over Crocs’ Objections

“Where, as here, the requester’s right has been transferred together with any liability for past infringement, there is no reason the requester’s right to challenge the Board’s decision cannot be effectively transferred.”

On April 21, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a modified, precedential order reversing the Patent Trial and Appeal Board’s (PTAB’s or Board’s) decision to deny U.S.A. Dawgs and Mojave’s motion to substitute, holding that “the Board erred in not substituting Mojave for U.S.A. Dawgs as the third-party requester during the inter partes reexamination.” The original order was issued in February. Judge O’Malley dissented to the latest order.

On August 6, 2012 Crocs, Inc. sued U.S.A. Dawgs, Inc. for infringement of U.S. Design Patent No. D517,789 (“the ‘789 patent”), titled “Footwear,” in the United States District Court for the District of Colorado based on U.S.A. Dawgs’ manufacture and sale of its own foam-molded clog. In response to Crocs’ suit, on August 24, 2012, U.S.A. Dawgs filed a third-party request for reexamination of the ‘789 patent at the U.S. Patent and Trademark Office (USPTO). The USPTO ordered the reexamination on November 19, 2012, which prompted the district court to stay the patent infringement proceedings in light of the reexamination. During reexamination, the examiner rejected the sole claim of the ‘789 patent as anticipated under 35 U.S.C. §102(b). Crocs appealed the examiner’s decision to the PTAB.

While the appeal was pending, on January 31, 2018, U.S.A. Dawgs filed for Chapter 11 bankruptcy and in May, U.S.A. Dawgs moved for the bankruptcy court to approve the sale of all of its assets subject to 11 U.S.C. §363(b). On July 20, 2018, the bankruptcy court approved the sale of U.S.A. Dawgs’ assets to a newly formed entity, Dawgs Holdings LLC. The terms of the asset purchase agreement stated 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.” U.S.A. Dawgs then moved to distribute the net proceeds from the sale of its assets and to dismiss its Chapter 11 bankruptcy case, which the bankruptcy court granted on August 21, 2018. Thereafter, Dawgs Holdings, assigned all assets and litigation claims, including those against Crocs “and the facts and circumstances giving rise to such [claims]” to Mojave Desert Holding, LLC (“Mojave”). On October 23, 2018, U.S.A. Dawgs dissolved but continued to exist for limited purposes.

The PTAB’s Refusal to Change the Real-Party-in-Interest

On July 18, 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 PTAB expunged and dismissed Mojave’s request on August 9, 2019, on various grounds. First, the PTAB found Mojave’s submissions insufficient to establish Mojave as a real-party-in-interest because the initial transfer of assets from U.S.A. Dawgs appeared to be silent about any rights to the reexamination. Second, based on its interpretation of the transfer of assets, the PTAB rejected Mojave’s filing because Mojave was not a party to the Reexamination and did not have standing to update the real-party-in-interest pursuant 37 C.F.R. §41.8(a). Lastly, because Mojave’s submission was untimely since Mojave did not file its submission within 20 days of the change of the real-party-in-interest, as is required by 37 C.F.R. §41.8(a).

U.S.A. Dawgs’ Appeal and Crocs Arguments

On September 10, 2019, the PTAB issued its decision reversing the examiners rejection of the ‘789 patent’s sole claim. U.S.A. Dawgs then appealed to the CAFC. In its Notice of Appeal, U.S.A. Dawgs stated that Mojave “intended to file a motion for substitution of parties” with the court “pursuant Federal Rules of Appellate Procedure 43(b).” On December 13, 2019, U.S.A. Dawgs and Mojave filed a motion to substitute pursuant Rule 43(b), which states that a substitution “may be necessary” when “a transfer of interest in the company or property involved in the suit has occurred or when the focus of the litigation has shifted, making another entity the real party in interest.” In response, Crocs asserted that U.S.A. Dawgs and Mojave’s motion to substitute should be denied for several reasons, however, the CAFC was not persuaded.

