USPTO Director Kathi Vidal ended 2022 by doubling down on an earlier sanctions ruling that targeted alleged gamesmanship before the Patent Trial and Appeal Board (PTAB). After an October ruling that demoted third-party inter partes review (IPR) petitioner OpenSky Industries to a silent understudy role for its abuse of the IPR process—in part, by making a set of unusual financial offers designed to "extract rents" from VLSI and joined copetitioner Intel, and falling short of required discovery—Vidal has now dismissed the petitioner entirely. The director has also imposed the same sanctions against another third-party challenger, Patent Quality Assurance (PQA), dismissing it for similar rent-seeking behavior and discovery misconduct as well as "misrepresentations" related to its relationship with a key witness.
The underlying dispute arose in IPRs filed by OpenSky and PQA against VLSI Technology LLC in the wake of jury verdicts in VLSI's litigation against Intel. This past spring, after the PTAB had already instituted trial in both actions, VLSI disclosed that OpenSky had offered to sabotage its own IPRs in exchange for payment, prompting widespread outcry and leading Vidal to initiate director review sua sponte (i.e., on her own initiative) in those proceedings. It soon came to light that OpenSky had also sought payments, and even an acquisition offer, from joined copetitioner Intel. Vidal issued a sweeping sanctions order against OpenSky in October, finding that it abused the IPR process through this behavior and by failing to comply with discovery ordered during the director review. However, Vidal stopped short of dismissing OpenSky altogether, holding instead that it could only serve as a silent understudy, with Intel as lead petitioner for further proceedings on remand.
Additionally, the director ordered the PTAB to consider whether the petitions still warranted institution under the "compelling merits" standard as of the original date of institution. After the Board determined that they did meet that heightened standard, Vidal initiated director review of that ruling, explaining that she "feels duty-bound to conduct an independent Director review of the compelling merits determination based on the unusual and complex nature of this case". Vidal cautioned that the decision to conduct a second Director review should not be read to "reflect any analysis . . . regarding the Board's decision or its ultimate conclusion", explaining that she has "full faith in the abilities and integrity of the Administrative Patent Judges". The proceeding was stayed to await its outcome.
Vidal's two follow-on sanctions orders, both issued on December 22, went even further. In her order against OpenSky, Vidal noted that she had now had the benefit of "additional time to consider this case" alongside PQA's, this time determining after a brief analysis that "the best course of action is to dismiss OpenSky from its IPR to ensure that OpenSky does not benefit from its abuse of the IPR process".
Turning from OpenSky to VLSI, Vidal then rejected the patent owner's counterarguments on the compelling merits standard, and "admonish[ed]" it "for supporting [its] arguments with misleading statements of law and fact in contravention of [its] obligations" of candor toward the tribunal (noting that this was not the first time it had done so). As a result, she ordered VLSI to show cause why it should not be ordered to pay Intel its attorney fees for responding to its rehearing request—observing that while the amount might not be significant, Vidal wants to "make clear to the parties and the public that we will hold attorneys and parties accountable for the ethical obligations they owe to the Board". Vidal then affirmed the PTAB's compelling merits determination, along the way detailing VLSI's various misrepresentations on this issue.
Meanwhile, Vidal's order against PQA (filed publicly with certain details redacted) found for the first time that the petitioner had committed sanctionable conduct in its IPR, in part by failing to comply with mandated discovery. In particular, she found that PQA "produced a minimal number of documents to the other parties and provided wholly inadequate answers to my interrogatories". Not only was PQA non-responsive to those interrogatories, it "was evasive in its responses and engaged in troublesome conduct" by raising baseless objections to the director's power to issue the discovery order, and by failing to provide relevant documents or a privilege log detailing those documents.
Additionally, Vidal held that PQA had abused the IPR process by misrepresenting that its engagement with a key expert, Adit Singh, had been exclusive, as a result of which OpenSky was unable to separately retain Singh for crucial testimony—which at that point had led the Board to deny its petition. Not only did the supposed exclusivity arrangement actually allow Singh to be engaged by another party with PQA's consent, Vidal found, "the very fact that PQA entered into that arrangement shows its intent to ensure that PQA, not OpenSky, would benefit monetarily from any arrangement with VLSI or Intel". Vidal further held that PQA had separately committed abuse of process "by filing this IPR, and threatening to file another IPR petition seeking to join a related, instituted IPR by OpenSky, in an attempt to extract payment from VLSI". While observing that PQA's "behavior here may not be as egregious as OpenSky's misconduct", Vidal concluded that it still "amounts to an abuse of process" (making all inferences adversely to PQA as a result of its discovery malfeasance).
Similar to her October sanctions order against VLSI, Vidal acknowledged that there is no standing requirement to file an IPR but argued that there are "legitimate questions" raised by the posture of the petitioner in light of surrounding circumstances—specifically, when a petitioner files an IPR on the heels of a large verdict, and when it does so very soon after such a verdict as PQA had done. Vidal then concluded by upholding the Board's compelling merits determination on remand.
More broadly, one of the most closely watched aspects of Vidal's first eight months as USPTO director has been her use of her post-Arthrex director review authority. Vidal has triggered such reviews sua sponte to implement reforms and issue policy clarifications in response to stakeholder criticisms, and her use of that power in the OpenSky and PQA IPRs has arguably been the most dramatic example so far.
As director review comes to play an increasingly prominent role in USPTO policy, Vidal has suggested that the program will likely further evolve, both in terms of its structure and the role she will play in it. In an interview with Stanford University held the same day that she issued the above sanctions orders, Vidal cited the necessary but significant time commitment required for director reviews, and stated that to ensure the program's long-term sustainability, certain director reviews that serve more of an error correction function (e.g., to address a panel's misapplication of law), as opposed to matters of greater importance, may in the future be handled by a "different panel". Such a system would "almost flip[] the model of director review and the Precedential Opinion Panel", the latter of which—in its current form, at least—is tasked with deciding issues of "exceptional importance" to the PTAB and is comprised of the USPTO Director, the Commissioner for Patents, and the PTAB's Chief Administrative Patent Judge.
However, Vidal seemed to indicate that her use of sua sponte reviews would continue, stating that the practice has helped her "speed things up so when we identify an issue that we think needs to be taken up" without waiting for a party to request that she do so.
For more on the PTAB, Director Vidal, and notable reforms this past year, see RPX's report on the fourth quarter and 2022.
Originally published on December 31, 2022
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