A recent Federal Circuit decision, Allgenesis Biotherapeutics Inc. v. Cloudbreak Therapeutics, LLC, provides some interesting insights into patent challenge strategies, and their consequences, when a potentially infringing product is not yet on the market.

Allgenesis, which has been developing a pterygium treatment product using nintedanib, filed an inter partes review (IPR) petition to try to invalidate one of Cloudbreak’s patents relating to pterygium treatment. Allgenesis lost at the Patent Trial and Appeal Board (PTAB), which issued a final written decision upholding the patentability of the challenged claims. The PTAB’s decision included a finding that Allgenesis’s own patent application, on which Allgenesis based a number of its invalidity arguments, was not prior art to the Cloudbreak patent.

Allgenesis appealed to the Federal Circuit, which dismissed the appeal, finding that, although the IPR statute permitted Allgenesis to file the IPR, the law governing appeals to the Federal Circuit (which is an Article III court) did not permit Allgenesis to appeal the PTAB’s IPR decision, because Allgenesis did not have standing.

The Three-Factor Standing Test

After distinguishing standing to file an IPR and standing to file a court appeal, the Federal Circuit discussed the test for standing in an Article III court. Slip op. at 5. In order to meet the standing requirement:

[A]n appellant must have “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). To establish an injury in fact, an appellant must show it has “suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’” Id. at 339 (internal citations omitted).

(1) Injury in Fact Because of Allgenesis’s Conduct

Allgenesis argued that it had suffered an injury in fact because of the company’s work to develop a nintedanib product. The evidence that Allgenesis provided related to three year old earlier clinical trial data, without any updates on further clinical trials or other development status. The Federal Circuit found that the product development evidence in the record constituted sufficiently “concrete plans for future activity that would create a substantial risk of future infringement, or likely cause the patentee to assert a claim of infringement.” Slip op. at 6-8 (citing JTEKT Corp. v. GKN Auto. LTD.)

(2) No Infringement Accusation

There was evidence that Allgenesis approached Cloudbreak to discuss Allgenesis’s IPR filing. An Allgenesis executive testified by declaration that the parties were unable to reach a settlement. The Federal Circuit, however, noted that Allgenesis did not allege that Cloudbreak had sued or had threatened to sue Allgenesis if Allgenesis were to bring a nintedanib product to market. Slip op. at 8. Consequently, the Federal Circuit held that Cloudbreak itself had not engaged in any activity fairly traceable to Allgenesis’s conduct. (According to Docket Navigator, Cloudbreak has not filed any lawsuits against any party on any of Cloudbreak’s patents.)

(3) The Need for Redress

Since there was inadequate evidence of product development and no evidence of an actual or potential infringement allegation, there was nothing to redress. Allgenesis argued that the PTAB finding that Cloudbreak’s patent predated Allgenesis’s patent would have preclusive effect against one of Allgenesis’s pending applications. While not specifically stated, the implication is Cloudbreak’s patent could be prior art to the Allgenesis patent application. Allgenesis argued that, without the ability to appeal the PTAB finding on priority of Cloudbreak’s patent, Allgenesis would be collaterally estopped from arguing against the finding.

This argument failed, however, for two reasons. First, Allgenesis had not established that the PTAB finding would in fact have preclusive effect, or in fact would have any impact on Allgenesis’s issued patents or pending patent applications. Slip op. at 8. Second, if a patent examiner were to adopt the PTAB’s priority finding, Allgenesis could argue the point before the examiner. Slip op. at 9.

Strategic Implications

Allgenesis provides food for thought about product development and IPR strategies. Under Allgenesis, a company who files an IPR to challenge a competitor’s patent believed to cover the company’s products, but who has not been accused of infringing that patent, faces a clear risk: If its IPR is not successful, the company will not be able to appeal the validity decision, and the competitor may be emboldened to enforce that or another patent.

A company considering such preemptive action should carefully consider additional factors that may influence this risk. For example, factors that may increase the risk of provoking enforcement, and questions to ask about them, include:

• The actual and potential extent of the competitor’s patent activity.
  
  • Are there multiple patents in the patent family?
  • Are there one or more pending patent applications that keep the competitor’s patent family alive, so that the competitor can pursue additional patent claims that could cover the company’s activity more completely?
• The competitor’s aggressiveness in asserting its patents.
  
  • Are there any pending lawsuits against other companies in the field?
  • Has the competitor expressed or shown willingness to enforce its patents?
• The competitor’s stage of development of patented products and methods.
  
  • Is the competitor close enough to bringing a product to market that the competitor might assert its patents in order to protect market share?

Factors that may mitigate or decrease the risk of provoking an enforcement action with an unsuccessful validity challenge, and questions to ask about them, include:

• The company’s own patent activity in the area.
  
  • Does the company have patents that it could assert as a countermeasure to the competitor’s possible patent assertions?
• The company’s state of development of potentially infringing products.
  
  • How firm (or concrete) are the company’s plans to bring a product to market?
  • How close is the company to bringing the product to market?
  • How damaging would a patent assertion be to the company’s go to market strategy?

Takeaways

The Allgenesis decision is the latest of a series of decisions that the Federal Circuit has issued, over the last five or six years, regarding Article III standing to appeal PTAB decisions. The standing requirement has become an issue in IPR appeals over the 11-plus years that IPRs have been with us.

Clearly there is no “one size fits all” approach. Due consideration of these factors can affect whether and when to file one or several IPR petitions (or a post grant review (PGR) petition), or to request a license from the patent owner.