Cloudy Skies: PTO Director Finds Abuse and Sanctionable Conduct

By on October 13, 2022
Posted In Patents

The US Patent & Trademark Office (PTO) Director issued a precedential opinion finding that filing an inter partes review (IPR) solely to extract payment in a settlement—without the intent to prosecute the IPR to completion—is a sanctionable abuse of process. OpenSky Indus., LLC v. VLSI Tech. LLC, IPR2021-01064 (Oct. 4, 2022) (Vidal, Dir.)

In 2019, VLSI asserted two patents against Intel. In response, Intel filed two IPRs against the allegedly infringed patents, but both IPRs were discretionally denied by the Patent Trial & Appeal Board (Board) based on the advanced stage of the underlying litigation and overlapping issues. The suit proceeded, and a jury awarded VLSI more than $600 million in damages in 2021.

OpenSky Industries was founded two months after the judgment. OpenSky filed a “copycat” IPR petition based on Intel’s previous petitions (including refiling the declarations of Intel’s expert without his knowledge) targeting VLSI’s two allegedly infringed patents. The Board instituted over VLSI’s argument, noting that patentability issues were raised that had not been resolved in the district court case. Initially, OpenSky attempted to settle the IPRs with VLSI, but VLSI refused. OpenSky then reached out to Intel, offering to let Intel collaborate if it agreed to pay a success fee. Intel refused and later filed its own IPR petition and joinder motion. After Intel’s refusal, OpenSky pivoted back to VLSI, offering to “refuse[] to pay [the] expert for time at deposition so [the] expert does not appear at deposition” in return for payment. VLSI reported the scheme to the Board.

Intel was joined as a party to the OpenSky IPR proceeding in June 2022 based on its later-filed petition. Once Intel joined, OpenSky threatened to forego both deposing VLSI’s expert and filing its reply brief unless Intel paid it for its “prior work in the IPR” plus “additional remuneration.” Intel refused. While OpenSky did notice VLSI’s expert, it declined to file a Petitioner Reply brief, forcing Intel to draft the reply. Later, at VLSI’s request (OpenSky missed the request date), oral argument in the proceeding took place before the Board. OpenSky did not meaningfully participate.

While all this was unfolding, the Director sua sponte initiated an investigation to determine “[w]hat actions the Director . . . should take when faced with evidence of an abuse of process or conduct that otherwise thwarts . . . the goals of the Office and/or the AIA.” To begin the investigation, the Director sent discovery requests to each of the three parties. VLSI and Intel complied. OpenSky, by comparison, either incompletely complied with or directly refused each request. Based on those evasions, the Director sanctioned OpenSky for discovery misconduct, applying adverse inferences against OpenSky on each request.

Discovery sanctions in place, the Director moved to the central question: Did OpenSky abuse the IPR process? The Director answered yes.

First, the Director found that OpenSky’s conduct violated its duty of candor and good faith to the Board. In its negotiations with VLSI, OpenSky offered to deliberately sabotage its own petition to hinder Intel. In its negotiations with Intel, OpenSky did the reverse—it threatened to deliberately sabotage its own petition unless it was paid. As explained by the Director, “[i]nitiating a legal proceeding to deliberately sabotage for money . . . amounts to an abuse of process.”

Second, the Director reviewed six circumstances surrounding the case further supporting a finding of abuse:

  • OpenSky had no direct interest in the proceeding.
  • OpenSky filed the IPR—and in fact only came into existence—after a trial awarding substantial damages.
  • OpenSky sought compensation from both its co-petitioner and the respondent.
  • OpenSky substantially failed to prosecute the IPR on its merits.
  • OpenSky filed a copycat petition based on Intel’s prior submission.

The Director found that in combination, these facts evinced an abuse of the IPR process. According to the Director, OpenSky used the proceeding to extort money at the cost of the adversarial nature of the America Invents Act proceedings. Such conduct harmed “the IPR process, patent owners, the Office, and the public.”

The Director sanctioned OpenSky by barring it from participating in any further proceedings. The Director let Intel step in as an active party to the proceeding and remanded the case to the Board to review whether the petition presented a “compelling, meritorious” challenge to the challenged patents.

Practice Note: After the Director’s rulings, Board counsel for OpenSky sought to withdraw from ongoing representation in the IPR proceedings.

Alexander Piala, PhD
Alexander Piala, PhD, advises on a broad range of intellectual property matters, including patent litigation, patent prosecution and transaction due diligence. He has extensive experience in the biotechnology and pharmaceutical sectors. His scientific background spans organic chemistry, biochemistry and protein structure/function relationships. Read Alexander Piala's full bio.