VLSI PTAB Challenger Sought Payments from Multiple Parties, Filings Suggest
- August 28, 2022
Category: Patent Litigation Feature
New details have come to light in a dispute over allegations of gamesmanship in inter partes reviews (IPRs) filed by two third-party challengers, OpenSky Industries and Patent Quality Assurance (PQA), against VLSI Technology LLC. Earlier this year, a controversy erupted after VLSI disclosed that OpenSky had offered to sabotage its own IPRs in exchange for payment, prompting USPTO Director Kathi Vidal to initiate director review in those proceedings. Now, the latest round of briefs filed in those director reviews reveal that this proposal was not the only unusual financial arrangement unsuccessfully floated by OpenSky.
The IPRs at issue were prompted by VLSI’s litigation against Intel, which the NPE has sued many times since opening up its campaign against the company in 2017—asserting former NXP patents in the Northern District of California, in the District of Delaware, in the Western District of Texas, and in multiple Chinese venues. 2021 saw two trials, with a pair of Waco juries going in opposite directions, the first awarding VLSI $2.2B but the second turning away VLSI’s $3B damages ask. Originally set to begin in May of this year, a third trial was derailed by COVID-19 and is now scheduled to begin—once again before Judge Alan D. Albright—on November 7.
Intel filed a series of IPRs against the asserted patents as the case that first went to trial moved forward. Among them were two IPR petitions against the patents Intel was ultimately found to infringe—petitions that the Patent Trial and Appeal Board (PTAB) denied under the discretionary NHK-Fintiv rule, which allows the Board to consider the status of a parallel district court case in deciding whether to institute. Here, the PTAB concluded that denial was warranted because the district court trial was at that point scheduled to occur before the Board’s final written decision deadline, though the trial was later delayed. (Following criticism of this reliance on scheduled trial dates, the USPTO has since directed the PTAB to consider aggregate, median data on trial dates for a district in making this determination.)
OpenSky and PQA, per their own statements, were both formed as a response to the first VLSI verdict in order to file the IPR petitions here at issue. Both petitioners asserted that they are unrelated to Intel, with PQA further stating that it was not affiliated with OpenSky either. Both petitioners cited the need to protect the “integrity of the patent system”, per the NHK-Fintiv rule, as justifying the PTAB’s exercise of its discretion to institute—citing concerns over the fact that the two challenged patents had led to large damage awards without ever having their validity tested. Substantively, both petitions largely mirrored the arguments from Intel’s earlier petitions.
The PTAB instituted those IPRs in December 2021 and January 2022, respectively, noting in part that Intel’s IPRs had not been denied on the merits and rejecting VLSI’s arguments that the timing of the petitions warranted denial. Rather, the Board agreed with the petitioners that because the district court litigation did not resolve the validity claims here at issue, no discretionary denial was warranted on that basis, among others. Additionally, the PTAB found that the General Plastic factors (which concern discretionary denials where multiple petitioners have challenged the same patent) also weighed against denial, in both cases noting that the petitioners had not previously challenged the patents and that the facts did not indicate that the petitioners had knowledge of the asserted prior art that predated the public’s knowledge. The decisions diverged slightly as to VLSI’s argument that OpenSky and PQA benefitted by their ability to reference the preliminary responses filed in the Intel IPRs, concluding that the facts showed no “roadmapping” by OpenSky but that PQA had made some modifications in its petition based on VLSI’s response—though the latter was not enough to tip the General Plastic balance against institution.
Intel then filed new petitions for IPR upon the institution of the OpenSky and PQA IPRs. Joinder to those proceedings was subsequently granted. VLSI, meanwhile, argued at a high level that the OpenSky and PQA IPRs amounted to an “abusive” use of the IPR process in a request for Precedential Opinion Panel review.
OpenSky’s Settlement Offer Triggers Controversy
However, the OpenSky IPR soon drew much greater scrutiny, after VLSI disclosed an email that it received from OpenSky’s counsel in a related IPR in which the attorney proposed both that it work with VLSI to essentially undermine the PTAB proceedings between them and that they take steps to undercut the risk of a joinder petition filed by PQA. Specifically, OpenSky’s counsel suggested that in exchange for payment, the “[p]arties agree to work together to secure dismissal or defeat of the petition”; that OpenSky “agree not to negotiate with Intel or PQA”; that VLSI wait as long as possible to oppose PQA’s joinder; and that “OpenSky refuse to pay [its] expert for time at deposition so [the] expert does not appear for deposition”, thereby purposefully causing the same type of “evidentiary issue” that had led the PTAB to deny institution in another IPR from OpenSky. VLSI’s counsel, citing ethical obligations, filed a copy of the letter in that IPR and in the one here at issue.
