Patent Quality Assurance, LLC v. VLSI Technology LLC

When a petitioner has engaged in conduct that is an abuse of process under 37 C.F.R. § 42.12(a)(6), such as filing an IPR for the purpose of extracting payment, or has committed other sanctionable misconduct, the Director (and by delegation the Board) may sanction the petitioner, including by dismissing it from the proceeding, holding facts established against it, and ordering a show-cause on compensatory expenses. The Director may also decide whether the IPR continues by assessing, on the record before the Board at institution, whether the petition presents a compelling, meritorious challenge. A compelling challenge is one where the evidence, if unrebutted at trial, would plainly lead to a conclusion that one or more claims are unpatentable by a preponderance of the evidence. That is a higher standard than the reasonable likelihood required by 35 U.S.C. § 314(a). The decision says the questions were ones of first impression, and the text shows no prior precedent addressing what conduct amounts to an abuse of process in an IPR. It distinguishes earlier Board matters in which a profit motive was arguably present but no other improper conduct was shown, citing Coalition for Affordable Drugs VI, LLC v. Celgene Corp., IPR2015-01092, Paper 19. For petitioners, especially non-practicing entities formed shortly after a large verdict, it shows that formation timing, lack of infringement exposure, misleading statements about experts, and copycat petitions can together support sanctions and dismissal. A petitioner that stonewalls Director-ordered discovery risks adverse inferences and facts held established. For patent owners, the decision offers a route to sanctions, possible fee-shifting, and a way to end abusive challenges, though a meritorious petition can still proceed through a remaining or joined petitioner. The Board relied on Voip-Pal.com, 976 F.3d at 1323, for its authority to impose sanctions beyond those listed in the regulation, on Regeneron Pharms., Inc. v. Merus N.V., 864 F.3d 1343, 1363, for adverse inferences, and on Cuozzo Speed Techs., LLC v. Lee, 579 U.S. 261, for the absence of a standing requirement. LEGAL TEST OR STANDARD: Sanctions are fact-specific. Prior sanction contexts considered (1) whether the party has performed conduct warranting sanctions; (2) whether that conduct has caused harm (to, for example, another party, the proceedings, or the USPTO); and (3) whether the potential sanctions are proportionate to the harm. Abuse of process is a fact-based inquiry judged on the totality of the evidence, including the circumstances of the petition's filing. Case-specific considerations were the petitioner's interest in the proceeding, a recent trial verdict awarding significant damages, the proximity of the petitioner's formation to the jury award, misleading arguments or misrepresentations of fact, and the filing of a copycat petition. Whether the IPR continues turns on compelling merits: evidence that, if unrebutted at trial, would plainly lead to unpatentability by a preponderance, meaning it is highly likely the petitioner would prevail on at least one claim. TRIGGERING FACTS: The petitioner PQA was not sued and would not say whether it could be sued. It was formed 15 weeks after a $1.5 billion jury verdict and filed its petition three weeks after formation. It copied Intel's earlier petition and expert declaration. It stated in its petition that it had exclusively engaged an expert relied on by another petitioner, OpenSky, and later qualified that statement as waivable. That statement led the Board to deny OpenSky's petition. It also did not comply with the Director's mandated discovery and interrogatories, so facts were held established against it, including that it filed the petition to extract payment from VLSI. Compelling merits were assessed only on the pre-institution record, even though the proceeding had reached an oral hearing. KEY QUOTE: "Although it is not per se improper for a person not charged with infringement to file an IPR petition, the posture of a petitioner, in conjunction with other surrounding circumstances, could raise legitimate questions about whether the petition is reasonably designed to advance the beneficial aims of the AIA or this Office and whether, in addition, the filing amounts to an abuse of process." (Paper 102, p. 47) PRIOR PRECEDENT AFFECTED: The decision identifies the issues as questions of first impression, and no prior precedential or informative decision is directly affected. It follows the Director's June 21, 2022 Memorandum on compelling merits, though it limits its use of that Memorandum to the facts of this case and does not endorse retroactive application. It distinguishes Coalition for Affordable Drugs VI, LLC v. Celgene Corp., IPR2015-01092, Paper 19 (PTAB Sept. 25, 2015), which denied sanctions where a profit motive was arguably present without other improper conduct. It also states that copycat petitions are not inherently improper, and it relies on R.J. Reynolds Vapor Co. v. Fontem Holdings 1 B.V., IPR2017-01318, Paper 16 for the sanction considerations. PRACTICE TIP: Petitioners must be accurate about expert engagements and exclusivity arrangements, and must not use a petition as leverage for payment. If the Director orders discovery on abuse of process, respond fully and keep a proper privilege log, because standing on objections invited adverse inferences and facts held established. Patent owners alleging abuse should build a record on the petitioner's formation timing, infringement exposure, purpose, and statements to the Board.