In the wake of her October 4, 2022 Precedential OpenSky decision, the United States Patent and Trademark Office Director Katherine Vidal issued another precedential decision further clarifying the actions that should be considered when addressing allegations of abuse of process or conduct that otherwise thwarts the goals of the Office.

In district court litigation between Intel Corporation and VLSI Technology, LLC, a jury returned a verdict of $1.5 billion in early 2021 for infringement of the challenged patent in this proceeding. Shortly after the jury verdict, two entities—OpenSky Industries, LLC and Patent Quality Assurance—were formed. OpenSky filed two inter partes review (IPR) petitions challenging two different patents. OpenSky’s IPR petitions extensively copied Intel’s previous IPR petitions—which were denied due in part to the then co-pending litigation—and expert reports. Subsequently, PQA filed an IPR petition against one of those patents, which also largely copied Intel’s IPR petition and expert report. In its petition, PQA argued against discretionary denial because it had “exclusively” engaged Intel’s experts to challenge the patent-at-issue. Based partly on this representation, the Board denied OpenSky’s IPR petition challenging that patent, and instituted PQA’s IPR petition. Upon institution, Intel filed a motion for joinder with PQA’s proceeding, which the Board granted. The Director then ordered sua sponte review of the Board’s institution decision.

The Director took up this proceeding to address abuse of process issues, similar to those she addressed in OpenSky. But the Director highlighted some key differences. For example, in its petition, PQA represented that it had “exclusively engaged” both experts that Intel had engaged in its IPR petition. Based on this representation, the Board denied institution of OpenSky’s petition, since this arrangement meant that OpenSky could not present either expert for cross-examination in that proceeding. PQA later qualified this statement, indicating the exclusive agreement with the experts could be waived upon request. The Director noted that there was no evidence explaining why the retained experts were prohibited from working with other parties. From this, the Director inferred that PQA’s misrepresentation was in order to benefit monetarily from its petition by ensuring that OpenSky’s petition was denied and PQA’s petition was instituted.

The Director reiterated that when a petitioner has not been sued by the patent owner and is a non-practicing entity, there may be legitimate questions regarding whether the petitioner filed the petition for an improper purpose. A concern in these situations is that petitioners may file IPR petitions in order to obtain a cash settlement. This concern is amplified by the $1.5 billion jury verdict in favor of the patent owner. PQA was given the opportunity to present evidence that it had another purpose for filing its IPR petition, but it failed to do so. The Director found that the sole reason PQA filed its IPR petition was for the improper purpose of extracting money from VLSI. As a result, the Director dismissed PQA from the proceeding and made Intel the lead petitioner. Unlike in the OpenSky IPR—where the Director remanded for a determination of whether the petition met the compelling merits standard set forth in the June 21, 2022 Director’s memorandum—here, the Director herself found the compelling merits standard satisfied and allowed the IPR to proceed to a final written decision.

Practice Tip: The Director has made clear that the Patent Office will not allow parties to use the IPR process for an improper purpose, such as to extort a cash settlement. Where a party abuses the IPR process, the Patent Office may impose sanctions, including removal of that party from the proceeding. If a petitioner has not, or cannot, be sued by the patent owner, the petitioner may wish to include in its petition a legitimate explanation as to why it filed the petition. A patent owner challenging whether the IPR was filed for a proper purpose should also consider articulating why the petition also fails to meet the compelling merits standard.

Patent Quality Assurance, LLC, v. VLSI Technology LLC, IPR2021-01229, Paper 102 (Dec. 22, 2022) (precedential).