Mentor Graphics Corporation v. Rea

Filing 47

MEMORANDUM OPINION Re: 33 36 Defts' Motion to Dismiss. Signed by District Judge Claude M. Hilton on 7/25/2013. (stas) Modified on 7/25/2013 to remove link to incorrect motion(stas).

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA

i

b

JUL 2 5 2013

Alexandria Division

MENTOR GRAPHICS CORPORATION,
A-Lu^fiDniA. VIRGIN'A

Plaintiff,
Civil Action No.

l:13-cv-518

TERESA STANEK REA, Acting
Undersecretary of Commerce for
Intellectual Property and
Acting Director of United
States

Patent and Trademark

Office,
Defendant,
SYNOPSYS,

INC.,
Intervenor-Defendant.
MEMORANDUM OPINION

This matter comes before the Court on Defendant Teresa

Stanek Rea and Intervenor-Defendant Synopsys, Inc.'s Motion to
Dismiss.

This case concerns United States Patent No. 6,240,376
(M,,376 patent") which the United States Patent and Trademark

Office ("USPTO") issued on May 29, 2001.

Mentor Graphics

Corporation ("Mentor Graphics") is the assignee of this patent

which relates to the simulation, prototyping, and debugging of
integrated circuits.

On March 13, 2006, Mentor Graphics

Corporation sued Emulation and Verification Engineering S.A. and
EVE-USA,

Inc.

(collectively,

"EVE")

in the United States

Rl

District Court for the District of Oregon alleging EVE's ZeBu
family of emulator products infringed the ^376 patent.

Pursuant

to a settlement agreement the suit was dismissed with prejudice
on November 30, 2006 before a judgment was entered.

On

September 26, 2012, Intervenor-Defendant Synopsys, Inc.

("Synopsys") filed a petition with the Patent Trial and Appeal
Board ("PTAB") seeking institution of inter partes review

proceedings regarding claims 1-15 and 20-33 of the 4376 patent
arguing those claims were not patentable.

On September 27, 2012

Synopsys entered into a written agreement to acquire EVE.

As of

at least October 4, 2012, Synopsys completed the acquisition of
EVE making it a wholly-owned subsidiary of Synopsys.

On February 22, 2013, the PTAB issued an opinion granting
Synopsys' petition as to claims 1-9, 11, and 28-29 and rejecting
Mentor Graphics'

argument that it could not institute inter

partes review proceedings because Mentor Graphics had not shown

that Synopsys and EVE were privies as of the filing date of the

petition nor shown that Synopsys and EVE were privies or had any
relationship at all during the prior litigation.

Mentor

Graphics' motion for rehearing of the PTAB's decision to

institute proceedings was denied.

On April 29, 2013, Mentor

Graphics filed the instant Complaint seeking to prohibit the

inter partes proceedings from going forward and seeking review

of the PTAB's order instituting proceedings pursuant to the
Administrative Procedure Act

("APA").

The Leahy-Smith America Invents Act, Pub. L. No. 112-29,
125 Stat. 284 (Sept. 16, 2011)

("AIA") allows "a person who is

not the owner of a patent" to "file with the [PTO] a petition to
institute an inter partes review of the patent."

codified at 35 U.S.C § 311(a)).1

(to be

The petitioner may ask the

USPTO to cancel as unpatentable one or more claims of the patent
as non-novel or obvious based upon prior art.

311(b).

35 U.S.C. §

The Director may authorize an inter partes review to be

instituted if the Director determines that the information

presented in the petition shows that there is a reasonable

likelihood that the petitioner would prevail with respect to at
least one of the claims challenged in the petition.
314(a).

The determination by the Director whether to institute

an inter partes review is final and nonappealable.

314(d).

Id. at §

Under the AIA,

Id. at §

if an inter partes review is instituted,

the PTAB is required to issue a written decision with respect to

the patentability of any patent claim at issue which may then be
appealed to the Federal Circuit.

Id. at §§ 318(a), 319.

Under 35 U.S.C. § 315(b), the PTAB may not institute an

inter partes review if the patent owner filed an infringement

1 The official version of the U.S. Code has not been updated to reflect the
enactment of the AIA.
the relevant

For ease of reference, subsequent citations refer to

sections of

the Code.

action against the petitioner or a "privy" of the petitioner
more than one year before the petitioner seeks inter partes
review.

Plaintiff Mentor Graphics asserts that the PTAB is

prohibited under 35 U.S.C. § 315(b) from instituting inter
partes review because Synopsys and EVE are now privies and
Mentor Graphics served a complaint for infringement of the "376

patent against EVE more than one year prior to Synopsys'
petition.

Plaintiff seeks a declaration that the decision of

the PTAB to institute inter partes review is in excess of its

statutory jurisdiction and authority, is arbitrary and
capricious, and rests on an erroneous interpretation of 35
U.S.C.

§ 315(b).

In order to survive a Rule 12(b)(6) motion to dismiss,

a

complaint must set forth "a claim for relief that is plausible
on its face." Ashcroft v.

(quoting Bell Atl.

Iqbal,

556 U.S.

662,

Corp. v. Twombly, 550 U.S.

678

(2009)

544, 570

(2007)).

A claim is facially plausible "when the plaintiff pleads factual
content that allows the court to draw the reasonable inference

that the defendant is liable for the misconduct alleged."
Iqbal,

556 U.S.

at 678; Twombly,

550 U.S.

at 556.

