Microsoft v. Proxyconn (IPR2012-00026, Paper 32): No Commercial-Success Discovery Without Nexus

Patent owners in inter partes review often want the petitioner’s sales data to prove commercial success. Microsoft Corp. v. Proxyconn, Inc., Paper 32, entered March 8, 2013, in the joined proceedings IPR2012-00026 and IPR2013-00109, shows why that discovery is hard to get. The decision came three days after the Board’s leading discovery ruling in Garmin v. Cuozzo, Paper 26, which it cited.

Related papers cover the institution decision in IPR2012-00026 and the joinder of IPR2013-00109.

Background

Proxyconn’s patent concerns avoiding redundant data transfer over networks. Proxyconn alleged that a feature of Microsoft’s Windows Server, Remote Differential Compression (RDC), infringed. It wanted Microsoft’s sales and related data to show that the product was commercially successful, as a secondary consideration of nonobviousness. This information fell outside routine discovery under 37 C.F.R. § 42.51(b)(1), and Microsoft would not produce it voluntarily.

On a February 8, 2013 call, Microsoft argued that Windows Server did not use the patented feature and that customers bought it for many other reasons. The Board voiced concern about nexus. Its order authorizing the motion (Paper 23) told Proxyconn to identify the information sought and address its relevance, “including the nexus” to the alleged commercial success.

What the Board decided

The Board applied 37 C.F.R. § 42.51(b)(2): additional discovery must be in the interest of justice. Pointing to the AIA’s goal of a quick, cost-effective alternative to litigation and to legislative history limiting such discovery to minor matters and special circumstances, it said it would be conservative in granting it.

No showing of nexus. Commercial success is significant only if it results from the claimed invention rather than from other factors. When a patent covers only one feature of a product, the patent owner must also show that the success derives from that feature. Proxyconn argued that a showing of nexus would be “premature” at the discovery stage. The Board disagreed: a conclusive showing was not needed, but some showing of relevance was. That was especially so because RDC was one feature of complex software with, as Microsoft put it, “thousands of features.”

Public information. Many requests sought pricing, product reviews, marketing materials, public comments and awards. These appeared to be available to Proxyconn from public sources, so there was no need to demand them from Microsoft.

Overbreadth. No request was limited in time. Several were vague, such as requests about “any upgrades,” programs including RDC “or equivalents,” or documents on the “benefits,” “value” or “demand” for RDC. The Board found them unfocused, overly broad and unduly burdensome.

Sales comparisons. Proxyconn proposed comparing sales of the Windows Server version with RDC to the prior version, asserting that RDC was one of the few differences. That assertion was unsupported and disputed. Microsoft noted that many enterprise customers upgrade regardless of features.

Authorities distinguished. The cases Proxyconn cited mostly confirmed the nexus requirement or involved a patentee’s own product with established nexus, not a single feature inside complex software.

The motion was denied.

Why it matters

The decision applies the Garmin factors to the most common kind of patent-owner discovery request. Three lessons stand out:

• Nexus evidence comes first. A patent owner seeking an opponent’s sales data needs some threshold showing that the claimed feature drives demand.
• Public material is the requester’s job. Information available online or from the market will not be ordered from the other side.
• Tight drafting matters. Requests without time limits, or using open-ended terms like “equivalents” or “benefits,” invite denial.

The Board also showed the value of addressing its concerns directly. It had flagged nexus before the motion was filed, and the motion still did not address it. See discovery in PGR versus IPR for how this standard compares with post-grant review.

Later developments

The joined trial produced a final written decision that the Federal Circuit reviewed in Microsoft Corp. v. Proxyconn, Inc. (Fed. Cir. 2015), on claim construction and the motion to amend rather than discovery. The interest-of-justice framework applied here remains in use; check current USPTO guidance for how it is applied today.

Key takeaways

• The Board denied discovery of Microsoft’s sales, pricing and marketing data.
• Some showing of nexus between the claimed feature and commercial success is needed before discovery, not only at trial.
• Publicly available information and untargeted, time-unlimited requests do not meet the interest-of-justice standard.
• The decision applied Garmin v. Cuozzo, Paper 26, within days of its issue.