Case: 17-1591 Document: 35 Page: 1 Filed: 05/26/2017

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

______________________
VIRNETX INC.,
Appellant

v.

APPLE INC., CISCO SYSTEMS, INC.,

Appellees
______________________
2017-1591, 2017-1592, 2017-1593
______________________
Appeal from the United States Patent and Trademark Office,
Patent Trial and Appeal Board in Nos. 95/001,788, 95/001,789, and 95/001,856.
______________________
APPELLANT VIRNETX INC.S REPLY IN SUPPORT OF
MOTION TO REMAND, AND FOR AN EXTENSION OF TIME
______________________

Naveen Modi
Joseph E. Palys
Igor V. Timofeyev
Daniel Zeilberger
875 15th Street, N.W.
Washington, D.C. 20005
Tel.: (202) 551-1700
Fax: (202) 551-1705
naveenmodi@paulhastings.com

May 26, 2017 Counsel for Appellant VirnetX Inc.

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In Fairchild (Taiwan) Corp. v. Power Integrations, Inc., 854 F.3d 1364

(Fed. Cir. 2017), this Court held that the inter partes reexamination estoppel

provision, 35 U.S.C. 317(b) (2006), requires dismissal of a reexamination once

this Court has affirmed a judgment upholding the patents validity, even if the

Court remands for further proceedings on other issues. Apple and Cisco try hard to

distinguish this case from Fairchild, but to no avail.

Cisco first argues that VirnetXs motion is procedurally improper, and that

this Court should delay any relief until the resolution of the appeal. But Fairchild

arose in an identical posture. This Court resolved the estoppel issue on a motion to

remand, ordering before merits briefing that reexamination of the claims be

terminated. There is no reason to delay a decision on VirnetXs motion, which

would narrow considerably the issues on appeal.

Apple and Cisco next argue that Fairchild does not apply where, as here, the

third-party requester could theoretically seek future Supreme Court review of the

validity issues via a certiorari petition following remand and a second appeal. But

the third-party requester in Fairchild could do exactly that. This Court

nevertheless held that the affirmed judgment regarding the patents validity

constituted a final decision under section 317(b). Apple suggests that the Court

in Fairchild (incorrectly) assumed that no further Supreme Court review was

possible. But there is no reason to suppose this Court overlooked what Apple

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acknowledges is a century-old, black-letter rule of Supreme Court practice.

Similarly unavailing is Apples attempt to limit Fairchild to situations where

this Court has not only affirmed a patents validity, but also resolved all other

issues related to that patent. Section 317(b) is concerned only with whether there

is a final decision regarding a patent claims validity. Because remand

proceedings with respect to infringement and damages would have no effect on the

finality of the validity decision, they cannot defeat estoppel under section 317(b).

Nor does the Supreme Courts ability to review this Courts earlier validity ruling

via a subsequent certiorari petition depend on whether other issues related to the

same patent were remanded to the district court.

Apples reliance on Fresenius USA, Inc. v. Baxter International, Inc., 721

F.3d 1330 (Fed. Cir. 2013)an argument the Patent Office did not adoptis

misplaced. Fresenius concerned an instance of claim preclusion, where an

infringement claim disappears because the underlying patent ceases to exist.

Section 317(b), by contrast, bars successive litigation of an issue conclusively

resolved in another proceeding. As Fresenius acknowledged, rules of finality for

issue preclusion purposes are different, and less demanding.

Notably, neither Apple nor Cisco defends the Patent Offices alternative

rationalethat VirnetX purportedly failed to show that Apple could have raised in

the district-court litigation any prior art it raised in the reexaminations. As VirnetX

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demonstrated, Mot. 13-15, this ground cannot support the Patent Offices decision.

The Court should also grant VirnetXs requested extension of time.

VirnetXs request is timely, and filed promptly after the intervening Fairchild

decision. Nor, as Cisco asserts, is the requested extension extraordinary,

especially for a complex consolidated appeal. In any event, counsels conflicting

professional commitments (which neither Apple nor Cisco disputes) establish the

requisite good cause.

