PTAB Finds Petitioner’s Failure to Disclose Relationship with Real Party in Interest Warrants Substantial Monetary Sanctions
Published: April 20, 2023
In Ventex Co., Ltd. v. Columbia Sportswear North America, Inc., IPR2017-00651 (PTAB Apr. 12, 2023) (per curiam), the Patent Trial and Appeal Board (the “Board”) found that petitioner Ventex Co., Ltd.’s (“Ventex) failure to disclose the existence of an agreement with a time-barred real party in interest unnecessarily delayed the proceedings and awarded over $32,000 in sanctions to the patent owner Columbia Sportswear North America, Inc. (“Columbia”).
In the case, Columbia filed a Motion for Sanctions seeking attorneys’ fees and costs incurred after discovery began in the matter. As a part of the briefing, Columbia contended that because Ventex’s petitions were time-barred pursuant 35 U.S.C. § 315(b), the Board should not have instituted the inter partes reviews (“IPRs”). The Board agreed with Columbia and entered an Order dismissing the petitions, vacating institution, and terminating the IPRs. The Board found that Seirus Innovative Accessories, Inc. (“Seirus”) should have been identified as both a privy of Ventex and a real party-in-interest, and the Board should have denied the Petitions as untimely before instituting the IPRs.
In support of its argument, Columbia relied on two agreements between Ventex and Seirus, a 2013 Supplier Agreement and 2016 Exclusive Manufacturing Agreement. Based on these agreements, the Board found that Ventex and Seirus shared a preexisting business relationship and mutual interest in invalidating the patents subject to the IPRs. The Board also cited payments tied to the Exclusive Manufacturing Agreement as support for its conclusion that Ventex served as proxy for Seirus and the payments suggested an “inextricable link” between Seirus and the funding of the IPRs, which Ventex may have had difficulty funding on its own. Accordingly, the existence of the Exclusive Manufacturing Agreement, which Columbia obtained only after successfully moving for additional discovery from Ventex, was central to the finding that Seirus was a real party-in-interest and in privity with Ventex.
The Board may impose sanctions, for example, for “[f]ailure to comply with an applicable rule or order in the proceeding;” “[m]isrepresentation of a fact;” “[a]buse of discovery;” or “[a]ny other improper use of the proceeding, including actions that harass or cause unnecessary delay or an unnecessary increase in the cost of the proceeding.” 37 C.F.R. §§ 42.12(a)(1), (3), (5), (7). The sanctions may include an “order providing for compensatory expenses, including attorney fees.” 37 C.F.R. § 42.12(b)(6). Any sanction imposed on a party should (1) “bear a reasonable relationship to the severity of the violation;” (2) “ensure compliance with the Board’s rules;” (3) deter others from engaging in similar conduct; and (4) “if appropriate, render whole the aggrieved party.”
In support of its motion, Columbia put forth three reasons to justify the sanctions. First, Columbia alleges that “[t]here is no innocent explanation for Ventex’s decision to withhold 2,000 pages of communications about the funding arrangement from its document production while affirmatively misrepresenting that production as containing all of its communications with Seirus located after a comprehensive search.” Second, Columbia alleges that because Ventex had a duty to preserve documents by at least October 2016, when it engaged its counsel to file the IPRs, Ventex’s subsequent destruction of the Exclusive Manufacturing Agreement and related emails of a former employee amounted to spoliation of relevant evidence. Third, Columbia alleges that Ventex’s corporate witness made false statements under oath at his deposition by denying the existence of the later-produced Exclusive Manufacturing Agreement.
In response, Ventex argued that it put proper litigation holds in place starting in May 2017 and voluntarily produced documents in October 2018 that were not covered by Columbia’s requests and therefore did not conceal evidence. Ventex also argued that it did not destroy evidence, which includes emails by the former employee who negotiated the Exclusive Manufacturing Agreement because that employee deleted all emails in the normal course of business prior to leaving the company. Ventex further contends that its witnesses’ “memory lapses” “are not grounds for sanctions.”
The Board, however, found that Ventex’s failure to disclose the existence of the written Exclusive Manufacturing Agreement, either in documents, interrogatory responses, or the testimony of its representative, “cause[d] unnecessary delay or an unnecessary increase in the cost of the proceeding.” The Board reasoned the delay in producing the written Agreement caused harm in two ways. First, Columbia filed (and the Board decided) motions for additional discovery without the benefit of all pertinent facts. Second, Ventex’s witnesses, both of whom reside outside the United States, needed to be deposed a second time to secure testimony relating to the true contractual relationship between Seirus and Ventex. These unnecessary delays, and the associated increase in attorneys’ fees and costs, could have been avoided if Ventex had either promptly produced the written Agreement from its own files, obtained a copy from Seirus once it realized the Agreement was not retained by Ventex or produced a witness with adequate knowledge of the existence of the written Agreement. Finally, although the Board did not determine that Ventex’s witness knowingly lied when he failed to acknowledge the existence of the written Exclusive Manufacturing Agreement during his first deposition, the Board did conclude that he at least misrepresented a key fact, providing further support for an award of sanctions.
Thus, the Board founds that given Ventex’s misconduct, Columbia indisputably suffered harm as a result because the delay in obtaining the Exclusive Manufacturing Agreement required Columbia to expend unnecessary time and effort related to motions to compel discovery from Ventex. In other words, but for Ventex’s conduct, Columbia’s motions for additional discovery would not have been necessary.
As to the amount, the Board held Ventex did not dispute that $32,761 reflects an appropriate amount of sanctions in the event that the Board finds sanctionable conduct by Ventex. Further, the Board held that a sanction of $32,761 is sufficient to ensure compliance with its rules and to deter other parties from engaging in similar conduct. Thus, the Board awarded Columbia $32,761 in sanctions.
This case is a strong reminder to be diligent and forthright in both discovery and the disclosure of potential real parties in interest. Otherwise, in addition to losing an IPR, a party can be subject to substantial sanctions.