Factual

allegations, although assumed to be true, must still "be enough
to raise a right to relief above the speculative level."
Twombly,

550 U.S.

at 555.

While the Court must construe the

complaint in the plaintiff's favor, accepting all factual

allegations and inferences as true, the complaint must assert
more than bare legal conclusions.

Mylan Labs.,

Inc. v. Matkari,

7 F.3d 1130, 1134 (4th Cir. 1993); Taubman Realty Grp. L.P. v.
Mineta,

320 F.3d 475,

479

(4th Cir. 2003).

Plaintiff claims there is a cause of action under the APA

because Plaintiff asserts the PTAB's interpretation and
application of § 315(b)

is a "final agency action for which

there is no other adequate remedy in court" for which the APA
provides judicial review.

5 U.S.C. § 704.

"As a general

matter, two conditions must be satisfied for agency action to be
'final.'

First,

the action must mark the

'consummation'

of the

agency's decisionmaking process-it must not be of a merely
tentative or interlocutory nature.

And second, the action must

be one by which 'rights or obligations have been determined,' or
from which 'legal consequences will flow."
520 U.S. 154, 177-78

(1997)

Bennett v. Spear,

(citations omitted).

Moreover, a

preliminary, procedural, or intermediate agency action or ruling
not directly reviewable is subject to review on the review of
the final agency action. 5 U.S.C. § 704.

In addition to the

finality requirement, there must be no adequate remedy in court
in order for judicial review to be available.

Id.

The first requirement that needs to be satisfied to permit
judicial review under § 704 is that the agency action is final.
Allowing district courts to exercise APA jurisdiction over a

non-final agency decision "leads to piecemeal review which at

the least is inefficient and upon completion of the agency
process might prove to have been unnecessary."
Oil Co.,

449 U.S.

232,

242

(1980).

FTC v. Standard

Such an immediate review of

the determination to institute inter partes proceedings strikes
at the very core of this authority.

The decision to institute

inter partes review was not a final agency action, but only the
"initial" step in the agency process of reexamining the patent.
Courts have repeatedly held that similar decisions to initiate

agency proceedings do not constitute final agency action, but
rather are only tentative or interlocutory.
Oil,

See, e.g.,

Standard

449 U.S. at 241-43 (holding issuance of administrative

complaint to initiate agency proceedings not final agency
action).

In this case,

the PTAB's decision to institute

proceedings is plainly interlocutory in nature.
Secondly, the PTAB's decision is not final because it does

not determine any substantive rights or obligations, nor do any
legal consequences flow from the decision.

U.S. at 177-78.

See Bennett, 520

Inherent in this rule is that the agency action

must have a direct and immediate effect on the challenging
party's substantive legal rights.

Consol. Gas Supply Corp. v.

FERC, 611 F.2d 951, 958 (4th Cir. 1979).

Indeed, the legal

rights or consequences that make an agency determination 'final'

under the APA generally have an immediate legal impact on a

party and often require some positive action on the part of the
affected party or a immediately-felt concrete harm.

A decision

to institute inter partes proceedings here "does not itself

adversely affect complainant but only affects his rights
adversely on the contingency of future administrative action,"

Rochester Tel. Corp. v. United States, 307 U.S. 125, 130 (1939),

and therefore is not a final agency action for APA purposes.
The PTAB's decision to institute proceedings has no legal effect
on Mentor Graphics' patent at this time or its ability to
enforce its patent.

Even though Mentor Graphics is forced to participate in the
inter partes proceedings,

this fact does not render the PTAB's

decision final under the APA.

As the Supreme Court has held,

imposing a burden to participate in such proceeding, even if
substantial, "is different in kind and legal effect from the
burdens attending to what heretofore has been considered to be
final agency action."

Standard Oil,

449 U.S. at 242.

Additionally, Mentor Graphics' claim of a "stigma" surrounding

its patent because of the inter partes review is unavailing.
The concern over any stigma in this instance is purely
conjectural and insufficient to make the PTAB's decision a final

agency action.

Here, either the agency could potentially

revisit the challenged issue or the party could succeed on the

merits, thereby obviating the need for any review at the

conclusion of the inter partes proceedings.
Furthermore, this Court lacks jurisdiction to review the
PTAB's decision under the APA because another alternative and

adequate remedy is available.

Congress specifically chose to

allow direct review of the PTAB's final written determination to
the Federal Circuit.

See 35 U.S.C. § 329.

Section 704 of the

APA "does not provide additional judicial remedies in situations

where the Congress has provided special and adequate review
procedures."

Bowen v. Massachusetts, 487 U.S. 879, 903 (1988).

Congress has chosen an adequate alternative remedy allowing
for direct Federal Circuit review at the culmination of the PTAB

proceedings to streamline the review process while maintaining
the parties' full rights to judicial review.
The PTAB's interlocutory decision here does not meet either

prong of § 704.

The decision to institute inter partes review

proceedings is the beginning, rather than the end, of the PTAB's

actions.

There are no legal consequences as of yet from the

mere institution of the proceedings at issue.

Additionally,

Plaintiff has an "adequate remedy in a court" through a direct
appeal of the PTAB's final written determination to the Federal

Circuit.

For the reasons stated herein, Defendants' Motion to

Dismiss should be granted.

In light of the Court's decision,

there is no reason to address the cross motions for summary
judgment.

An appropriate Order shall issue.

JsL
Claude M. Hilton

United States District Judge

Alexandria, Virginia

July *xj£~, 2013