I. VirnetXs Motion to Remand Is Proper, and Would Promote Judicial

Efficiency.
Cisco (but not Apple) contends that VirnetXs motion is improper, and

that this Court must defer its decision on whether to remand the estopped claims

until after the full briefing and resolution of the appeal. Cisco Op. 2-3, 5-6. This

argument lacks support. VirnetXs motion is expressly authorized by the Courts

rules, Fed. Cir. R. 27(f), as an efficient way of resolving pending appeals

particularly in light of intervening precedent. See Mot. 16.

Fairchild confirms that VirnetXs request is appropriately resolved on

motions practice. In Fairchild, the patent owner, prior to briefing, requested a

remand to the Patent Office with instructions to terminate the reexamination of the

patent claims subject to section 317(b)s estoppel. This Court did not defer its

decision until the appeal was fully briefed; instead, it granted the motion and

ordered the reexamination of the estopped claims dismissed. Fairchild, 854 F.3d

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at 1366. VirnetXs motion requests the same relief here.

Cisco next argues that the requested remand will not promote judicial

efficiency because it would address only a small subset of the claims on appeal.

Cisco Op. 3. That is incorrect. VirnetX requests termination of the reexamination

of some 60 patent claims35 claims in appeal No. 17-1591 and 24 claims in

appeal No. 17-1592. This is nearly half of the claims at issue in the two Apple

appeals. See Mot. 18-19. The remand would narrow considerably the claims and

issues before this Court, conserving significant judicial resources.

Cisco also argues (at 4) that it would be inefficient to require a new notice of

appeal with respect to the claims not subject to estoppel. But this Court can grant a

limited remand with respect to the estopped claims while retaining jurisdiction

over the Apple appeals. See Mot. 17.

Ciscos concern (at 5) that its own appeal (No. 17-1593) may be delayed can

be resolved by de-consolidating the appeals. See Mot. 2 n.1. No judicial

efficiency would be lost by allowing Ciscos appeal to proceed while remanding

the Apple appeals. The Cisco appeal involves only a single claim (claim 60 of the

211 patent) that would remain in the Apple appeals, and involves entirely different

asserted references. Mot. 18 n.7.

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II. Under Fairchild, the Affirmed District-Court Decision on Validity in

This Case Constitutes a Final Decision Under Section 317(b).

A. The Theoretical Availability of Future Certiorari Review Does

Not Render the Invalidity Decision Non-Final.
Fairchild makes clear that the district courts judgment upholding the

validity of the 504 and211 patents, once affirmed by this Court, constitutes a

final decision under section 317(b). 854 F.3d at 1365-66; Mot. 9-13.

Apple and Cisco argue that Fairchild applies only where no further

opportunity for review of the relevant invalidity issue is available, and that Apple

can still seek certiorari review of the validity issue after a hypothetical post-remand

appeal. Apple Op. 10, 12-13; Cisco Op. 3-4. This attempt to side-step Fairchild

fails. Just like Apple here, the third-party requester in Fairchild retained the option

of seeking certiorari from any subsequent post-remand appeal. As Apple

acknowledges (at 10-11), as part of that future petition, the requester could seek

review not only of any issues this Court might decide on the second appeal, but

also of the Courts validity ruling in the first appeal. Despite the hypothetical

availability of future Supreme Court review, Fairchild nevertheless held that the

district courts affirmed judgment regarding validity constituted a final decision

under section 317(b). 854 F.3d at 1366; Mot. 11-12.

Apple speculates that Fairchild must have assumed that no further

opportunity for review of the relevant invalidity issue was available. Apple

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Op. 14; see also Cisco Op. 3. But, as Apple acknowledges (at 10-11), the Supreme

Courts plenary authority to review all federal questions decided in earlier stages of

the litigation has been firmly established for over a century. There is no reason to

supposeand Apple provides nonethat the Fairchild panel was ignorant of this

black-letter rule, or was somehow unaware of the scope of the Supreme Courts

authority to review this Courts judgments.

