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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
The content of this article is intended to provide a general
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