Patent practitioners are familiar with Inter Partes Review (IPR), a common adversarial proceeding between a patent owner and a third party concerning patentability of an issued United States Patent conducted by the Patent Trial and Appeal Board (PTAB). What is not common, however, is the USPTO Director sanctioning the third-party patent challenger on allegations of extortion and attorney professional misconduct.¹ This is precisely what happened recently in a precedential director review decision by USPTO Director Kathi Vidal.²

The thorny situation unfolded after VLSI Technology LLC (“VLSI”) won a landmark $2.1 billion jury verdict in the Western District of Texas.³ The case concerned alleged infringement by Intel Corporation (“Intel”) of U.S. Patent Nos. 7,523,373 (“the ’373 Patent”) and 7,725,759 (“the ’759 Patent”) owned by VLSI.⁴ The jury awarded VLSI $1.5 billion for the infringement of the ’373 Patent and $675 million for the infringement of the ’759 Patent, a cumulative award of over $2.1 billion.⁵ This amount, if upheld, is among the largest damages awards for patent infringement in a U.S. district court trial to date. Intel has filed a Notice of Appeal at the Federal Circuit calling the damages model “unreliable” and “exorbitant.”⁶

Just weeks after the jury verdict, OpenSky Industries, LLC (“OpenSky”) and Patent Quality Assurance, LLC (“PQA”) filed Petitions for IPR for the ’373 Patent and the ’759 Patent at issue in the VLSI v. Intel district court litigation.⁷ Notably, neither company sold products and therefore could not be at risk for infringement.⁸ Additionally, both companies were formed shortly before filing, the petitions were filed shortly after the jury verdict, and the filings by OpenSky and PQA were nearly identical to those filed (and rejected) by Intel previously.⁹ In view of these facts, Director Vidal intervened sua sponte because the case “raise[d] novel issues of law and policy, as well as issues of particular importance to the Office and the patent community.”¹⁰

The Director review decision held that “OpenSky was using the IPR process to extract payment from either Intel or VLSI without meaningfully pursuing unpatentability grounds.”¹¹ In fact, Director Vidal concluded that OpenSky was formed as a business entity for this very purpose.¹² Specifically, the investigation revealed that OpenSky sought monetary payment from Intel in exchange for success in the IPR.¹³ When Intel rebuffed the offer, OpenSky turned to VLSI and offered a payment request scheme in return for failing to litigate at certain benchmark stages of the IPR.¹⁴ For example, OpenSky proposed that if a payment agreement was reached, OpenSky would agree to withhold payment to its expert, which it deemed would be fatal to the case.¹⁵

Director Vidal sanctioned OpenSky by preventing it from actively participating in the IPR and ordered OpenSky to show cause for why it should not have to pay compensatory damages to VLSI.¹⁶ Additionally, she noted that attorneys representing OpenSky could be subject to ethical violations under the rules of their respective bars.¹⁷ What made this case highly unusual was that OpenSky sought compensation from both the patent owner and another petitioner in exchange for turning against the other.¹⁸ In other words, advocating and litigating its position depending on the side (or sides) that paid.¹⁹ This is the first time that a USPTO director has levied sanctions in an IPR proceeding.²⁰

The Review against PQA is ongoing and was not addressed in the above-described opinion.

This decision comes as the USPTO seeks to control other forms of fraud at the Office.²¹ It also comes at a time when some have questioned the PTAB and the power it wields.²² For example, any third party can challenge a patent in an IPR proceeding, regardless of any intent to practice the patent.²³ This issue is compounded when the patents subject to invalidation through IPR are also the source of one of the largest patent infringement awards ever given, clocking in at over $2.1 billion.²⁴

Sizeable jury verdicts will bring sizeable public attention. This proceeding should be a reminder to litigators that substantial jury verdicts may introduce additional hurdles associated with preserving and protecting the infringement award. The decision may also instigate heighted scrutiny of third-party IPR proceedings. As more power is extended to the PTAB, additional checks may be required to prevent abuse and preserve a fair patent system.