Director Vidal Issues Two Director Review Decisions in Cases Involving IPR Abuse and also Provides Guidance to Parties on a Compelling Merits Determination

On December 22, 2022, Director Vidal issued two Director review decisions, both in cases involving abuse of the IPR process. The first decision in Patent Quality Assurance (PQA) v. VLSI has been designated precedential and, importantly, provides guidance on the Patent Trial and Appeal Board’s “compelling merits” determination with respect to whether the Board may discretionarily deny institution of an IPR or PGR under Fintiv. Some background information regarding Director Vidal’s approach to Fintiv can be found in our earlier April 22 and June 23 posts.  The second decision provides the latest update in the OpenSky v. VLSI saga.

Patent Quality Assurance, LLC v. VLSI Technology LLC, IPR2021-01229, Paper 102 (Dec. 22, 2022) (precedential)

As a bit of background, the patent at the center of this dispute was asserted against Intel by VLSI and VLSI obtained a $1.5 billion damages verdict for infringement of the patent at issue. Intel had previously filed a petition for IPR challenging the asserted patent, but the Board exercised its discretion to deny institution citing Fintiv.  Months after the jury award in the underlying VLSI v. Intel litigation, PQA, a newly formed corporate entity without any apparent interest in the validity of VLSI’s patent, filed a copy-cat IPR borrowing extensively from Intel’s earlier petition and supporting expert declaration. This proceeding was instituted in January 2022 and VLSI subsequently filed a rehearing request and a request for Precedential Opinion Panel Review. In June 2022, Intel was joined as a Petitioner to PQA’s case and, a day later, Director Vidal initiated Director review of the Board’s institution decision to determine if PQA had abused the IPR process by filing an IPR for no other purpose than to seek a monetary settlement in exchange for dropping its IPR challenge. 

As part of the Director review process, Director Vidal ordered the parties to participate in mandated discovery. PQA, however, did not meaningfully comply and, as a result, a negative inference was applied against PQA with respect to PQA’s nefarious motives for challenging VLSI’s patent. Based at least in part on this negative interference and the circumstances surrounding PQA’s IPR filing (i.e., filing the IPR and threatening to join a related IPR in an attempt to extract payment from VLSI) Director Vidal determined that PQA, through its counsel, abused the IPR process. As to sanctions, and to deter such conduct by PQA and others in the future, Director Vidal dismissed PQA from the proceeding but retained jurisdiction over the matter to determine whether monetary compensation (including attorney fees) is owed to VLSI.

This did not end the merit’s portion of the IPR, however, because Intel was previously joined as a petitioner and elevated to “first chair.” As a result, Director Vidal had to determine whether the case should proceed and she did so by asking if, based only on the record before the Board prior to institution, PQA/Intel’s IPR petition presented a compelling, meritorious challenge. Director Vidal reiterated that “compelling, meritorious challenges are those in which the evidence, if unrebutted at trial, would plainly lead to a conclusion that one or more claims are unpatentable by a preponderance of the evidence.” “A compelling merits challenge is a higher standard than the reasonable likelihood required for the institution of an IPR under 35 U.S.C. § 314(a).” 

In assessing the compelling merits of PQA’s petition, Director Vidal noted that she would only analyze the evidence and the parties’ arguments as they existed at the date of institution. PQA’s petition relied on three obviousness grounds in view of one primary reference and additional secondary references. Director Vidal first noted that VLSI’s preliminary response misapprehended one of the teachings of the primary reference. Director Vidal also noted that VLSI’s general assertion that the primary reference did not teach what PQA asserted it taught, did little to support its position, as VLSI failed to specifically link the primary reference’s disputed teaching to any identified claim limitations. Second, Director Vidal noted that although VLSI’s preliminary response took issue with the compatibility of two of the references, its arguments focusing on compatibility focused on a particular teaching in the secondary reference not relied upon, or needed, by PQA’s combination.  Similarly, Director Vidal noted that VLSI’s preliminary response did not adequately address the rationales proffered by PQA to support its combination. Accordingly, Director Vidal found that because VLSI’s preliminary response misapprehended one of the primary teachings of the primary reference and because it failed to address/contest PQA’s proffered rationales for combining references, the record, at the time of institution, presented compelling merits. Director Vidal thus lifted the stay in the underlying proceeding, which will now proceed to a final written decision.

OpenSky Industries LLC v. VLSI Technology LLC, IPR2021-01064, Paper 121 (Dec. 22, 2022)

Similar to PQA v. VLSI, OpenSky also filed a copy-cat IPR petition challenging the validity of VLSI’s patent. On October 4, 2022, Director Vidal issued a Director review decision determining that OpenSky abused the IPR process by filing a petition in an attempt to extract payment from either VLSI or joined petitioner Intel. The October decision sanctioned OpenSky by precluding OpenSky from actively participating in the underlying proceeding (but not yet dismissing OpenSky from the proceeding) and elevated Intel to the role of lead petitioner.

In today’s Director review decision, Director Vidal addressed a number of outstanding issues, each of which will be addressed in turn.

First, Direct Vidal dismissed OpenSky from the proceeding, again subject to the Director, Board, and USPTO retaining jurisdiction over the determination/issuance of monetary sanctions against OpenSky. Second, and in a somewhat surprising turn of events, Director Vidal ordered VLSI to show cause as to why it should not be ordered to pay Intel the reasonably attorney fees Intel incurred responding to VLSI’s rehearing request of the Board’s remand decision finding compelling merits to warrant institution. Director Vidal noted that VLSI’s rehearing request (1) ignored factual issues identified by the Institution Decision, (2) relied on inadmissible hearsay, and (3) supported their arguments with misleading statements of law or fact in contravention of their obligations under 37 C.F.R. § 11.303 (Candor Toward the Tribunal). With respect to VLSI’s misleading statement of law, Director Vidal pointed to VLSI’s repeated misrepresentation of Federal Circuit precedent in both its preliminary response and rehearing request, with VLSI stating in both instances that “the Federal Circuit and the Board have . . .[found] nexus based upon [a] jury verdict of infringement;” however, Director Vidal notes that “[n]one of the Federal Circuit decisions VLSI cites hold as much.” Director Vidal explained that while the amount of these fees may not be significant, she wants “to make clear to the parties and the public that [the USPTO] will hold attorneys and parties accountable for the ethical obligations they owe to the Board.”  Third, Director Vidal affirmed the Board’s finding of compelling merits based on the record before the Board prior to institution.

Conclusion 

These two decisions, taken together, provide a few key takeaways. First, Director Vidal views the PTAB’s mandate to review patents of interest to the public—for example, those embroiled in district court litigation campaigns—very seriously.  And even if it is only through the shenanigans of a few bad actors that the Board can vet the validity of such patent(s), the Office will nonetheless move forward in the public’s interest.  Second, and while we suspect that Director Vidal may be sympathetic to VLSI’s frustration over these patent challenges moving forward only following clear extortion attempts, she has also made it clear that this does not give the aggrieved party license to take liberty with the Board’s rules.  And finally, we wait to see if the Office will significantly deter such abusive practices in the future by issuing monetary sanctions (or another form of sanctions with some teeth) against OpenSky and PQA.