WesternGeco, ION Urge Court to Clarify Patent Review Deadline

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By Peter Leung

Petroleum Geo-Services Inc.’s administrative challenge to oil exploration patents should have been blocked by a one-year statutory deadline, patent owner WesternGeco argued before a federal appeals court Jan. 23.

WesternGeco, a subsidiary of Schlumberger Ltd., urged the U.S. Court of Appeals for the Federal Circuit to clarify when two companies have a sufficiently close relationship to trigger the time bar, an important question for inter partes reviews, a patent challenge procedure at the Patent and Trademark Office. WesternGeco is appealing the outcome of IPRs brought by PGS.

Parties that wish to file for an IPR must do so within one year of being sued for infringement. The issue of privity—whether two companies are closely related enough to justify treating them as one entity—will affect how the deadline is applied. Making it harder to find privity between two companies could benefit defendants, potentially allowing them to bring multiple IPRs against a patent through another party.

Until recently, decisions by the Patent and Trademark Office’s Patent Trial and Appeal Board to hear a validity challenge were not appealable. However, the U.S. Court of Appeals for the Federal Circuit ruled Jan. 8 in Wi-Fi One, LLC v. Broadcom Corp. that it can review disputes over the deadline for filing IPRs.

Finding Privity

WesternGeco argued PGS was closely related with ION Geophysical Corp., because ION agreed to indemnify PGS for litigation related to patent infringement, among other things. PGS’s IPR should be covered by the one-year bar, because WesternGeco sued ION for patent infringement several years earlier, WesternGeco said.

Privity is not a precisely defined term, and it should be evaluated by looking at all the circumstances of a specific case, WesternGeco argued. During congressional discussions about the law that created IPRs, then-Arizona Republican Sen. Jon Kyl stressed the need for a flexible approach to the privity issue, WesternGeco said.

WesternGeco’s definition of privity was too broad and “mushy,” ION told the court. Even though it paid PGS’s litigation costs, ION didn’t have control over how those lawsuits were handled, which is required for privity, it said.

The litigation indemnity agreement, such as one between suppliers and customers, is typical in the industry and doesn’t convey some unique relationship between the companies, ION said.

The control requirement comes from the U.S. Supreme Court’s 2008 decision in Taylor v. Sturgell, which lays out several specific ways to establish privity in litigation, ION said. That decision rejected the “know it when you see it” approach that WesternGeco is arguing for, ION said.

Power of the Purse

Judge Raymond T. Chen expressed some skepticism about that argument. The party in PGS’s position would feel like there’s “no skin off its nose,” and in fact wouldn’t even need to worry about any lawsuit filed against it, because it knows it’s not responsible for any damages or costs, he said. Such an arrangement may mean ION is the real party in interest in the dispute, or that the two companies are in privity, he said.

Judge Evan J. Wallach said that under the indemnity agreement, ION had “the power of the purse,” which could amount to the ability to control the litigation, supporting a finding that there is privity between the parties.

PGS has settled the case and is no longer involved, but ION is defending against the appeal. WesternGeco has won a multi-million dollar infringement award against ION based on the disputed patents in federal district court.

The U.S. Supreme Court is set to consider a different issue in the dispute during its current term. WesternGeco asked the court the review the Federal Circuit’s decision to reduce the size of the damages award because some of the lost profits came from activity that occurred abroad.

In addition to Judges Chen and Wallach, Judge Todd M. Hughes also heard the argument. John C. O’Quinn of Kirkland & Ellis LLP argued for WesternGeco, while Gregory A. Castanias of Jones Day argued for ION. WesternGeco LLC v. ION Geophysical Corp., Fed. Cir., No. 16-2099, oral argument 1/23/18

To contact the reporter on this story: Peter Leung in Washington at pleung@bloomberglaw.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bloomberglaw.com

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