USPTO Director Issues Sua Sponte Precedential Decision Addressing Abuse of IPR Process
In a precedential 52-page sua sponte decision, the United States Patent and Trademark Office (USPTO) Director Katherine Vidal addressed several issues of first impression relating to sanctionable misconduct in inter partes review proceedings. As set forth in more detail below, the Director ultimately determined that the petitioner had engaged in abuse of process. The Director banned the petitioner from any further participation in the proceeding, and allowed a joined petitioner to step into the role of lead petitioner. The Director then instructed the Patent Trial and Appeal Board to determine whether the IPR petition met the compelling-merits standard for institution, which is a higher standard than the reasonable likelihood standard typically required for IPR institution.
Background: Petitioner OpenSky Industries, LLC’s IPR petition challenged claims of a patent owned by VLSI Technology LLC. The petition was largely copied from portions of an IPR petition previously filed by Intel Corporation challenging the same patent claims. Intel had filed its IPR petition after being sued for patent infringement by VLSI. There, the board declined to institute IPR based on the progression of the ongoing litigation between Intel and VLSI, and the overlap between the issues in the litigation and the petition. Ultimately, the trial resulted in a $2 billion jury verdict against Intel. Shortly thereafter, OpenSky was formed and filed a “copycat” IPR petition. Unlike Intel, OpenSky had not been sued for patent infringement. Intel later joined the proceeding with OpenSky, but OpenSky’s conduct prompted Director review on questions relating to an abuse of process.
OpenSky’s Conduct: Sanctionable misconduct includes an “abuse of process” (see 37 CFR § 42.12(a)(6)). However, the regulations do not give any additional guidance as to what conduct rises to the level of an “abuse of process.” As such, the determination is highly case-specific and fact-based. Here, the Director found OpenSky’s conduct to be an abuse of process based on the following case-specific considerations: (1) petitioner’s interest in the IPR proceeding, (2) the recent trial damages verdict, (3) the proximity between the formation of petitioner’s business and the jury verdict, (4) petitioner’s attempts to obtain compensation from parties on both sides of the IPR dispute, (5) petitioner’s failure to meaningfully pursue the merits of the patentability challenge, and (6) petitioner’s filing of a “copycat” petition.
Board’s Analysis: Regarding the first consideration, the Director noted that it is not per se improper for a party to petition for IPR if that party is not a defendant in a patent infringement suit. But where a petitioner has not been sued for infringement, and is a non-practicing entity, there may be legitimate questions regarding whether that petition was filed for an improper purpose. Here, OpenSky’s actions were at odds with any proper interest, including an interest in preserving the integrity of the patent system. Tellingly, OpenSky failed to comply with the Director’s mandated discovery relevant to this factor. For instance, through interrogatories, the Director sought information pertaining to OpenSky’s business purpose, whether it believed it would be sued for patent infringement, and its policy reasons for filing an IPR petition. Rather than providing straightforward responses, OpenSky skirted around the call of the interrogatories, providing non-responsive answers.
With respect to the second and third considerations, the recent jury verdict against Intel was substantial, and there was a close proximity between that verdict and OpenSky’s formation as a business. OpenSky formed as an entity only seven weeks following the verdict against Intel, and OpenSky filed an IPR petition six weeks thereafter.
Regarding the fourth consideration, OpenSky sought compensation from both Intel and VLSI. While attempts at settlement are typical and often encouraged, it is unusual for one party to solicit compensation from both a joined petitioner and the patent owner. OpenSky’s actions underscored its goal to extract money from whatever party was willing to give it, and indicated that OpenSky’s interest was not for a legitimate purpose of challenging the patent.
Discussing the fifth consideration, the Director reiterated that OpenSky showed no interest in pursuing a patentability challenge on its merits. The Director pointed to OpenSky’s continued efforts at seeking payment from Intel, its failure to request oral argument, and its failure to meaningfully participate in oral hearing at all.
Lastly, OpenSky’s “copycat” petition further established that its conduct was an abuse of process. Using a “copycat” petition on its own is not per se improper, but taken in conjunction with the other factors and circumstances, that use pointed to an abuse of process. OpenSky’s filing not only copied Intel’s IPR petition, it also copied Intel’s expert declaration. OpenSky never notified the expert nor negotiated for his services, which indicated that OpenSky lacked control over a key witness that could jeopardize the entire case. This factor evidenced OpenSky’s goal of filing an IPR with the lowest possible cost in an effort to generate leverage to extract payment.
Based on the foregoing, the Director found that the sum total of OpenSky’s actions amounted to sanctionable abuse of process.
Resulting Sanctions: 35 U.S.C. § 316 gives the Director the authority to sanction parties, and determining the type of sanctions that should be imposed is a case-dependent, fact-intensive inquiry. Under 37 CFR § 42.12, there are a number of possible sanctions that the PTAB may impose. Those relevant to the present case and noted by the Director include: (1) an order holding facts to have been established in the proceeding, (2) an order expunging a party from filing a paper, and (3) an order providing for compensatory expenses, including attorney’s fees.
