“Judge Albright’s denial of Sand Revolution’s motion to stay is a significant expression by the judge indicating his belief that patent infringement and validity matters should be tried by a jury, as [his] reference to the Seventh Amendment indicates.”
On August 13, Sand Revolution LLC filed a petition for writ of mandamus with the U.S. Court of Appeals for the Federal Circuit. The petition asks the Federal Circuit to decide whether U.S. District Judge Alan D. Albright of the Western District of Texas abused his discretion to deny a motion to stay district court proceedings pending completion of an instituted inter partes review (IPR) proceeding at the Patent Trial and Appeal Board (PTAB). A look at the underlying circumstances of Sand Revolution’s petition shows that this case, which began as a patent squabble between two competitors in Texas’ hydraulic fracturing industry, is becoming a legal showdown between the right of patent owners to a jury trial in Article III courts and the fate awaiting those patent owners once they’re trapped at a PTAB that is arguably riddled with constitutional due process problems.
Institution Initially Denied
Continental Intermodal Group – Trucking LLC (CIG) began the district court side of this litigation in August 2018, filing suit in Western Texas and alleging that Sand Revolution’s system for handling proppant materials used by hydraulic fracturing systems infringed on patents owned by CIG. As the district court case continued to progress, Sand Revolution filed a petition for IPR proceedings at the PTAB in July 2019 to challenge claims of the sole patent asserted by CIG in the case: U.S. Patent No. 8944740, Mobile Material Handling and Metering System.
This IPR petition was first denied institution by the original panel of administrative patent judges (APJs) sitting on the proceedings in a decision issued this February. In the February decision, a 2-1 panel majority wrote that, even if Sand Revolution were to prove a reasonable likelihood that CIG’s patent claims were invalid, circumstances of this case led the majority to exercise discretionary authority under 35 U.S.C. § 314(a) to deny institution based upon the PTAB’s precedential decision in NHK Spring. Co., Ltd. v. Intri-Plex Technologies, Inc., which denied institution to an IPR in part because of the status of related district court litigation on patent validity. While the panel majority noted that NHK Spring involved both the application of Section 314(a) and 35 U.S.C. § 325(d), enough factual similarities existed in this case that NHK Spring governed the outcome. These similarities included reaching ultimately the same conclusion on claim construction as the district court and the fact that the patentability issues present in the IPR proceeding were essentially a subset of the same issues raised in the district court litigation.
Sand Revolution filed a request for rehearing at the PTAB in March, arguing that NHK Spring contravenes the IPR statutory scheme, undermines the America Invents Act’s (AIA) objectives and incentivizes forum shopping by encouraging patent applicants to file infringement suits in districts with expedited trial schedules. The request was denied in early April by the PTAB’s Precedential Opinion Panel of USPTO Director Andrei Iancu, USPTO Commissioner for Patents Andrew Hirshfeld and PTAB Chief APJ Scott Boalick.
Rare PTAB Dissent Sets Stage for Reassessment of NHK Spring Factors
One notable feature of the February 2020 decision to deny IPR institution was a dissent penned by APJ Carl M. DeFranco, who argued in the minority that Sand Revolution’s IPR was distinguishable from NHK Spring. APJ DeFranco noted that CIG’s patent, unlike the patent at issue in NHK Spring, “has potentially over a decade of remaining life, which weighs in favor of utilizing the Board’s unique expertise and resources to decide the validity of this patent.” Further, APJ DeFranco contended that the PTAB’s final decision would be issued prior to the district court’s final judgment, even if the district court conducted a jury trial prior to the PTAB’s final decision, and because the district court’s claim construction, which applied the plain and ordinary meaning to each claim term, “does little to move the litigation forward… [T]hat the majority here sees fit to clarify key terms of the challenged claims… indicates to me that the Board is better equipped to handle this case.” Further, the validity contentions in the IPR proceeding were much more “focused” than those issues in the district court, and unlike NHK Spring, Sand Revolution’s IPR didn’t involve issues of how the PTAB “handles petitions filed serially over time.”
