Vidal Bans OpenSky from Active Role in VLSI IPR in Precedential Director Review Decision

In a much-anticipated decision, U.S. Patent and Trademark Office (USPTO) Director Kathi Vidal today issued a precedential Director review ruling holding that inter partes review (IPR) petitioner OpenSky Industries, LLC abused the IPR process in its conduct with patent owner, VLSI Technology LLC, and sanctioning OpenSky by excluding it from the IPR proceedings and “temporarily elevating Intel to the lead petitioner.”

Vidal’s 52-page decision further remands the case to the Patent Trial and Appeal Board (PTAB) to decide whether it merits institution “based only on the record before the Board prior to institution.”

The decision explains that “OpenSky, through its counsel, abused the IPR process by filing this IPR in an attempt to extract payment from VLSI and joined Petitioner Intel, and expressed a willingness to abuse the process in order to extract the payment.”

Furthermore, the decision continues, “OpenSky’s behavior in this proceeding is entirely distinguishable from conventional settlement negotiations that take place in an adversarial proceeding” and “OpenSky engaged in abuse of process and unethical conduct by offering to undermine and/or not vigorously pursue this matter in exchange for a monetary payment.”

Vidal’s ruling also orders OpenSky to “show cause as to why it should not be ordered to pay compensatory damages to VLSI, including attorney fees, to compensate VLSI for its time and effort in this proceeding” and asks for briefing from OpenSky and VLSI on the issue.

In March of this year, in emails related to IPR2022-00645 between OpenSky and VLSI, which challenged claims of U.S. Patent No. 7,523,373 attorneys for OpenSky in writing offered to secretly come to an agreement with VLSI, unbeknownst to Intel or a separate petitioner, Patent Quality Assurance (PQA), who filed motions to join the IPR, or to the PTAB itself. The OpenSky “construct,” as the offer framework was repeatedly called in the e-mail sent from Chris Ivey to Nathan Lowenstein, said that if an agreement is reached, OpenSky would refuse to pay their expert, which would guarantee that the expert did not appear for the scheduled deposition. After the expert did not appear for the deposition, OpenSky would join the patent owner in a motion to dismiss, presumably based on the understanding that, without an expert, OpenSky could not prevail. See Paper 8, Exhibit 2029 (VLSI’s Opposition to OpenSky’s Motion for Joinder).

The Director review decision explains that OpenSky did not comply with Vidal’s Mandated Discovery Order, which is sanctionable. “It produced a minimal number of documents to the other parties and wholly inadequate answers to my interrogatories, and did not produce a privilege log,” the decision notes. This failure to comply ultimately led Vidal to impose a sanction holding “disputed facts as established against OpenSky.”

As to abuse of process, Vidal’s decision makes it clear that “[u]sing AIA post-grant proceedings, including the IPR process, for the sole purpose of extracting payment is an abuse of process warranting sanctions.” While the decision concedes that congress purposely did not include a standing requirement for IPR proceedings, leaving that consideration to the Office, Vidal notes there is a need for extra scrutiny when a petitioner has not been sued for infringement:

“[W]here a petitioner has not been sued for infringement, and is a non-practicing entity, legitimate questions may exist regarding whether the petitioner filed the petition for an improper purpose or one that does not advance the goals of the AIA or this Office….

Although it is not per se improper for a person not charged with infringement to file an IPR petition, the posture of a petitioner, in conjunction with other surrounding circumstances, could raise legitimate questions about whether the petition is reasonably designed to advance the beneficial aims of the AIA or this Office and whether, in addition, the filing amounts to an abuse of process.

So it is here.”

The decision notes that a jury in the Western District of Texas had recently awarded more than $2 billion against Intel for infringing two VLSI patents, including the one at issue here, and OpenSky filed its petition shortly after. “Together with the significant damages award, this suggests that the purpose of the IPR could be to extract a settlement from VLSI or payment from Intel.”

While VLSI asked for the IPR to be terminated, Vidal said her decision seeks to maintain the balance required by first principles and that termination is not warranted in this particular case:

“[T]he unique dynamics of this case, coupled with the public interest in evaluating patent challenges with compelling merits, counsels for a different approach here by permitting this IPR to continue only if the panel determines that the unpatentability merits were compelling as of the time of institution and on the record as it existed at that time.”

Vidal thus ordered the Board to decide within two weeks “whether the record before the Board prior to institution indicates that the Petition presents a compelling, meritorious challenge,” as per Vidal’s June 2022 Memorandum,“Interim Procedure for Discretionary Denials in AIA Post-Grant Proceedings with Parallel District Court Litigation.” The decision further notes that “OpenSky is relegated to the silent understudy role in this proceeding and is precluded from presenting or contesting any particular issue; requesting, obtaining, or opposing discovery; or filing any additional papers, unless specifically directed to do so.”

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Author: Devon
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