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OpenSky ‘Abuse’ Sanctions Add New Weapons in Patent Challenges

Oct. 6, 2022, 9:05 AM

A landmark sanctions decision from the US Patent and Trademark Office director in a high-profile patent review gives the agency and attorneys new avenues to combat abuse of its procedures, even as it leaves open questions about whether the precedent does enough to discourage future patent challengers from seeking a “windfall.”

Director Kathi Vidal’s Oct. 4 decision—which found that OpenSky Industries LLC abused the “inter partes review” process in a challenge against a VLSI Technology LLC patent—was the first time a PTO director levied sanctions in a patent review.

Though the case deals with egregious facts that aren’t likely to apply in other cases, attorneys told Bloomberg Law the decision could open the door to more scrutiny of petitioners’ reasons for bringing challenges and the ability of a flawed IPR challenge to continue under a new petitioner.

“There will be a lot of arguments that IPRs down the road are improper, and attorneys will try to analogize to this case,” said Alison Aubry Richards, a partner in the Global IP Law Group LLC. “The question is, how successful will that be?”

Potential Windfall for Intel

Vidal found that OpenSky abused the Patent Trial and Appeal Board process in an attempt to extract money from both VLSI and Intel following a $2.18 billion patent-infringement verdict that VLSI won in March 2021. She said there’s evidence that OpenSky tried to get both VLSI and Intel—which had joined the challenge—to pay it in exchange for cooperation in the patent review process.

As a sanction for that conduct, Vidal booted OpenSky from the proceeding and temporarily elevated Intel as the lead petitioner, ordering the PTAB to revisit its initial decision to accept the review petition and analyze it through the lens of a higher standard for institution.

This effectively is “moving them to an understudy role and letting Intel take the lead,” said Joshua Landau, patent counsel at the Computer & Communications Industry Association. The PTAB must now consider the “compelling merits” of the petition in deciding whether it’s likely that VLSI’s patent is invalid and should be examined more closely.

Given how far the original patent trial progressed, it seems likely that the board will reach the same decision, said Jon Wright, co-chair of Sterne, Kessler, Goldstein & Fox PLLC’s PTO litigation practice.

“The remand does put out the possibility that the IPR goes away, which of course, that’s what VLSI ultimately is after,” he said. “But it’s tough to see how the panel is going to reach a different conclusion.”

Some practitioners question whether the remand was a wise move, as it could give Intel a second chance to lead a review that Vidal already decided is flawed.

Intel previously challenged two VLSI patents, but the PTAB declined to review their validity given the ongoing district court litigation that eventually resulted in the verdict against Intel. The company then filed a post-trial invalidity challenge at the board and also asked to join OpenSky’s challenge, which the PTAB granted a day after Vidal decided to personally review the matter.

The decision is hard to square with the conclusion that OpenSky abused the PTAB process that launched the petition, said Wendy Verlander, managing partner at IP firm Verlander LLP.

“In tax, it’s called ‘fruit of the poisonous tree.’ I think something like that should apply here. Why should Intel benefit from this fraudulent petition?” she said.

Considering Standing

The complications stemming from Vidal’s OpenSky decision are the latest examples of the difficulties posed by the lack of any standing requirement to challenge patents at the PTAB. In federal court, parties typically have to prove that they have a legitimate connection to an issue and stand to be harmed by an adverse outcome, but no such rule exists for the administrative board.

In her decision, Vidal affirmed that “there is nothing per se improper about a petitioner who is not a patent infringement defendant filing an IPR petition.” She noted that some parties may choose to file petitions preemptively, believing that they’re soon to be the target of district court infringement litigation or hoping to clear barriers to a new technology product.

While nothing prevented OpenSky from filing its challenge with the board, “it’s their behavior once they were in the IPR” that caused concern, Landau said.

Still, OpenSky’s faulty petition could cause the PTAB to shine a spotlight on the potential motivations behind IPR petitions and resurface debate over whether petitioners should be required to clear a statutory hurdle to bring IPR challenges.

“It begs the question: why isn’t there a standing requirement? Essentially anyone can file a petition,” Verlander said. “I suppose this situation should make us think, does that make sense?”

For Vidal, one indicator of gamesmanship was that OpenSky offered “to undermine and/or not vigorously pursue this matter in exchange for a monetary payment,” seemingly losing interest in prosecuting the patent validity claims after it became clear that Intel and VLSI weren’t interested in cutting a deal.

According to Richards, “one weird side effect” of this conclusion might be that petitioners become wary of settling amid PTAB reviews and instead litigate challenges more aggressively than they otherwise would, so that they aren’t accused of halfheartedly pursuing their case.

While Vidal pointed to the flagrant facts specific to this case—OpenSky seemingly formed in the wake of the verdict to capitalize on it, copied invalidity arguments from an earlier Intel petition, and sought money from both parties—her analysis could lay out a template that a PTAB panel or patent owner turns to in the future to allege abuse of process, said Tim McAnulty, an IP partner at Finnegan, Henderson, Farabow, Garrett & Dunner LLP.

“That part wasn’t characterized as a test going forward per se, but we might see it become one,” he said.

A Warning for Attorneys?

The decision spells out examples of OpenSky’s bad behavior at the board, painting clear outer boundaries of acceptable conduct, attorneys say. For example, Vidal dinged OpenSky for repeatedly ignoring discovery requests, choosing to “apply a negative inference and hold facts to have been established adverse to OpenSky.”

Even if most attorneys aren’t engaged in that level of bad faith, Vidal’s move might open the door to an upswing in requests for PTAB discovery sanctions as parties try to liken their own disputes to the OpenSky case and obtain negative inferences against their opponent, Landau said.

Based on the discovery omissions, Vidal also suggested that OpenSky’s attorneys be referred to their respective bar associations for potential discipline and recommended that OpenSky might have to pay VLSI fees to compensate them for the extra work the petition generated—which would be the first levy of PTO monetary sanctions in an IPR.

Even still, some say the decision doesn’t go far enough.

“You’re not going to get a more egregious example of misconduct, and the board is sort of walking on eggshells, for some reason, on making an example out of these people, which to me, just encourages what’s been going on at the PTAB for a while now, which is ‘go ahead and break the rules,’” said Scott McKeown, a Ropes & Gray LLP partner who chairs the firm’s PTAB group.

According to McKeown, the director’s decision won’t dissuade bad actors when there are “potentially hundreds of millions of dollars at stake.”

“It’s not firm enough,” he said. “It took too long, and at the end of the day, it simply concluded what we all knew from the beginning.”

To contact the reporters on this story: Kelcee Griffis in Washington at kgriffis@bloombergindustry.com; Riddhi Setty in Washington at rsetty@bloombergindustry.com

To contact the editors responsible for this story: Adam M. Taylor at ataylor@bloombergindustry.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com