USPTO Director Issues Precedential PTAB Decision Finding Petitioner’s Conduct An Abuse Of The Inter Partes Review Process
On October 4, 2022, the Director of the United States Patent and Trademark Office (the “Director”) issued a precedential decision finding that the conduct of Petitioner OpenSky Industries, LLC (“OpenSky”) was an abuse of process, sanctioning Petitioner, and remanding to the Patent Trial and Appeal Board (the “Board”) for further proceedings. OpenSky Industries, LLC v. VLSI Technology LLC, IPR2021-01064, Paper 102 (P.T.A.B. Oct. 4, 2022).
In 2019, VLSI Technology LLC (“VLSI”) sued Intel Corporation (“Intel”) for patent infringement in the United States District Court for the Western District of Texas. Intel subsequently filed two petitions for inter partes review (“IPR”), both of which were denied institution on discretionary grounds. After a district court trial in Texas in February 2021, a jury awarded VLSI $675 million in damages (which decision is currently on appeal).
On June 7, 2021, OpenSky filed the instant IPR petition—a near exact copy of Intel’s two earlier-filed petitions—which attached the supporting declarations of Intel’s expert, without the expert’s knowledge. OpenSky argued in its petition that the Board should not exercise its discretion to deny institution because the IPR would act as a check on the integrity of the patent system, given that a jury found the patent to be worth $675 million dollars. VLSI opposed institution on various grounds, including that institution should be denied because this was the third IPR petition filed against the patent (with similar arguments), and because OpenSky was formed shortly after the widely-reported district court verdict was announced. Despite the earlier discretionary denials, the Board instituted the IPR.
After institution, VLSI sought rehearing of the decision, arguing that “[t]he Board should not permit entities formed after the verdict and facing no infringement threat to treat these proceedings as leverage to extract ransom payments in exchange for withdrawing abusive attacks.” VLSI also argued that such a proceeding advances no valid public interest and “fail[s] to weigh the overarching interests of fairness to the parties and the integrity of the patent system.” At the same time, Intel sought and was granted the right to join the instituted IPR.
The day before Intel’s joinder, the Board dismissed the rehearing request, and the Director stepped in to order sua sponte review of the Board’s institution decision, directing the parties to answer two questions: (1) what actions the Director, and by delegation the Board, should take when faced with evidence of an abuse of process or conduct that otherwise thwarts, as opposed to advances, the goals of the Office and/or the America Invents Act (“AIA”); and (2) how the Director, and by delegation the Board, should assess conduct to determine if it constitutes an abuse of process or if it thwarts, as opposed to advances, the goals of the Office and/or the AIA, and what conduct should be considered as such. The Director further instructed the parties to answer interrogatories and exchange certain categories of information in order for the Director to obtain all of the relevant facts. This mandated discovery included categories of documents relating to the formation and business of OpenSky; documents and communications relating to the filing, settlement, or potential termination of the IPR, or experts in the IPR, not already of record in the proceeding; and communications with any named party relating to the filing, settlement, or potential termination of the IPR.
OpenSky failed to comply with the Director’s order mandating discovery by: (1) lodging improper objections (including making what the Director determined to be spurious allegations that the order violates OpenSky’s constitutional rights and is inconsistent with the purposes of the AIA), (2) refusing to provide confidential documents (or, instead, produce a privilege log), and (3) failing to respond in good faith to the interrogatories. Given these failures, the Director sanctioned OpenSky by holding disputed facts relevant to the abuse of process allegations as established against OpenSky.
In analyzing the underlying abuse of process allegations, the Director explained that abuse of process is a fact-based inquiry, and that existing regulations do not attempt to specify what acts constitute an abuse of process. Given this lack of regulatory direction, the Director considered the totality of OpenSky’s conduct to determine whether it demonstrated an abuse of process or conduct that otherwise thwarted, as opposed to advanced, the goals of the Patent Office and/or the AIA. In doing so, the Director first set forth the relevant rationale for the AIA—i.e., to allow the Patent Office to revisit and revise earlier patent grants through a less-expensive alternative to district court litigation.
The Director then explained that OpenSky’s conduct was clearly directed towards using the IPR process to extract payment from either Intel or VLSI without meaningfully pursuing unpatentability grounds. One example of OpenSky’s misconduct was that it reached out to Intel seeking payment for success in the IPR. It is highly unusual for an IPR petitioner to seek payments from a non-patent owner. Another example was a proposed deal from OpenSky to VLSI, which demonstrated a disregard for the actual underlying patentability issues. OpenSky proposed to VLSI that: (i) the parties agree to work together to secure dismissal or defeat of the petition; (ii) OpenSky agrees not to negotiate with Intel or PQA; (iii) VLSI takes a full three months to oppose joinder of another party; (iv) VLSI files its patent owner response; (v) OpenSky refuses to pay expert for time at deposition so that the expert does not appear for deposition; and (vi) the day after VLSI files a response, OpenSky and VLSI file a motion to dismiss.
The Director found that other considerations relevant to the abuse-of-process question included: that OpenSky had no risk of being sued for infringement of the patent at issue, that there was already a significant jury verdict that OpenSky used to leverage success payments from Intel, that OpenSky was formed as a corporate entity in close proximity to that jury award, and that the petition that OpenSky filed was, as noted above, a copycat of Intel’s and used Intel’s expert’s testimony without his knowledge.
Ultimately, the Director explained that the totality of OpenSky’s conduct evinced a singular focus on using an AIA proceeding to extort money, from any party willing to pay, and at the expense of the adversarial nature of AIA proceedings. Notwithstanding all of OpenSky’s egregious conduct, the Director did not terminate the IPR. Instead, it was incumbent upon the Director (as urged by various amici) to also consider the goal of the AIA of eliminating patents that should not be in force. Therefore, the Director remanded the proceeding to the Board to re-consider—solely on the pre-institution IPR filings—whether there is any substantive merit to instituting the IPR, and, if so, directing the Board to move forward with Intel as the active party to the IPR. The Director ruled that OpenSky, however, was entirely prohibited from participating in the IPR. The Director also severely admonished OpenSky, ordering them to show cause why OpenSky should not be required to pay significant fees.