Apple next attempts to limit Fairchild to situations where this Court not only

affirms the district courts validity determination regarding the patent at issue (in

Fairchild, the 972 patent), but also resolves all the other issues (specifically,

infringement) related to that patent. Apple Op. 13-14, 19. Apple posits that,

because this Court on appeal conclusively resolv[ed] Fairchilds claim on that

patent, it was unsurprising that the Fairchild order did not deal with the

availability of a subsequent petition for certiorari. Apple Op. 13-14. That is a

non sequitur. The Supreme Court ha[s] jurisdiction to consider all of the

substantial federal questions determined in the earlier stages of the litigation.

Reece v. Georgia, 350 U.S. 85, 87 (1955) (emphasis added). Nothing prevents the

third-party requester in Fairchild from seeking Supreme Court review of the 972

patents validity after any post-remand appeal, even though this Court did not

remand for any further proceedings related to that patent. See, e.g., Hamilton-

Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 253-59 (1916) (reviewing,

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after a second appeal, the validity of a trademark, even though the trademark

infringement claim had been conclusively resolved in the first appeal).

Apples attempted distinction ignores section 317(b)s objective. This

estoppel provision is designed to prevent re-litigation, through inter partes

reexamination, of a conclusive federal-court determination regarding a patent

claims validity. As Fairchild emphasized, [b]y its terms, 317(b) is concerned

with a final decision that the party has not sustained its burden of proving the

invalidity of any patent claim. 854 F.3d at 1366 (emphasis added). Remand

proceedings in the litigation concern infringement and damages, not validity. Just

as in Fairchild, here, [Apple] does not suggest, nor is there any reason to believe,

that any unresolved issue on remand would have any effect on the now-final [504

and 211] patent validity determinations. Id.

Finality is variously defined; like many legal terms, its precise meaning

depends on context. Clay v. United States, 537 U.S. 522, 527 (2003). Fairchild

articulated a sensible rule (consistent with section 317(b)s purpose) that, once a

patent challenger has conclusively lost on invalidity in both the district court and

this Court, and declined to seek certiorari, the challenger cannot defeat estoppel

and drag out parallel reexamination proceedingsbased on the speculative

possibility that the Supreme Court might grant a hypothetical post-remand, post-

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second-appeal certiorari petition.1

B. Section 317(b) Is Unambiguous, and Deference to the Patent

Offices Newly-Minted Interpretation Is Not Warranted.
Apple urges this Court to defer to the Patent Offices interpretation of

section 317(b). Apple Op. 14-16. No deference is warranted. This Court in

Fairchild viewed the statute as clear, see 854 F.3d 1365-66; see also Bettcher

Indus., Inc. v. Bunzl USA, Inc., 661 F.3d 629, 646 (Fed. Cir. 2011) (we believe

that 317(b) is clear), and where the intent of Congress is clear, that is the end

of the matter. Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 842 (1984).

Even if section 317(b) were ambiguous, the Patent Offices decision is not

entitled to Chevron deference. The decision is not rendered through formal

adjudication, see Brand v. Miller, 487 F.3d 862, 867 (Fed. Cir. 2007), nor are there

any special circumstances that would overcome the ordinary reluctance to

accord Chevron deference to informal agency interpretations, Butterbaugh v.

