OpenSky: ‘There Was No Harm’ Stemming From Offer to Manipulate VLSI Proceedings

On November 17, patent owner VLSI Technology and petitioner OpenSky Industries each filed briefs at the U.S. Patent and Trademark Office (USPTO) in response to Director Kathi Vidal’s order for OpenSky to show cause as to why it should not be required to pay attorney’s fees to compensate for its abuse of inter partes review (IPR) proceedings at the Patent Trial and Appeal Board (PTAB). While VLSI argues that OpenSky should be ordered to compensate all attorney’s fees and costs incurred from each IPR petition encouraged by OpenSky’s own petition filing activities, OpenSky argues that Director Vidal’s order to show cause fails to identify any compensable harm stemming from OpenSky’s IPR conduct.

The recent briefs from VLSI Technology and OpenSky follow about a month and a half after Director Vidal issued a decision on Director review in early October finding that OpenSky had abused the IPR process by offering to scuttle its own IPR petition in exchange for a payment from VLSI. Vidal’s decision on Director review also included the order to show cause and ordered briefing from both OpenSky and Intel on whether compensatory damages should be entered against OpenSky. Vidal’s October order remanded the IPR to the PTAB to conduct review of the merits of OpenSky’s IPR, and in early November, Vidal issued another order on review denying VLSI’s request for reconsideration of the PTAB’s determination that OpenSky’s IPR petition raised validity issues having compelling merits.

VLSI: ‘Silent Understudy’ Sanctions Are No Sanctions at All

VLSI argues in its brief that OpenSky, an entity that was formed after the $2.175 billion verdict against Intel was entered in U.S. district court, had no bona fide interest in challenging VLSI’s patent claims other than to extort payment. Aside from the harm to VLSI from OpenSky’s own IPRs, VLSI argued that it should also receive damages from joinder IPRs spawned by OpenSky’s filing activities. VLSI claims that it faced massive harm by spending “extraordinary amounts of time and money” defending against OpenSky’s IPR petitions threatening the damages verdict against Intel.

Awarding attorney’s fees as compensation is particularly necessary in this case, according to VLSI, as Director Vidal’s current sanctions against OpenSky carry little weight. While OpenSky has been ordered to serve as the “silent understudy” to Intel in the IPR that OpenSky offered to manipulate, VLSI notes that OpenSky’s own communications during the IPR had indicated that it was running low on funds to conduct the validity trial against VLSI’s patent claims. “To deter OpenSky and those with similar motivations, the Director must hit it where it hurts: by ordering OpenSky, its attorneys, and ATW to pay VLSI’s attorney‘s fees and costs,” VLSI brief argues.

VLSI contends that Director Vidal should enter sanctions “to the fullest extent of the Director’s power” by awarding attorney’s fees and costs, including expert fees, “dating back to OpenSky’s first filed petitions.”

“VLSI was forced to defend OpenSky’s three extortionate IPRs, two more joinder IPRs to the present case, and, potentially, two more IPRs perhaps inspired by OpenSky’s filing. But for OpenSky’s filings and the [Patent Quality Assurance] IPR it potentially inspired, Intel would not have been able to file joinder petitions and attack VLSI’s patents yet again nor could PQA have sought to join the present IPR.”

VLSI: OpenSky’s Lawyers and Their Firm Should Be Held Jointly and Severally Liable

Because OpenSky’s IPR petitions were filed for an improper and harassing purpose, VLSI also argues that OpenSky’s attorneys—who have since withdrawn from representing OpenSky in the IPR proceedings—should be held jointly and severally liable with OpenSky for VLSI’s fees and costs. VLSI points out that Andrew Oliver and Vinay Joshi, OpenSky’s attorneys from the law firm Amin, Turocy & Watson, have worked to further OpenSky’s improper purposes since it began its IPR campaign against VLSI. “It was OpenSky’s attorneys who falsely and repeatedly represented that OpenSky merely sought to protect the ‘integrity of the patent system,’ and did so even after VLSI called OpenSky’s motives into question and after OpenSky proposed working to sabotage its own petition,” VLSI’s brief reads.

Along with OpenSky’s counsel of record, VLSI also asks Director Vidal to hold Christopher Ivey of the law firm Stradling Yocca Carlson & Rauth liable for his role in authoring the infamous email offering to manipulate OpenSky’s IPR proceedings in exchange for payment from VLSI. Although Ivey was not counsel of record for OpenSky, VLSI contends that he should face liability for his direct participation in OpenSky’s misconduct. Finally, VLSI wants Director Vidal to hold Amin, Turocy & Watson jointly and severally liable as well for ratifying its attorneys’ behaviors even after VLSI raised issues about litigation misconduct.