For its failure to comply with the Director’s discovery mandate and to prevent OpenSky from benefiting from its discovery misconduct, the Director determined that one appropriate sanction was an adverse inference holding disputed facts as established against OpenSky. Other sanctions levied against OpenSky included precluding OpenSky from participating in the underlying IPR proceeding, prohibiting OpenSky from filing further papers into the record or presenting evidence, and ordering OpenSky to show cause as to why it should not be ordered to pay compensatory damages. Due to OpenSky’s preclusion, Intel was elevated to the lead petitioner.
Finally, because the Director has an obligation to secure reliable patent rights and remove patents that do not support innovation, the Director declined to terminate the IPR proceeding outright. This IPR will continue only if the PTAB panel, on remand, determines that the unpatentability challenge meets the “compelling-merits” standard as of the time of institution and on the record that then-existed.
Practice Tip: The USPTO will not permit the use of PTAB proceedings to extort money from interested parties. Nor will the USPTO allow conduct that flagrantly disregards discovery mandates and orders. While there is no standing requirement for IPR, entities that have not been sued for infringement should proceed cautiously and think carefully about their motivations before filing a petition. Those entities should also be prepared (financially and otherwise) to fully litigate the proceeding, including retaining an expert. Conversely, patent owners faced with IPR petitions filed by uninterested parties should scrutinize thoroughly the petitioner’s motives. Petitioners found to have engaged in improper gamesmanship before the USPTO risk severe sanctions, including removal from the proceeding and the petition being held to a higher standard for institution.
Case: OpenSky Industries, LLC v. VLSI Technology LLC, IPR2021-01064, Paper 102 (PTAB Oct. 4, 2022)
The Patent Trial and Appeal Board granted a request for rehearing of a final written decision in which it had originally determined that the challenged were not unpatentable. On rehearing, the board found that petitioner’s reliance on applicant admitted prior art (AAPA) was proper because it was not the sole basis of any ground in the inter partes review proceeding.
Petitioner’s obviousness grounds in the IPR relied on one or more prior art references in combination with AAPA, which included admissions in the specification of the challenged patent about prior art photo voltaic systems. Relying on a Guidance Memo from the USPTO Director, a PTAB panel found that because the petition relied on AAPA, and therefore did not rely on patents and printed publications to teach all the limitations, petitioner had not shown that the challenged claims were unpatentable.
Petitioner filed a request for rehearing and argued that its use of AAPA was consistent with the Director’s Updated Guidance, which states that “[i]f an IPR petition relies on admissions in combination with reliance on one or more prior art patents or printed publications, those admissions do not form ‘the basis’ of the ground and must be considered by the Board in its patentability analysis.” In opposition, patent owner argued that petitioner’s use of AAPA in this proceeding was not proper because “it forms the basis of Petitioner’s arguments” and because “there is no evidence that the asserted AAPA was known in the prior art.” The PTAB panel sided with petitioner and in doing so explained that “AAPA is not the basis of this inter partes review proceeding” because the grounds “involve a combination of AAPA and prior art patents(s),” where the “AAPA is being properly used to supply the missing claim limitation.” In support of this finding, the PTAB panel stated that the Federal Circuit “has held ‘it is appropriate to rely on admissions in a patent’s specification when assessing whether that patent’s claims would have been obvious’ in an inter partes review proceeding” (quoting Qualcomm, Inc. v. Apple, Inc., 24 F.4th 1367, 1375 (Fed. Cir. 2022)). After considering petitioner’s AAPA, the PTAB panel determined that the challenged claims were unpatentable.
Notably, in finding the claims unpatentable, the PTAB disregarded patent owner’s argument that there was “no evidence that the asserted AAPA was generally known in the prior art or was within the knowledge of an ordinarily-skilled artisan at the time of the invention.” Petitioner challenged the board’s consideration of this argument because patent owner did not make this argument in either its Response or Sur-Reply. Instead, it waited until the hearing to “re-characterize its admissions” to say that the AAPA was only known to the applicant, and was not known to a person of ordinary skill in the art. Here, the PTAB agreed with petitioner and did not consider patent owner’s argument because “no new arguments” can be made at an oral hearing.
Practice Tip: Petitioners and patent owners in IPR proceedings should remain vigilant regarding the use of AAPA before the PTAB. AAPA can play a critical role in the ultimate determination by the board regarding the patentability of challenged claims. Under the PTAB’s current guidance, AAPA may be properly used in combination with prior art patents and publications in order to provide missing limitations. But AAPA cannot alone form the basis of any ground in an IPR.
Solaredge Tech. Ltd. v. SMA Solar Tech. AG, IPR2020-00021, Paper 31 (PTAB October 25, 2022).