Dept of Justice, 336 F.3d 1332, 1342 (Fed. Cir. 2003). The Patent Office cannot

1
Apple (at 11-13) argues at length that the Supreme Court disfavors interlocutory
certiorari grants. That only confirms that the third-party requester in Fairchild was
not required to seek certiorari before the entire case was resolved. In any event,
the Supreme Court will grant review despite the interlocutory posture where the
issue is worthy of review. See, e.g., F. Hoffmann-La Roche Ltd. v. Empagran S.A.,
542 U.S. 155, 160-61, 175 (2004) (certiorari from denial of a motion to dismiss);
see generally Steven M. Shapiro, et al., Supreme Court Practice 4.18, at 285
(10th ed. 2013). Tellingly, Apple does not argue that the fact-bound invalidity
holding, see VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1323-34 (Fed. Cir.
2014), presents a certworthy question. Indeed, Apple did not even seek this
Courts en banc review of that holding.

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claim any specialized expertise in deciding when a decision of this Court precludes

further Patent Office proceedings. This Court is at least equally skilled to

interpret section 317(b)s term final decision. Glaxo Operations UK Ltd. v.

Quigg, 894 F.2d 392, 399 (Fed. Cir. 1990) (citation omitted).

Skidmore deference is similarly unwarranted. Apple (at 16) claims the

Patent Offices interpretation has been consistent, but offers no other example

where the agency addressed section 317(b)s finality requirement in the context of

a theoretical post-remand certiorari petition. And the only decision Apple cites

(at 9) undercuts the Patent Offices construction here. There, the Patent Office

concluded that a district courts validity decision, affirmed by this Court, was not a

final decision under section 317(b) because the Courts new claim construction

could require the district court to revisit the validity issue: the district court has

been ordered on remand to do further work that may alter its original decision.

In re Campana, No. 95/000,020, at 7, 8 (Sept. 16, 2005). Here, by contrast, no

remand proceeding could affect the district courts affirmed validity decision.

C. Fresenius Is Inapposite.
Fresenius, on which Apple relies extensively (at 16-19), is inapplicable; nor

did the Patent Office accept that argument. Fresenius concerned an instance of

claim preclusionnamely, how the Patent Offices final cancellation of a patent in

an ex parte reexamination extinguishe[d] the underlying basis for [parallel

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infringement] suits based on the patent. 721 F.3d at 1344. This Court examined

whether the district courts earlier judgment in th[e] infringement case [wa]s

sufficiently final so that it [wa]s immune to the effect of the final judgment in the

PTO proceedings. Id. at 1341. The Court held that the district court judgment

was not sufficiently final to escape the preclusive effect of the decision cancelling

the patentbecause the judgment had already been set aside in an earlier appeal.

Id. at 1341-42. Because the infringement claim was not conclusively resolved

before the underlying patent was cancelled, the patents cancellation wiped out the

claim as well.

By contrast, section 317(b) is a species of issue preclusion. It bars

successive litigation of an issue that was litigated and conclusively resolved in

another proceeding. Cf. Taylor v. Sturgell, 553 U.S. 880, 892 (2008). As the

Restatement (Second) of Judgments (on which Fresenius relied, see 721 F.3d at

1341) observed, finality for issue preclusion purposes is more flexible than for

claim preclusion. See Restatement (Second) of Judgments 13 cmt. g (1982). A

decision that was subject to appeal or was in fact reviewed on appeal is

considered final for the purpose of [issue] preclusion. Id.2

2
Thus, it is not surprising Fairchild did not deem it necessary to discuss Fresenius,
see Apple Op. 19 n.6even though the third-party requester in Fairchild pressed
the same argument, see No. 17-1002, Docket No. 28 at 3-5.

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III. This Court Should Grant the Requested Extension of Time.

VirnetXs extension request should be granted, as it would enable the Court

to consider the present motion, allow VirnetX time to prepare its brief in light of

the Courts ruling, and enable counsel to navigate competing pre-existing

professional obligations. Mot. 2021. In opposing VirnetXs request, Apple and

Cisco present an incorrect and incomplete picture of the record.

Apples accusation (at 20) that VirnetX delayed filing its motion is

misplaced. VirnetXs motion was prompted by the intervening decision in

Fairchild, issued just 18 days before VirnetX filed its motion.