OpenSky: Director Vidal’s Order to Show Cause Fails Constitutional, APA Due Process

In defense of its position, OpenSky’s brief argues that it cannot be made subject to any attorney’s fees sanctions in the IPR proceedings. After noting the default American Rule requiring each litigating party to pay its own attorney’s fees, OpenSky further contends that the USPTO lacks statutory authority to award attorney’s fees during IPRs. Citing to the U.S. Supreme Court’s 2019 decision in Peter v. NantKwest, Inc., OpenSky noted that the Court, in analyzing a patent applicant’s right under 35 U.S.C. § 145 to recover expenses for court proceedings when appealing PTAB decisions to the Eastern District of Virginia, found that Section 145 did not invoke attorney’s fees with the kind of clarity required to deviate from the American Rule. Although 35 U.S.C. § 316(a)(6) enables the USPTO Director to prescribe sanctions for abuse of process during IPR proceedings, OpenSky insists that Section 316 is similarly unclear in its invocation of attorney’s fees.

OpenSky further contends that Director Vidal’s order to show cause fails due process under both the Administrative Procedures Act (APA) and the U.S. Constitution. OpenSky maintains that it was not on notice of the legal issues regarding abuse of process, despite the USPTO’s schedule on Director review mentioning “abuse of process” four times, nor did it have a fair opportunity to respond, as the agency did not allow OpenSky to present new declaratory evidence on the abuse of process issue. Further, OpenSky challenges Director Vidal’s decision to apply adverse inferences against OpenSky for its failure to produce a privilege log as those inferences were applied “across the board” and did not share a nexus with the lost evidence.

Even if it could be sanctioned with attorney’s fees, OpenSky maintains that Director Vidal’s order to show cause fails to show compensable harm to VLSI Technology caused by OpenSky’s “identified misconduct.” OpenSky argues that its own right to file an IPR petition is protected by the Noerr-Pennington doctrine, which immunizes parties from tort liability for abuse of process under the Federal Circuit’s 1991 decision in Abbott Laboratories v. Brennan. Though Noerr-Pennington doctrine has a sham exception, OpenSky’s brief notes that the grounds raised in its IPR petition have been found meritorious in three separate reviews, including Director Vidal’s own order to show cause which dismissed several challenges to the PTAB’s compelling merits review of OpenSky’s IPR petition. Because its IPR petition is not objectively baseless, OpenSky contends that the agency cannot sanction the petitioner for its subjective intent in filing the IPR.

OpenSky Argues There Was No Compensable Harm from the Identified Misconduct

OpenSky further argued that the Director’s order to show cause failed to identify any harm to VLSI stemming from the e-mail.

“There was no harm. VLSI did not seriously entertain the construct put forward in the February 23, 2022 e-mail. VLSI abruptly ceased discussions and within nine days publicly filed the e-mail in a different proceeding. It is hard to fathom how VLSI or the process could have been harmed by such a private e-mail that was immediately rejected.”

OpenSky also rejected the idea that there was any harm to VLSI stemming from any identified discovery misconduct during Director Vidal’s review. Citing to the Supreme Court’s 1991 decision in Cooter & Gell v. Hartmarx Corp., OpenSky argued that attorney’s fees are not a permissible award in ancillary litigation, “such as the process of sanctioning.” According to OpenSky, that “satellite process” was instigated by VLSI Technology, which publicized the confidential February 2022 e-mail in an attempt to have OpenSky’s IPR terminated, “even though the Petition was certainly meritorious.”

If attorney’s fees can be awarded, OpenSky further argues that such sanctions cannot be based solely on a temporal period, as suggested by Director Vidal’s order to show cause, but instead must be “causally limited.” For example, the first misconduct identified was the February 23, 2022, email from OpenSky’s counsel to VLSI’s counsel. “To the extent this e-mail was misconduct, any harm solely caused by it was stopped within nine days by VLSI rejecting that construct on March 2, 2022,” said OpenSky’s response brief.

At most, the brief continued, a finding that OpenSky’s alleged failure to comply with the Mandated Discovery and interrogatories was subject to compensation “could give rise to a sixty-one-day period between when the Mandated Discovery was due and when the Director issued sanctions precluding OpenSky from further participating in the IPR.”

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Author: iqoncept