OpenSky Industries, LLC v. VLSI Technology LLC

When a petitioner uses an IPR for the primary purpose of extracting payment, is willing to forgo or sabotage the adversarial process, and fails to meaningfully pursue the patentability merits, that conduct is an abuse of process sanctionable under 37 C.F.R. § 42.12(a)(6), and sanctions should be imposed as a matter of course absent extenuating circumstances. As a remedy, the Director may sideline the abusive petitioner, elevate a non-complicit joined petitioner to lead, and remand for the Board to decide, on the pre-institution record only, whether the petition presents a compelling, meritorious challenge, dismissing the petition if it does not. No prior precedent directly addressed this issue; the Director described these as questions of first impression about what the Director, and by delegation the Board, should do on evidence of abuse of process. Petitioners, especially entities not sued for infringement and formed after a large verdict, now face scrutiny of their purpose, funding and litigation conduct. Failure to comply with Director-ordered discovery can lead to adverse inferences and facts held established. A petitioner who offers to sell its advocacy or who copies a prior petition without securing its expert risks being sidelined, sanctioned, and having the IPR dismissed. Patent owners gain a basis to raise abuse of process and seek sanctions, including compensatory expenses and attorney fees, and may get dismissal if the pre-institution merits are not compelling. The Board relied on Apple Inc. v. Voip-Pal.com, Inc., 976 F.3d 1316, 1323 (Fed. Cir. 2020), for the authority to impose sanctions, including ones not listed in § 42.12(b), and on Regeneron Pharms., Inc. v. Merus N.V., 864 F.3d 1343, 1363 (Fed. Cir. 2017), for adverse inferences from non-production. LEGAL TEST OR STANDARD: Abuse of process is a fact-based inquiry, and the regulations do not specify what acts constitute it; it is sanctionable under 37 C.F.R. § 42.12(a)(6). Sanctions are imposed as a matter of course absent extenuating circumstances. Prior sanction contexts have 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. Case-specific considerations were petitioner's interest in the proceeding, a recent trial verdict awarding significant damages, proximity of formation to the jury award, seeking compensation from both parties, failure to meaningfully pursue the merits, and filing a copycat petition. On remand, a compelling-merits 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, a higher standard than reasonable likelihood. TRIGGERING FACTS: OpenSky was formed seven weeks after a jury verdict against Intel and had not been sued, and it refiled Intel's discretionarily denied petitions and expert declarations without the expert's knowledge. It sought payment from both VLSI and Intel, proposed to VLSI a deal under which it would not produce its expert for deposition if joinder were granted, and offered to let Intel write the reply in exchange for remuneration and indemnity. It also failed to comply with Mandated Discovery, producing no privilege log and giving inadequate interrogatory answers, so adverse inferences and facts held established applied. Ordinary strategic and tactical choices in an IPR do not show a failure to meaningfully pursue the merits. Copycat petitions and petitions by parties not sued are not per se improper. Joined petitioner Intel was not shown to be complicit. KEY QUOTE: "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." (Paper 102, p. 44) PRIOR PRECEDENT AFFECTED: No prior precedential or informative decision is directly affected. The decision follows the Memorandum's compelling-merits guidance, notes that the Fintiv factors (Apple Inc. v. Fintiv, Inc., IPR2020-00019, Paper 11 (PTAB Mar. 20, 2020) (precedential)) did not favor denial of OpenSky's petition, and treats the General Plastic factors (General Plastic Industrial Co., Ltd. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper 19 (Sept. 6, 2017) (precedential)) as correctly applied at institution. It distinguishes Coalition for Affordable Drugs VI, LLC v. Celgene Corp., IPR2015-01092, Paper 18 (Sept. 25, 2015), which denied sanctions where a profit motive was arguably present but there was no allegation or proof of failure to pursue the merits. It cites R.J. Reynolds Vapor Co. v. Fontem Holdings 1 B.V., IPR2017-01318, Paper 16 (PTAB Aug. 6, 2018), for the sanctions considerations. PRACTICE TIP: Petitioners should never trade their advocacy or the prosecution of an IPR for payment, and must comply fully with any Director-ordered discovery, including privilege logs. Patent owners alleging abuse of process should build the record on the petitioner's formation, funding, timing, settlement overtures and conduct of the trial. Anyone filing a copycat petition should secure the original expert's engagement and availability, and be ready to litigate the merits.