CAFC Reverses Dismissal of Patent Infringement Suit Against Groupon, Clarifying Collateral Estoppel Analysis

The U.S. Court of Appeals for the Federal Circuit (CAFC) in a precedential decision today reversed the U.S. District Court for the District of Delaware’s dismissal of a patent owner’s infringement suit against Groupon, Inc. The opinion, authored by Judge Reyna, held that patentees are not collaterally estopped from asserting different claims of a patent that had other claims invalidated in inter partes review (IPR).

Kroy IP Holdings, LLC sued Groupon for infringement of 13 claims of its U.S. Patent No. 6,061,660, which is titled “System and Method for Incentive Programs and Award Fulfillment.” Soon after, Groupon challenged 21 claims of the patent in IPR proceedings at the Patent Trial and Appeal Board (PTAB). Kroy then amended its complaint to include additional claims, “many of which were not included in Groupon’s IPR petitions,” said the CAFC opinion.

Groupon got all of the challenged claims invalidated at the PTAB and the Federal Circuit affirmed via Rule 36. Kroy then filed a second amended complaint in the district court, asserting 14 claims that were not part of the IPRs. Groupon filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6 based on collateral estoppel and the district court ultimately granted the motion, determining that “the Board’s final judgments on the unpatentability of a patent claim have preclusive effect on any pending or co-pending district court actions involving the same claim.” Because the new claims being asserted were not materially different enough from the previously adjudicated claims to “alter the question of invalidity,” and thus the “identical issue was previously adjudicated” under Third Circuit requirements for collateral estoppel, the district court dismissed the case with prejudice.

On review, the Federal Circuit said the distinct question of patent law presented was whether collateral estoppel applies when a patent owner asserts different claims of the same patent that has been subject to IPR by the PTAB, and in which other claims were held unpatentable, even where the new claims are “immaterially different” from those invalidated via IPR. Kroy’s chief argument was that, since district court and PTAB proceedings involve different standards for burden of proof, collateral estoppel cannot apply, while Groupon said it must apply under the Federal Circuit’s decisions in XY, LLC v. Trans Ova Genetics, L.C. and Ohio Willow Wood Co. v. Alps S., LLC.

The Federal Circuit, however, said that its more recent decision in ParkerVision, Inc. v. Qualcomm Inc. controls here, a case in which the court held that “under the Supreme Court’s guidance in B & B Hardware and Grogan, collateral estoppel did not apply due to the differing burdens of proof.” The opinion further explained:

“Before the Board, Groupon proved the unpatentability of the Unpatentable Claims by a preponderance of the evidence. Before the district court, however, Groupon’s burden to prove that the Newly Asserted Claims are invalid is clear and convincing evidence. As such, collateral estoppel should not apply. To hold otherwise would deprive patent owners of their property right without first requiring proof of patent invalidity that satisfies the statutorily-prescribed clear and convincing evidence standard.”

Neither XY nor Ohio Willow Wood involved the same scenario as the present case and the CAFC thus concluded that “a prior final written decision of the Board of unpatentability on separate patent claims reached under a preponderance of the evidence standard cannot collaterally estop a patentee from asserting other, unadjudicated patent claims in district court litigation.” The dismissal was reversed and the case remanded.

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Author: almoond