Trending at the PTAB: Cautionary Tale of VLSI Challenger

U.S. Patent and Trademark Office Director Kathi Vidal recently issued sanctions against Patent Quality Assurance LLC for misrepresentation of fact, misleading argument and failure to comply with mandated discovery.

This is not the first time Vidal has issued sanctions upon finding an abuse of process — this time, unearthing numerous inconsistencies in PQA's representations regarding its expert and its deliberate refusal to comply with mandated discovery.

The Aug. 3 Patent Quality Assurance LLC v. VLSI Technology LLC decision emerges as a cautionary tale and the latest installment in Vidal's crackdown on "conduct that thwarts, rather than advances, the goals of the office and the [America Invents Act]," as the USPTO director writes in the decision.

This article provides an overview of the events leading to Vidal's sua sponte review of the Patent Trial and Appeal Board's decision granting institution and the ensuing sanction order, and explores the broader ramifications for parties practicing before the PTAB.

Background: Challenging the '373 Patent

In November 2019, Intel Corp. filed a petition for inter partes review challenging U.S. Patent No. 7,523,373.[1] Citing its 2020 Apple Inc. v. Fintiv Inc. decision, the board exercised its discretion to deny institution in light of the advanced stage of litigation in a parallel district court proceeding.

Shortly after a jury found Intel liable for infringement of the '373 patent and granted patent owner VLSI $1.5 billion in related damages, OpenSky Industries LLC filed its own petition for IPR challenging the '373 patent.[2]

The board also declined to institute that petition.[3] This time, the board determined that OpenSky was unlikely to meet its burden because its expert, Adit Singh, was not available for cross-examination due to an exclusive arrangement between Singh and PQA.[4]

Then on July 7, 2022, PQA filed its own petition using the same challenges presented in Intel's petition as well as using Singh — the same expert as the OpenSky petition.[5]

VLSI presented various arguments opposing institution of PQA's petition in its preliminary response, including arguments alluding to the suspicious nature and timing of PQA's business establishment — recently formed in South Dakota in the wake of the $1.5 billion verdict — and alleged abuse of the IPR process.[6]

After the board granted institution, VLSI filed a request for rehearing and Precedential Opinion Panel review.[7] The request ultimately gained the director's attention, culminating in the instant director review and dismissal of the rehearing and POP review requests.

Director Review of Institution Decision

Vidal, citing "evidence of an abuse of process or conduct that otherwise thwarts, as opposed to advances" USPTO and AIA goals, instructed the parties to address numerous interrogatories directed to PQA's business dealings and interests.[8]

Vidal also instructed the parties that sanctions may be considered for any misrepresentation, exaggeration or overstatement as to the facts or law made in the parties' briefing.[9] Importantly, Vidal also instructed the parties to comply with mandatory discovery to allow the parties to answer the interrogatories.[10]

Mandated Discovery

PQA objected to mandatory discovery, and on Dec. 22, 2022, Vidal sanctioned PQA for failing to comply with mandated discovery and interrogatories, and for advancing a misleading argument and a misrepresentation of fact regarding its exclusive engagement with Singh.[11]

Vidal further ordered PQA to show cause as to why they should not pay compensatory damages to VLSI. After Vidal dismissed PQA from the IPR, PQA filed a rehearing request seeking "withdrawal of the already-imposed sanctions and an opportunity to show why they should not be imposed."[12]

Sanctionable Offenses

Vidal resolved to address all issues anew, including PQA's objections to the mandated discovery and PQA's deficient responses to the mandated discovery.

In its briefing, PQA argued that both the present director review and the mandated discovery are constitutionally and statutorily prohibited. PQA also argued that the order not only exceeded the USPTO's regulatory authority but also that it was inconsistent with the office's standards and procedures.

Vidal dispelled each argument, explaining, among other things, that "nothing in the regulations states that the Board may only order discovery on a party's motion, or that the Board is prohibited from ordering discovery sua sponte."[13]

The USPTO director also found that PQA's initial response to one of the mandated interrogatories, which asked "[d]id PQA ever condition any action relating to this proceeding ... on payment or other consideration by Patent Owner or anyone else?" was misleading and constituted "an attempt to subvert answering [the] interrogatory."[14]      

Turning to sanctions, Vidal determined that (1) PQA "was evasive in its responses and deliberately failed to comply with mandated discovery" and (2) PQA's representation that its expert was exclusively retained, a representation that led to discretionary denial of OpenSky's petition, was purposefully misleading in light of its subsequent representation that "the exclusivity provision could be waived."[15]

The "integrity of practice before the Board," the director wrote, is "best served by imposing sanctions commensurate with the sanctionable misconduct to not only punish the offending party, but also to deter future misconduct."[16]

Accordingly, each party was ordered to file a brief that would address "whether PQA should be admonished and/or compensatory expenses should be assessed against PQA as a sanction for PQA's misrepresentation of fact, misleading argument, and/or failure to comply with mandated discovery."[17]

Key Insights

While the facts are complex and the patentability of the '373 patent is yet to be determined, one thing is clear — parties practicing before the PTAB should take caution in exercising clarity and consistency in their representations before the board.

Moreover, misrepresentations that interfere with the integrity of the IPR process — such as those directly contributing to denying institution of another party's case — and noncompliance with mandated discovery, are all but a shoo-in for sanctions under this very active and mission-oriented administration.

The case also signifies a warning of sorts to patent-holding and nonpracticing entities.

Indeed, it appears that PQA's status as such, combined with VSLI's allegation that PQA was an entity that "formed and filed its Petition only after a significant jury verdict for infringement" to abuse the IPR process, provided the fuel for sua sponte director review.

Endnotes

[1] IPR2020-00158, Paper 3.

[2] IPR2021-01056, Paper 2.

[3] IPR2021-01056, Paper 22.

[4] Id.

[5] IPR2021-01229, Paper 1.

[6] IPR2021-01229, Paper 7.

[7] IPR2021-01229, Paper 13.

[8] IPR2021-01229, Paper 35.

[9] Id.

[10] Id.

[11] IPR2021-01229, Paper 102.

[12] Id.

[13] IPR2021-01229, Paper 131 at 23.

[14] Id. at 38-40.

[15] Id. at 42-25.

[16] Id. at 41.

[17] Id. at 51-52.