  1. Successor-in-Interest

First, Crocs argued that the PTAB correctly determined that Mojave was not the successor-in-interest to U.S.A. Dawgs with respect to the reexamination because the bankruptcy sale did not transfer U.S.A. Dawg’s interest as a requester to Dawgs Holdings and therefore it could not have been transferred to Mojave. In support of their contention, Crocs asserted that this case was analogous to Agilent, where the CAFC held that it was unclear whether Aurora was Agilent’s successor in interest, where Agilent transferred “substantially all” of its assets to Aurora. Agilent Technologies, Inc. v. Waters Technologies Corp., 811 F.3d 1326 (Fed. Cir. 2016). However, the CAFC disagreed, reasoning that transferring “substantially all” of the assets is not the same as transferring all of the assets as U.S.A. Dawgs clearly did, noting that “U.S.A. Dawgs did not need to enumerate each of its assets individually to effectuate a broad transfer.” Therefore, the CAFC determined, “these assignments make clear, Mojave is the successor-in-interest of U.S.A. Dawgs with respect to the Board proceeding.”

  1. Untimely Submission

Alternatively, Crocs argued that, even if Mojave is a successor in interest to U.S.A. Dawgs, Mojave did not seek substitution before the PTAB until nearly a year after it acquired U.S.A. Dawg’s interest in the reexamination, therefore, the Board properly denied substitution under 37 C.F.R. §41.8(a). However, the CAFC stated “[w]e do not read 37 C.F.R. §41.8(a) as permitting the Board to ignore a transfer of interest” in a reexamination that has been assigned to a successor-in-interest. Reasoning that the purpose of §41.8 is to detect conflicts of interest and enable enforcement of reexamination estoppel provisions and is not directly related to substitutions. The CAFC held that the PTAB erred by not substituting Mojave as the third-party requester while the reexamination was pending because to permit the Board to preclude a transfer of on the basis of late filing would defeat the important interest in having the proper party before the Board.

  1. Non-assignable

Additionally, Crocs argued that the interest of a requestor cannot be assigned under the statute governing appeals from reexamination. The right of a third-party requestor to appeal to the CAFC comes from 35 U.S.C. §141, which allows “a patent owner or third-party requester” in a reexamination proceeding to appeal. Though the CAFC noted that in Agilent, they “have previously concluded that the statutory structure prohibits “mere privies from appealing a reexamination because, under the statutory structure, ‘mere privies lack a cause of action.” Agilent, 811 F.3d at 1331. However, unlike the party in Agilent, Mojave is not a mere privy because, the court reasoned “[w]here, as here, the requester’s right ha[ve] been transferred together with any liability for past infringement, there is no reason the requester’s right to challenge the Board’s decision cannot be effectively transferred.” Therefore, under the statute a requester’s right, including the right to appeal may be transferred at least when it occurs as part of the transfer of infringement liability because “[t]o refuse to recognize such a transfer would create a situation in which the assets acquired by the transferee remained potentially liable for infringement, but the transferee would have lost the right to challenge patent validity.”

  1. Lack of Standing

Crocs also attempted to argue that, even if Mojave was the successor in interest, they lacked standing. To establish standing a party must show: injury in fact, causation, and redressability. Citing Consumer Watchdog, the CAFC stated that to show injury in fact, “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.’” Consumer Watchdog v. Wis. Alumni Rsch. Found. 753 F.3d 1258, 1262 (Fed. Cir. 2014). Here, Mojave suffered an injury connected with the claims it acquired from U.S.A. Dawgs in the district court litigation. Additionally, the CAFC reasoned that Mojave met the other two standing requirements because Mojave’s injury is traceable to the challenged ‘789 patent and a favorable ruling would redress Mojave’s injury.

  1. Failure to File a Notice of Appeal

Crocs also argued that Mojave failed to file a notice of appeal from the Board’s decision. However, the CAFC recognized that it was not possible for Mojave to file a notice of appeal because they had not yet been added as a party to the reexamination proceeding. Accordingly, the CAFC reversed the PTAB’s decision and granted Mojave and U.S.A. Dawgs’ motion to substitute.

Judge Moore dissented, citing only the reasons given in the Appellee’s Motion for Reconsideration.

A nonprecedential opinion on the merits of the case was issued on February 18, 2021 affirming the Board’s decision, as the CAFC discerned no reversible error.



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