APJ DeFranco’s dissent is notable in and of itself because FOIA records show that the PTAB discourages dissenting opinions by its APJs because “dissents… are not normally efficient mechanisms for securing the ‘just, speedy, and inexpensive’ resolution” of PTAB proceedings. However, that dissent became even more relevant after the APJ panel in Sand Revolution’s case was reformulated by removing APJ DeFranco, who “[d]ue to unavailability” was replaced by Vice Chief APJ Scott C. Weidenfeller, now sitting on an APJ panel with two of his subordinates, in a panel change order issued on June 12. Although APJ DeFranco’s removal is painted as an availability concern, the USPTO is known to reformulate APJ panels to reinforce agency policy decisions, and four days after the panel change order was issued, the PTAB issued a decision granting Sand Revolution’s request for rehearing and instituting IPR proceedings on the ‘740 patent. The now unanimous decision filed by APJ Ryan H. Flax, the same APJ who wrote the majority opinion in February denying the IPR under NHK Spring, concluded that “new evidence submitted by the parties” in supplemental briefing led the Board to distinguish Sand Revolution’s IPR from NHK Spring in light of the precedential PTAB decision in Apple Inc. v. Fintiv, Inc., issued in March after the PTAB’s first denial of Sand Revolution’s IPR. Fintiv created new factors for APJs to consider when analyzing whether the circumstances of a parallel district court action are a basis for discretionary denial of IPR institution under NHK Spring. Applying those factors, including analysis of amended trial schedules in district court, the district court’s investment in the parallel proceeding and overlapping issues raised in both proceedings, the APJ panel was “not persuaded that the interests of the efficiency and integrity of the system would be best served by invoking our authority under [Section 314(a)] to deny institution of a potentially meritorious Petition.”
On July 9, the reformulated APJ panel then denied patent owner CIG’s request for rehearing. In a short eight-page decision, the PTAB affirmed its own ability to exercise its discretionary authority to institute an IPR which it had already exercised its discretionary authority to deny institution thereof, despite CIG’s arguments that the Board simply reassessed the same discretionary factors under the watchful eye of APJ leadership on the panel. Unsurprisingly, the Board found that its earlier decisions didn’t disregard the applicable standard of review nor did it abuse its discretion in instituting Sand Revolution’s IPR. As to CIG’s contentions that granting Sand Revolution’s request for rehearing “incentivizes gamesmanship” because it invites the withholding of evidence and arguments at the petition stage, the PTAB found “no evidence of gamesmanship here” and thus it failed to “share [the] Patent Owner’s concerns.”
Judge Albright Sets Up Showdown with PTAB
Meanwhile, back in the Western District of Texas, Sand Revolution filed a motion on July 21 to stay the district court litigation pending the outcome of the IPR at the PTAB. The following day, Judge Albright entered a text order that only appears in electronic records of the civil case docket; there is no documented ruling associated with the text order entry. That text order stated four reasons for denying Sand Revolution’s motion to stay the district court litigation:
(1) The Court strongly believes in the Seventh Amendment,
(2) This case has been pending since 2017 and staying the case would only further delay its resolution,
(3) Denying the stay would allow the Parties to obtain a more timely and complete resolution of infringement, invalidity, and damages issues, and
(4) Plaintiff opposes the stay.
As social media activity on LinkedIn regarding Judge Albright’s text order points out, his denial of the motion to stay is a significant expression by the judge indicating his belief that the patent infringement and validity matters should be tried by a jury, as the reference to the Seventh Amendment indicates. That’s a viewpoint that takes on a great deal of extra significance given the reality of the situation at the PTAB, where APJ panels can be reformulated with PTAB leadership to reach a new opinion based on a reassessment of essentially the same discretionary factors that had originally led the panel to deny institution of an IPR. Through one process, a patent owner can rely on the due process protections of the Constitution, including jury trials conducted by disinterested adjudicators. Through another process, a patent owner’s fate is largely up to the whims of agency leadership on paneling decisions involving APJs who are arguably incentivized to institute more questionable IPR proceedings as a result of a financial bonus structure for APJs, which “has created a structural bias unlike any other in the federal executive branch,” according to an appellate brief in a different case on appeal to the Federal Circuit.
“Despite a likelihood that most, if not all, asserted claims in this action will be invalidated by the PTAB either before or just after the parties’ currently scheduled trial date, the district court denied a motion to stay this action without meaningfully considering the traditional stay factors,” reads the beginning of Sand Revolution’s petition for mandamus at the Federal Circuit. Indeed, one could certainly see the Federal Circuit issuing mandamus if for no other reason than to force Judge Albright to more thoroughly explain his legal justification for denying Sand Revolution’s motion to stay, despite the appellate court’s proclivity to issue Rule 36 summary affirmations of lower court rulings.
Regardless what the Federal Circuit decides, it’s clear that the parallel proceedings in this particular case, while nominally a patent infringement case between two Texas competitors in that state’s oil and gas industry, actually signifies a much bigger showdown between the constitutional due process protections of Article III courts and the questionable behaviors of a PTAB that can look at the same exact case through essentially the same lens and come up with two different conclusions.