As later characterized by VLSI, the proposal soon became a “matter of national public controversy”, even attracting the attention of Congress. In April, Senators Mazie Hirono (D-HI) and Thom Tillis (R-NC) sent Director Vidal a letter asking her to take action against such practices, flagging the motives of OpenSky, in particular, as “suspect” based on the disclosed email and criticizing the PTAB’s decision to institute the two OpenSky and PQA IPRs in the first place. Vidal responded to the senators on May 27, saying that she had begun working on this “important” issue shortly after her confirmation and informing them that the “USPTO is revisiting its related practices and procedures to make clear that abuses of the IPR process will not be tolerated”. In early June, Vidal then initiated director review in IPRs from OpenSky and PQA, doing so sua sponte (i.e., at her own initiative, without the request of a party) for the first time since the interim director review program was established under her predecessor.
Vidal clarified the scope of that review in a pair of July 7 scheduling orders, declining to revisit some issues contested by VLSI. In particular, she found no fault with the petitioners’ use of arguments from Intel’s IPRs, noting that such “‘copycat’ petition practice . . . to date . . . has not been held to be improper any more than copying claims to invoke interference proceedings”. Additionally, Vidal found that the PTAB had not erred in instituting a “meritorious Petition where the challenged patent was previously litigated in district court and was the subject of previous inter partes review proceedings, which were not instituted based on Fintiv. . . . As the Institution Decision explains, the challenges presented here have not yet been adjudicated, either by the Board or in district court”. Vidal further found that such petitions fall into the category of “compelling, meritorious petitions” that her recent NHK-Fintiv guidance explains should not be discretionarily denied.
Vidal explained that the director reviews would instead focus on questions of first impression related to the petitioners’ alleged misconduct: first, what actions the Director and, by delegation, PTAB should take when dealing with abuses of process or conduct that “otherwise thwarts” the goals of the USPTO and America Invents Act; and second, how to assess such conduct and what conduct “should be considered as such”.
Vidal then ordered the parties in the OpenSky and PQA IPRs to brief a series of questions related to VLSI’s allegations. Those questions ask for background on the petitioners, including details on their purpose, management, and interested parties, further asking whether any others should be identified as potential real parties in interest and seeking details on the petitioners’ relationship to the other parties. Vidal further mandated discovery on those issues and warned the parties that sanctions could result from either “misrepresentation, exaggeration, or over-statement as to the facts or law made in the parties’ briefing” or should any party “attempt to withhold evidence based on a narrow interpretation of the requests”. Initial briefs filed by the petitioners raised a variety of objections, including that the imposition of this discovery is “overbroad and burdensome” (as stated by VLSI) and that the initiation of director review of an institution decision exceeded the bounds of the director’s authority as clarified by the Arthrex decision, which they characterized as only allowing such review of final decisions.
New Details Emerge in Responsive Briefs
Responsive briefs filed by the parties on August 18, along with various communications produced through the discovery mandated by the director, shed further light on the parties’ interactions behind the scenes—in particular, revealing that OpenSky sought multiple times to reach a deal with Intel before making its widely scrutinized proposal to VLSI.
According to Intel’s brief and related discovery, after the OpenSky IPR at issue was instituted, the petitioner reached out to Intel to inform it that while it was open to negotiating with VLSI, which had allegedly made OpenSky a settlement offer, “OpenSky would prefer to discuss the matter directly with Intel”. After that initial communication, OpenSky’s counsel allegedly told Intel’s counsel during a subsequent phone call that it “wanted Intel to make an offer to acquire OpenSky”. Per Intel, the company declined that offer and stated that it would not make OpenSky “any monetary offer”, partly in light of the “potential risk of becoming a real-party-in-interest in OpenSky’s IPR”. Yet OpenSky made another offer, this one proposing a “collaboration between Intel and OpenSky in which Intel would pay to OpenSky success fees based on percentages of the loss avoided by Intel to be agreed upon between the parties”—hinting that OpenSky would otherwise “move in a completely different direction”. Intel states that it declined that offer as well.
