PTAB Petitions Drop Slightly; Vidal Sets New Rules on Sanctions

In the third quarter of 2022, 330 petitions for America Invents Act (AIA) review were filed with the Patent Trial and Appeal Board (PTAB), including 319 petitions for inter partes review (IPR) and 11 petitions for post-grant review (PGR). Filings in Q3 were 5.4% lower than during the same period in 2021.

That slight decline came as USPTO Director Kathi Vidal issued a new series of PTAB reforms based on stakeholder feedback from her first few months at the agency’s helm. Those changes have focused on some of the most controversial issues before the PTAB—most recently, a dispute over whether sanctions should be imposed due to alleged gamesmanship in a set of 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 Vidal to initiate director review in those proceedings. A subsequent round of briefs ordered by Vidal revealed that this was not the only unusual financial arrangement unsuccessfully floated by OpenSky, as the petitioner had also solicited payments, and even an acquisition offer, from joined petitioner Intel (the sole defendant in VLSI’s litigation campaign).

Beyond these new factual allegations, the parties also disputed the nature of the sanctions that might be warranted in the event that Vidal found that either petitioner had engaged in abuse of process. While VLSI argued that the appropriate sanction would be to terminate the IPRs, Intel countered that the Director should not invoke the “rare exception” of terminating a “meritorious IPR petition”: Rather, it argued that the merits should be heard separately from any lesser sanctions, which might include terminating a petitioner while letting the IPR proceed. The debate also grew to include members of Congress: In late April, Senators Mazie Hirono (D-HI) and Thom Tillis (R-NC) sent Vidal a letter expressing concerns over the OpenSky and PQA IPRs, asking (among other questions) what types of sanctions can be imposed against bad-faith petitioners. Vidal responded as to sanctions on September 21, explaining that a federal regulation established after the passage of the America Invents Act (37 CFR Section 42.12) allows the PTAB to impose a wide variety of sanctions against a party for misconduct. Such sanctions can range from making factual findings against a party, to precluding it from substantively participating in various aspects of the IPR process, and even to imposing compensatory damages and attorney fees, in addition to allowing the outright dismissal of an IPR.

On October 4, Vidal issued an order finding that OpenSky had abused the IPR process by offering to self-sabotage, seeking payments from both VLSI and Intel, and failing to comply with the mandatory discovery that the Director imposed as part of her review—and that this behavior, taken together, “warrants sanctions to the fullest extent of [her] power”. The director barred OpenSky from participating any further in the IPR and ordered OpenSky and VLSI to brief whether OpenSky owes VLSI compensatory damages, including attorney fees, for VLSI’s “time and effort in this proceeding”. She also remanded as to the merits, designating Intel as lead petitioner and directing the PTAB to reconsider institution based on the higher “compelling merits” standard.

On October 17, three days after the Board again decided to institute under that standard, Vidal ordered director review of that institution decision. Vidal underscored that in doing so, she had not yet analyzed the Board’s decision, but indicated that she “feels duty-bound to conduct an independent Director review of the compelling merits determination based on the unusual and complex nature of this case”.