VLSI/Fortress IP Patents Likely Invalid Despite OpenSky’s Bad Behavior

You’ve probably heard about all of the VLSI drama: the eye-popping $2.18 billion judgment won by non-practicing entity (NPE) VLSI (funded by Fortress IP), mysterious post-judgment inter partes reviews (IPRs) filed against the VLSI patents, and finally the now-notorious email from OpenSky offering to disrupt their own IPR in exchange for a fee. Folks have jumped all over the email from OpenSky for its obvious bad behavior, but they are also using it as an indictment of the entire Patent Trial and Appeal Board (PTAB). What is noteworthy here is not the email—this type of behavior is extremely rare. The real story here is what the system got right, and where it failed.

A quick background: VLSI filed against Intel in April 2019 and won at trial in March 2021, one of Judge Albright’s first trials in Waco. After being sued, Intel duly filed IPRs of all the patents asserted against them, but the Board, using their then-new discretionary denial power, refused to consider the merits of those challenges, based largely on the aggressively scheduled Waco trial dates. The date then slipped as the case was transferred to Austin and back again, COVID introduced delays, and the various cases shed patents, but trial moved forward on two patents (both originally challenged and denied under Fintiv), and the jury found against Intel.

Presumably to capitalize on the VLSI settlement, unrelated third parties have now picked up Intel’s IPRs and refiled the challenges the Board earlier refused to hear. The USPTO, now without parallel litigation, found the patents are both most likely unpatentable, and is moving forward with review. Recently, it came to light that one of these mystery entities, OpenSky, emailed opposing counsel suggesting a settlement, for pay, that could attempt to disrupt the Board’s ability to consider the merits. They suggested they might get paid and then work to frustrate the challenge.

Don’t Let Bad Behavior Distract from the Real Problems

Let’s be clear: This is bad behavior, and it deserves to be rooted out and dealt with. But let’s not go crazy. Out of the more than 14,000 filings over 10 years, you can count on one hand bad behavior. Some of us remember when the self-proclaimed king of the patent trolls, Eric Spangenberg, partnered with investor Kyle Bass to attempt to file IPRs to manipulate the stock market of pharmaceutical companies—and failed terribly. And, of course, lawyers in all forums occasionally engage in ethically questionable practices. For the Board’s part, they require parties to file all collateral and material agreements. And the statute dictates the Department of Justice can request copies of settlements at any time. The Office has many tools to deal with ethical issues.

In short, the attention here on a few bad actors misses the point. It’s not the petitioners. It’s the patents. Bad patents get used all the time. Over 65% of patent litigation in the tech-sector is brought by NPEs that mostly seek cost of litigation settlements on patents so broad they can sue, in some cases, hundreds of defendants.  A portion of those are challenged before the Board, and often result in simplification of the case.  In 2019, for instance, the PTAB invalidated all claims in just over half of all challenges instituted. Demand letter abuse is rampant enough that many states have passed laws addressing it. And patent litigation funding is prevalent and on the rise.

The PTAB, for its part, has accomplished great things to address NPE activity, just as Congress and stakeholders intended. It has been widely used, has kept to all statutory deadlines, and has received high marks for the quality of its work. It has been successful over the years in checking significant numbers of asserted invalid patents, by some measures saving the U.S. economy billions of dollars over. See Perryman Group, An Assessment of the Impact of the America Invents Act and the Patent Trial and Appeal Board  on the US Economy (June 2020) (Perryman Report). And yet, many self-interested parties would rather the PTAB not exist, and are suggesting the OpenSky email is evidence of systemic malaise.

The absurdity of getting so worked up over one email and using it to try to lobby for throwing the baby out with the bathwater is self-evident. OpenSky could withdraw today and the USPTO would have Congress’ statutory authority to continue this important review to its rightful conclusion, as they have done in the past. As it states in 35 U.S.C. § 318(a) and as the Board has in the past, “the Office may … proceed to a final written decision” absent a petitioner, much like they do every day in ex parte examination and reexamination. They do that to protect the public interest, not serve the interest of any of the parties before it. This is the USPTO’s mission. And it is working well.

The USPTO’s Error

But no system works perfectly. There’s at least one thing that the USPTO did get wrong here—it unilaterally implemented a policy, Fintiv, that complicated disputes, led to gamesmanship, and has led to the Board and parties spending countless hours and resources on addressing the new procedures. See Report, 45% of all 2021 Institution Decisions Analyze Fintiv.

Here, the Board decided not to look at the merits when it would have been most efficient to do so. It’s absurd—the Board, stripped of the ability to act as urged by the party with the most at stake, instead demurred, and now must consider the merits for an entirely unrelated party. That’s senseless, and it is problem is one of the USPTO’s own creation. The Fintiv rule was broken from the start, and this is exhibit A.

Indeed, as stakeholders and litigators on all sides will tell you, Fintiv had draconian impacts on patent litigation; this is a perfect example. And yet some are trying to use OpenSky’s behavior to suggest we should allow all major litigation to move forward without considering otherwise meritorious evidence that the Office may have made a mistake issuing one of its millions of patents.

The USPTO has an important civic responsibility to look at the merits of those challenges, and can do so regardless of who the parties who brought the challenge are, or their actions. Their duty is independent.

And there is also a certain irony in a wealthy $900 million patent litigation fund—one who hasn’t disclosed the details of their arrangements with VLSI or their investors or their stake in the original case—crying bloody murder when another entity tries to use the legal system for financial gain. People in glass houses—even very expensive ones—must be careful with their stones.

The True Cost

In the end, the very evidence that might have short-circuited or simplified this dispute was ignored; it seems clear in hindsight that the Fintiv rule will likely end up costing everyone, both defendant and plaintiff, extensive resources trying to use the courts to monetize patents that either never should have issued in the first place or could have conclusively resolved those same validity questions. And data shows Fintiv is now being addressed in almost half of all Board decisions, normally for more than 10 pages, adding substantially the agency’s already stacked plate. See Report supra.

As a result, in my opinion, Fintiv failed us all here. OpenSky’s behavior is both wrong and rare; what’s far less rare is how often Fintiv has left potentially invalid patents unreviewed by the people best positioned to weigh their validity.

Image Source: Deposit Photos
Author: tashatuvango
Image ID: 31248541