Additionally, starting in June 2022, OpenSky began to indicate that it had encountered budgetary constraints, as a result of which it “might not depose VLSI’s expert or file the petitioner’s reply, and instead may just rely on its initial filings”. Intel also states that it rejected the petitioner’s request for “compensation in exchange for Intel taking the lead in the IPR”. However, after OpenSky twice warned Intel that it would be unable to “zealously prosecute” the IPR due to limited funds, Intel states that it offered to draft the petitioner’s reply brief, which it did to “ensure zealous advocacy”.
VLSI’s brief in the OpenSky IPR, meanwhile, reveal more details about its negotiation history with the petitioner. Per VLSI, OpenSky was seeking “tens of millions of dollars” to settle its IPRs, an offer that VLSI rejected—allegedly telling OpenSky that its demands were “crazy”—before the petitioner circled back with its “brazen and now notorious proposal” to self-sabotage. VLSI characterized these demands, and its countervailing proposals to Intel, as an “attempt to create a bidding war between VLSI and Intel”.
VLSI further alleged that OpenSky’s misconduct continued after Director Vidal initiated her review, accusing the petitioner of making an improper ex parte communication with the director in which it characterized the sabotage proposal at issue as having been made by VLSI, not OpenSky: the petitioner stated that the email in question “reflects OpenSky’s understanding of VLSI’s proposal to settle the proceeding”, that it was “VLSI who proposed the conduct”, and that it was “OpenSky who responded to the proposal”. According to VLSI, “[t]his is a lie and a serious breach of numerous Office rules”.
The briefs in the PQA IPR provide fewer new revelations related to the negotiations between the parties, likely reflecting the fact that the petitioner has not been accused of making the same types of allegedly improper settlement offers as OpenSky. That said, VLSI’s responsive brief in that IPR does raise a variety of objections related to the petitioner’s alleged refusal to detail its membership—noting that PQA was formed in a state (South Dakota) that does not require it to identify its members and citing initial disclosures providing only that its members are US citizens “not affiliated with” Intel, OpenSky, or VLSI. (PQA’s responsive brief includes a similar statement that its otherwise unidentified members are US citizens, “none of whom are employed by, work for, or are affiliated with Intel, OpenSky, or VLSI”.) VLSI further asserts its belief that PQA is “likely the creation of its outside counsel”, apparently based on the timing of certain “pre-formation activities”: “It seems improbable that anyone else would see OpenSky’s IPR filing on June 7, retain its counsel, and exclusively retain [Amit Singh, the expert used by Intel in its prior IPR,] within 72 hours”.
Now that the parties have filed their responsive briefs, no further dates are provided in Director Vidal’s scheduling order, which states that the IPRs are not stayed pending the outcome of director review and will move forward on the PTAB panel’s existing schedule.
VLSI Fights Separate Battle over Delaware Disclosures
In addition to its dispute with OpenSky, VLSI also faces pressure in one of its district court suits, as a result of rigorous new disclosure rules imposed in a pair of April standing orders issued by Delaware’s Chief Judge, Colm F. Connolly: one requiring litigants in his courtroom to disclose details related to any nonrecourse funding arrangements with third parties and a second requiring comprehensive disclosure of corporate control. In July, Judge Connolly directed VLSI and Intel to certify that they had complied with the two standing orders, in response to which VLSI’s CEO, Michael Stolarski, filed a declaration that largely repeated prior allegations describing VLSI’s ownership and control by various entities, including some linked to Fortress Investment Group LLC.
However, on August 1, Judge Connolly stayed the case and rejected those disclosures as “clearly inadequate to meet the requirements of the Rule 7.1 Disclosure Order”—also questioning whether VLSI has complied with his standing order regarding third-party litigation funding arrangements. VLSI filed a response on August 15 along with another Stolarski declaration, disclosing little additional information and asking that the stay be lifted because VLSI “has complied with the Court’s August 1, 2022 Order to the best of [its] ability, and is not withholding any responsive information from the Court”. Intel has since filed objections to that statement along with a supporting declaration from its counsel, both under seal.
For more on that dispute, see “VLSI Responds to Judge Connolly, Asks That Stay Be Lifted” (August 2022).