In a director review decision issued on October 4, 2022, USPTO Director Kathi Vidal imposed crushing sanctions against IPR petitioner OpenSky Industries and its legal counsel for extensive discovery violations and extortion attempts as it challenged a VLSI Technology patent tied to a $675 million infringement verdict against Intel Corp.
Vidal’s precedential decision sets forth disturbing allegations that OpenSky abused the inter partes review process in the hopes of either extorting money from VLSI or Intel, or undermining the verdict, which was issued by a Texas federal jury in March 2021. Among the sanctions imposed, OpenSky and its counsel are barred from participating in further proceedings in the underlying IPR matter and disciplinary actions may be taken against legal counsel. In addition, OpenSky must show cause as to why it should not be ordered to pay compensatory damages to VLSI, including attorney fees, to compensate VLSI for its time and effort in the proceeding
The decision comes just weeks after Vidal submitted a letter to Senators Mazie Hirono and Thom Tillis providing an update on the use of sanctions by the PTAB against parties that abuse the Board’s procedural rules. According to the letter, the PTAB has imposed sanctions for such abuses 31 times over the last decade.
The allegations in Vidal’s decision demonstrate a pattern of remarkable misconduct:
On April 29, 2019, VSLI filed a patent infringement suit against Intel in the Waco Division of the U.S. District Court for the Western District of Texas. Intel filed a petition for IPR review of the asserted patent, but the PTAB, using its discretionary authority, declined to institute suit due to the (apparent) advanced stage of the parallel litigation. Ultimately, the litigation proceed to trial and a jury found infringement and awarded VSLI $675 million in damages with respect to the patent at issue (the full verdict was more than $2.2 billion as other patents were at issue in the litigation). Thereafter, on June 15, 2022, Intel sought an appeal, currently pending.
On June 7, 2021, OpenSky – formed only seven weeks after the jury verdict against Intel – filed a petition seeking IPR review of VSLI’s patent (the “Petition”). The Petition was a copy and paste effort of Intel’s prior petition and further used the declaration of Intel’s expert in support of its petition, without the consent or knowledge of Intel. Notably, OpenSky, a non-practicing entity and shell company, was formed immediately after the jury verdict against Intel for the sole purpose of filing the IPR. The PTAB granted the Petition and instituted suit and immediately thereafter Intel jointed the proceedings.
The record shows that OpenSky failed to meaningfully participate in the proceedings, instead merely playing “settlement” positions against both VSLI and Intel in an attempt to extort money from those parties. VSLI and Intel refused to take the bait.
A day after Intel joined the suit, Vidal, acting sua sponte, ordered a review of the Board’s decision to institute suit. As part of her order, Vidal demanded the parties to answer specific questions and provide mandatory discovery related to OpenSky’s conduct and its prior communications with Intel and VSLI. Intel and VSLI appropriately responded to Vidal’s order within the scheduled milestones, while OpenSky refused, instead challenging Vidal as to her authority to seek the ordered information and discovery, despite the fact that Vidal’s order specifically states that failure to comply with its terms may result in sanctions. Indeed, OpenSky countered that Vidal’s order was “harassment” of its rights.
Vidal would have none of OpenSky’s subterfuge of the IPR process or her authority, noting in support of her decision to impose sanctions:
Initiating a legal proceeding to deliberately sabotage for money, including offering to violate the duties of candor and good faith owed to the Board, amounts to an abuse of process . . . Indeed, based on the record and adverse inferences, I find that the sole reason OpenSky filed the Petition was for the improper purpose of extracting money from either or both Intel and VLSI . . . Notably, despite being given the opportunity, OpenSky has not provided adequate evidence that it had another purpose for filing this IPR. [Slip Opinion at 32, 37 and 38].
. . . .
What is unusual, however, is a petitioner seeking compensation from both the patent owner and another petitioner in exchange for advocacy against whichever party does not pay. The problem with this behavior should be immediately apparent. For the purposes of the present analysis, however, such double-dealing suggests that a petition was filed purely to extract rents, in either direction, rather than for legitimate purposes. [Slip Opinion at 40 (emphasis original)].
. . . .
Viewed as a whole, OpenSky’s conduct has been an abuse of the IPR process, the patent system, and the Office. The totality of OpenSky’s conduct evinces a singular focus on using an AIA proceeding to extort money, from any party willing to pay, and at the expense of the adversarial nature of AIA proceedings. Despite being given the opportunity, OpenSky failed to offer a verifiable, legitimate basis for filing its IPR Petition, which was filed only after a district court awarded large monetary damages keyed to the subject ’759 patent. And the Petition it filed was not generated by OpenSky, but was a copy of Intel’s earlier petition, filed without engaging Intel’s expert or confirming his opinions or willingness to participate. Further, after filing the Petition, OpenSky did not conduct itself in a manner consistent with the AIA’s purpose of exploring patentability issues. OpenSky’s post-institution activity was dominated by attempts to extract money from either Intel or VLSI instead of engaging with the patentability merits.
Seeking an AIA trial for the primary purpose of extorting money, while being willing to forego or sabotage the adversarial process, does not comport with the purpose and legitimate goals of the AIA and is an abuse of process. [Slip Opinion at 43-44].
The IPR rules specifically provide for the use of sanctions by the Board for abuses of the IPR process. Director Vidal has unequivocally demonstrated she will not hesitate to impose serious sanctions for egregious conduct. We should likewise assume PTAB panels will follow suit. For decades, district courts across the country have dealt with NPE (troll) litigation and the abuse of our judicial system by such parties to extort money from alleged infringers. Rule 11 has provided an effective measure to counter such tactics, particularly when applied directly against legal counsel. The OpenSky case should serve as a warning shot to legal counsel to avoid representing parties similarly seeking to game the IPR process as a “get rich quick” scheme.
The patent-in-suit is U.S. Patent No. 7,725,759.
The case is OpenSky Industries LLC et al. v. VLSI Technology LLC, case number IPR2021-01064, before the Patent Trial and Appeal Board.
