In what is likely to be viewed as an unusual ruling, U.S. International Trade Commission (ITC) Administrative Law Judge (ALJ) David P. Shaw dismissed an investigation for lack of standing.1 The decision to dismiss is noteworthy because a motion for leave to amend to cure standing deficiencies at the ITC is routine.2
The case was brought by the publicly traded non-practicing entity (NPE) VirnetX against Apple on a patent involving a secure communication link between computers of a virtual private network. The asserted patent was acquired by VirnetX from the company employing the inventors.3 On its face, the assignment to VirnetX was subject to a prior Patent License and Assignment Agreement (PLAA), with an "amendment," between the parties to the assignment. The PLAA gave the assignee residual rights and interests in the patent even after the assignment.
Prior to filing the ITC action, VirnetX had twice filed district court actions asserting other patents subject to the PLAA and associated documents at issue in the ITC case. In the first of these cases, three years before the ITC case was filed, the district judge held that the PLAA and associated documents vitiated VirnetX's prudential standing to bring suit without the assignor. In the second of the two cases, the defendants filed a motion to dismiss for lack of standing based on the same PLAA and associated documents over five months before VirnetX filed its ITC complaint.
VirnetX's ITC complaint stated that "VirnetX 'owns by assignment all right, title, and interest to the '181 patent.'" The complaint did not include the assignor as a party. It did not attach as exhibits the PLAA or associated documents. ITC rules explicitly require identification of the ownership of the asserted patent and certified copies of each assignment.4
Four months after filing the complaint, the judge in the second district court case ruled that VirnetX lacked prudential standing without the assignor, but granted leave to amend for the assignor to join as a plaintiff. VirnetX then filed its first motion to amend in the ITC to add the assignor as a party. Apple filed a motion to terminate for lack of standing.
The standard for granting a motion to amend in the ITC is "good cause shown."5 The good cause alleged by VirnetX in its motion to amend at the ITC was the district court order. VirnetX did not include copies of the PLAA or associated documents with its motion to amend.
The ALJ denied VirnetX's first motion to amend for four reasons. First, he found the motion deficient and unclear as it lacked the necessary supporting documentation for him to fully evaluate the motion. Second, he found that VirnetX was aware as early as 2008 that the assignor was a necessary party because of the earlier of the two district court decisions. Third, he found that at the time it filed its complaint, it was aware of a pending motion alleging a lack of standing. Fourth, he found that VirnetX knew at the time it filed its complaint the assignor had some right or interest in the patent.6
VirnetX filed a second motion to amend, attaching the documents missing from its first motion. The ALJ denied VirnetX's second motion to amend.7 His second denial reiterated the rationale behind the first, adding that VirnetX failed to provide any justification for its failure to provide the proper supporting ownership documents in support of its first motion to amend. The ALJ granted Apple's motion to terminate.8
The effect of the dismissal of the action on a publicly traded NPE such as VirnetX was apparently substantial. In spite of characterizing the dismissal as a "procedural discrepancy with the complaint,"9 VirnetX lost approximately one-third of its market capitalization in the week following the ruling.
A petition for review (appeal) of the dismissal has been filed by VirnetX and opposed by Apple. Even if the Commission reverses the ALJ in line with its jurisprudence on liberally granting leave to amend to cure standing, this case appears to represent a cautionary tale for all ITC practitioners. Elementary issues like standing cannot be overlooked when drafting a complaint, regulations on attaching all required documents as exhibits to the complaint should be broadly construed and followed to the letter, and counsel may want to consider attaching all conceivably probative documents as exhibits to motions.
If you have any questions about this Alert, please contact Rodney R. Sweetland III, any member of the ITC Section 337 Litigation Practice Group or any attorney in the firm with whom you are in regular contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, or should be construed, as legal advice. For more information, please see the firm's full disclaimer.
© 1998-2012 Duane Morris LLP.
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