Apples complaint about VirnetXs administrative petitions (which Apple

also filed) is borderline frivolous, especially when petitions to suspend or terminate

the reexaminations are the ones at issue here. Apple next complains that VirnetX

requested too many extensions below, but Apple filed an astonishing 43

proceedings against VirnetXs patents, with several more filed by Cisco. And

VirnetXs requests for extra pages (all of which were granted) were caused by

Apples unbounded reexamination requests, which totaled over 851 pages.

Apples claim of prejudice is unpersuasive. Apple can hardly use any

purported injury from the infringement litigation as leverage here, given that it

failed to prove the patents-at-issue invalida finding affirmed by this Court.

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CONCLUSION

VirnetXs motion should be granted.

Date: May 26, 2017 Respectfully submitted,

/s/ Naveen Modi

Naveen Modi
Joseph E. Palys
Igor V. Timofeyev
Daniel Zeilberger
875 15th Street, N.W.
Washington, D.C. 20005
Tel.: (202) 551-1700
Fax: (202) 551-1705

Counsel for Appellant VirnetX Inc.

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CERTIFICATE OF INTEREST
Pursuant to Federal Circuit Rule 47.4, counsel of record for Appellant VirnetX Inc.
certify as follows:

1. The full name of every party represented by us is:

VirnetX Inc.

2. The name of the real party in interest represented by us is:

VirnetX Inc.

3. All parent corporations and any publicly held companies that own 10 percent
or more of the stock of the party represented by us are:

VirnetX Inc. is a wholly owned subsidiary of VirnetX Holding

Corporation (VHC). VHCs stock is publicly traded on the New
York Stock Exchange.
4. The names of all law firms and the partners or associates that appeared for
VirnetX Inc. in proceedings before the United States Patent and Trademark
Office, Patent Trial and Appeal Board, or are expected to appear in this
Court (and who have not or will not enter an appearance in this case):
Paul Hastings LLP:
Chetan R. Bansal
Finnegan, Henderson, Farabow, Garrett, & Dunner, LLP:
Jason Stach

McDermott Will & Emery LLP

Toby H. Kusmer, Matthew E. Leno, Hasan M. Rashid

Date: May 26, 2017 /s/Naveen Modi

Naveen Modi
Counsel for Appellant VirnetX Inc.
 Case: 17-1591 Document: 35 Page: 15 Filed: 05/26/2017

CERTIFICATE OF COMPLIANCE
WITH TYPE-VOLUME LIMITATION, TYPEFACE REQUIREMENTS,
AND TYPE STYLE REQUIREMENTS

Pursuant to Federal Rule of Appellate Procedure 27(d) and 32(g) and this

Courts Rule 27-1(a)(10), I certify the following:

1. The attached reply complies with the type-volume limitation of

Federal Rule of Appellate Procedure 27(d)(2)(C). The reply contains 2,600 words

(according to the Microsoft Word 2010 count function), excluding items excluded

by Federal Rule of Appellate Procedure 32(f).

2. The attached reply complies with the typeface requirements of Federal

Rule of Appellate Procedure 32(a)(5) and the type style requirements of Federal

Rule of Appellate Procedure 32(a)(6). The reply has been prepared in a

proportionally spaced typeface using Microsoft Word 2010 in 14-point Times New

Roman type style.

Date: May 26, 2017 /s/Igor V. Timofeyev

Igor V. Timofeyev
Counsel for Appellant VirnetX Inc.
 Case: 17-1591 Document: 35 Page: 16 Filed: 05/26/2017

CERTIFICATE OF SERVICE

I, Igor V. Timofeyev, hereby certify that on May 26, 2017, the foregoing

reply was filed using the Courts CM/ECF system and a copy served on the

parties counsel of record via ECF.

Date: May 26, 2017 BY: /s/Igor V. Timofeyev

Igor V. Timofeyev
Paul Hastings LLP
875 15th Street, N.W.
Washington, D.C. 20005
Tel.: (202) 551-1700
Fax: (202) 551-1705