Inter Partes Reexamination Estoppel Central in Sanctions Decision

Scott Daniels | December 3, 2013

Judge Mitchell Goldberg’s decision yesterday in Bortex Industry v. Fiber Optic Designs (12-cv-4228, E.D. Pa.) – entering judgment against the accused infringer because of discovery misconduct – sheds light on the statutory estoppel faced by those who sponsor, but do not themselves file, inter partes reexamination requests.  35 U.S.C. § 315(c) (pre-AIA) (a similar provision applies to AIA inter partes review requests). Essentially, “a real party in interest” to an inter partes reexamination proceeding is estopped from later attacking, in any civil action, the validity of any claim determined to be patentable on any ground which that third party raised or could have raised during the reexamination.

The case began when Bortex Industry, a Chinese maker of LED Christmas lights, sued Fiber Optic Designs (FOD) for declaratory judgment (1) that Bortex’s LED lights did not infringe two patents owned by FOD, and (2) that the patents were invalid because they were obvious over the prior art and because Bortex’s chairman had previously invented the claimed LED lights.  FOD counter-claimed for infringement of both patents and moved for  preliminary relief further to the stipulated infringement of one of the patents.

Significantly, FOD had successfully sued NEP, a customer of Bortex, in Colorado for infringement of FOD’s patent.  During that dispute, FOD’s patent survived an inter partes reexamination in which NEP was listed as the real party in interest.  FOD asserted that Bortex had participated in that reexamination and indemnified NEP’s expenses.  Accordingly, FOD argued, Bortex had been a real party in interest and would be estopped from asserting in the present litigation any prior art references that had been “raised or could have been raised during the reexamination.”

In accordance with a discovery schedule accelerated to accommodate the preliminary injunction motion, FOD expeditiously requested information from Bortex to confirm its role in the reexamination.  The discovery process, however, was not smooth, and Judge Goldberg issued a series of orders and warnings for Bortex to comply with FOD’s requests, most significantly those directed to Bortex’s involvement in the reexamination.

In the end, FOD filed a motion for sanctions against Bortex,  which Judge Goldberg granted.  The Judge found that documents discovered through FOD’s own efforts  revealed that Bortex’s chairman, Sean Shao, had “lied numerous times during his deposition about Bortex’s involvement with NEP and the reexamination before the PTO.”  In particular, the Judge relied on a series of emails to find that Shao had incorrectly testified under oath that:

(1) he had never heard of NEP;

(2) Bortex never conducted business with NEP;

(3) he was unaware of the ‘022 patent until the Seasons 4 litigation began in 2011;

(4) he was unaware of the Colorado litigation;

(5) Bortex had never reimbursed either NEP or GKI for legal expenses; and

(6) the indemnification agreement between Bortex and its customers only took effect if and when the customer was found to infringe FOD’s patent.

The Judge added that the Bortex chairman had been “copied on and authored numerous emails discussing the attorney’s fee arrangement between Bortex and NEP/GKI” (GKI being NEP’s successor).

Judge Goldberg  additionally found that the declaration of a former Bortex executive, Zongjie “Jack” Mou, further supported a finding that Shao, and by extension, Bortex, was personally responsible for these discovery violations. Mou’s declaration indicated that Shao was significantly involved with the reexamination of the ‘022 patent, and that he placed information pertinent to the instant lawsuit on a removable hard drive, separate from Bortex’s network. This declaration is particularly compelling, because Bortex’s counsel had repeatedly stated that he had asked Shao and Bortex for documents responsive to FOD’s discovery requests, and was repeatedly told that no such documents exist. Mou’s declaration was essentially unrebutted. While Bortex has attempted to paint Shao’s conduct as the result of ignorance or a breakdown in communication, the evidence of record reflects the finding that Bortex had purposefully thwarted the Court’s discovery Orders.

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