IP Law Daily, PATENT—PTAB: USPTO Director imposes heavy sanctions for abuse of IPR process, (Oct 5, 2022)

By Kevin M. Finson, J.D.

IPR petitioner did not comply with mandated discovery and appeared to be seeking only financial gain from the interested parties.

A petitioner in an inter partes review proceeding abused of the IPR process because it brought its petition only to extract payment from one or more of the interested parties, USPTO Director Kathi Vidal has concluded in a decision following sua sponte interim review. The petitioner, OpenSky Industries, LLC, did not appear ready to actually litigate the issues of patentability and refused to participate in discovery. Instead, OpenSky solicited funds from the true parties on both sides to either proceed with or sabotage the proceeding. Sanctions, including preclusion of entering evidence or making an argument, were appropriate in the case. The case was remanded to the PTAB (OpenSky Industries, LLC v. VLSI Technology LLC, October 4, 2022, Vidal, K.).

VLSI Technology, LLC (VLSI) was the owner of U.S. Patent No. 7,725,759 B2 (the ’759 patent) and had recently obtained a jury verdict in excess of $2 billion for infringement against Intel. Intel had filed a petition for inter partes review (IPR) during the pendency of the litigation, but the Patent Trial and Appeal Board (PTAB) declined to institute review because the infringement suit would reach trial before the PTAB proceeding could be completed. After the jury verdict was announced, OpenSky Industries, LLC was formed and filed an IPR petition of its own against the ’759 patent, copying extensively from Intel’s petition and refiling the declarations of Intel’s expert without the expert’s knowledge. Finding that the previous trial had not in fact resolved the patentability questions raised, the Board instituted review on OpenSky’s petition. Intel filed its own new petition that was joined with the OpenSky petition. VLSI requested Precedential Opinion Panel review of the institution decision.

The USPTO Director instituted sua sponte review of the institution decision, prompting the Precedential Opinion Panel to dismiss its proceedings. The Director ordered all parties to respond to interrogatories and exchange certain information directed at the questions of first impression of what actions the Director and Board should take when addressing allegations of abuse of process or of conduct that thwarted the goals of the USPTO and the America Invents Act.

Discovery. The Director first addressed OpenSky’s discovery responses, which were found to be severely deficient. OpenSky failed to produce any of the internal communications requested or documents addressing its funding or purpose. Moreover, it failed to produce a privilege log so that any withheld documents could be reviewed in camera and properly protected. OpenSky merely filed objections, without authority or argument, asserting that the discovery requests were addressed at issues not in dispute or violated its members’ constitutional rights. The Director found that OpenSky’s objections were unfounded, and issues of undue burden or a need for more time ought to have been addressed by motion and not by mere refusal to comply. The Director held that OpenSky should not be allowed to profit from its refusal to participate in discovery. As a sanction, the Director found all disputed facts established against OpenSky.

Abuse of process. OpenSky, despite not being sued for infringement or having any business which could possibly render it liable for infringement, asserted that its petition was necessary to maintain the “integrity of the patent system.” The Director noted that this, in itself, was not a problem, as Congress had not imposed a standing requirement for IPR petitions. It did raise questions about OpenSky’s intent that were confirmed by OpenSky’s later conduct. OpenSky initiated settlement discussions with VLSI immediately after filing its petition, but then also contacted Intel, a party actually practicing the patented technology, to try to obtain payment from Intel for conducting the proceeding. After being rejected by Intel, OpenSky reached out to VLSI again and proposed a plan under which VLSI would make payments to OpenSky. In exchange OpenSky would refuse to pay its expert, sabotaging the IPR petition despite any efforts from Intel to carry on with its joined petition. OpenSky did not meaningfully participate in oral argument and simply filed a reply brief written by Intel. The Director held that this behavior of seeking payment from both sides and focusing on settlement without any apparent ability to litigate the case through a final judgment was compelling evidence that OpenSky’s intentions were about its own monetary gain and not to litigate the validity of the patent at issue. This was an abuse of process.

The Director ordered that the Intel be temporarily elevated to the active party in the IPR case in place of OpenSky, and remanded the matter to the PTAB for a determination of whether the record at the time of institution showed that a compelling, meritorious challenge to validity existed, and with instruction to dismiss the proceeding if it did not. OpenSky was further ordered 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.”

The Case is IPR 2021-01064.

Attorneys: Andrew T. Oliver and Vinay V. Joshi (Amin, Turocy & Watson LLP) for OpenSky Industries, LLC and Intel Corp. Babak Redjaian (Irell & Manella LLP) and Kenneth J. Weatherwax, Bridget Smith, Flavio Rose, Edward Hsieh, Parham Hendifar, Patrick Maloney and Jason C. Linger (Lowenstein & Weatherwax LLP) for VLSI Technology LLC.

Companies: OpenSky Industries, LLC; Intel Corp.; VLSI Technology LLC

Cases: Patent USPTO GCNNews