Last month, in OpenSky Industries v. VLSI Technology LLC, IPR2021-01064 (Oct. 4, 2022), the Director of the Patent Trial and Appeal Board (PTAB) issued a precedential decision regarding abuse of process.

The decision from the Director held that Petitioner OpenSky had abused the IPR process by (1) filing an IPR in an attempt to extract payment from both Patent Owner VLSI and joined Petitioner Intel, and (2) offering to undermine the proceeding in exchange for a monetary payment from VLSI.

The Director has the authority to impose sanctions against a party for misconduct. 35 U.S.C. § 316(a); 37 C.F.R. § 42.12(a).  The determination of whether sanctions are appropriate “is a highly fact-specific question and the relevant considerations will vary from case to case.”

In this instance, the Director analyzed the totality of OpenSky’s conduct to find that it “evince[d] 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.”  Specifically, the Director listed six factors supporting its conclusion. Those factors were: (1)OpenSky’s interest in the proceeding, (2) the recent trial verdict against Intel awarding VLSI significant damages, (3) the proximity of OpenSky’s formation to jury award, (4) OpenSky’s attempt to seek compensation from both parties, (5) Opensky’s failure to meaningfully pursue merits, and (6) OpenSky’s filing of a copycat petition.

OpenSky was a non-practicing entity that was unable to point to any potential threat of being sued for patent infringement of the patent-at-issue. While there is not a standing requirement for a Petition in an IPR proceeding, the Director emphasized that questions regarding the Petitioner’s motivation arise when the Petitioner is not under a threat of being sued and is a non-practicing entity.  The Director was ultimately unconvinced (given OpenSky’s conduct) that it had filed its petitions in order to (as it claimed) maintain the integrity of the patent system.

OpenSky was formed after a recent trial verdict against Intel in a U.S. district court. The verdict involved two patents asserted by VLSI, each of which was challenged by IPR petitions filed by OpenSky (including the present petition). Further, OpenSky had no other known business activity other than filing its two petitions against VLSI.

After filing its petition, OpenSky undertook negotiations that sharply differed from “conventional settlement negotiations that take place in an adversarial proceeding.” OpenSky sought payment from both VLSI and Intel. More troubling, though, was that OpenSky, through its counsel, was willing to offer its advocacy to either side depending on who was willing to pay. The Director was particularly troubled by OpenSky counsel’s proposal to VLSI to intentionally undermine the proceeding, stating that OpenSky “violate[d] the duty of good faith and candor to the Board.”

Further, once Intel and VLSI refused OpenSky’s settlement offers, OpenSky further sought payment from Intel by claiming to lack the funds to further pursue the matter. The Director concluded, “OpenSky’s behavior and complaints about budgeting establish that it did not intend to pursue the patentability merits but instead intended to leverage the IPR’s existence only to extract payout from one side or the other.”

Additionally, OpenSky failed to actively pursue the merits of its petition. For example, OpenSky filed a reply brief that Intel had drafted and relied on Intel’s deposition outline. Moreover, OpenSky did not request oral argument and did not meaningful participate in the oral hearing.

Lastly, OpenSky’s petition directly copied an earlier petition filed by Intel against VLSI that was denied institution under the Fintiv factors. The Director emphasized that while filing a “copycat” petition is not always improper, under certain circumstances it can indicate an abuse of process. In this instance, OpenSky (in addition to copying Intel’s petitions) filed a copy of Intel’s expert declaration without notifying the expert or seeking to have the expert to testify.

Thus, the Director concluded that OpenSky sought to abuse the IPR process in order to extract payment. As part of the sanctions imposed by the Director, OpenSky is precluded from actively participating in the IPR. Further, OpenSky must show cause as to why it should not be ordered to pay compensatory damages to VLSI. Intel was temporarily elevated to the active party in the IPR. Additionally, the Board was instructed to issue an order within two weeks determining  whether the petition, based only on the record before the Board prior to institution, presents a compelling, meritorious challenge.