“VLSI’s complicated structure is having its intended effect—allowing Fortress and VLSI’s investors to control VLSI and reap any benefits from this suit, while concealing their identities from the Court and the public.” – Intel Supplemental Brief
Intel Corp. has asked the United States District Court for the District of Delaware to throw out a $4.1 billion patent lawsuit from VLSI Technology in a filing unsealed Friday, December 9.
Intel claimed that VLSI “has repeatedly failed to disclose its full ownership as required,” and the company’s “opaque ownership structure is an entrenched feature of hedge fund-driven patent litigation.”
In its filing, Intel argued that VLSI has failed to comply with U.S. District Judge Colm Connolly’s standing order for the company to identify “every individual and corporation with a direct or indirect interest.”
VLSI is an American company owned by various investment funds that are managed by a SoftBank subsidiary. It has won multiple patent lawsuits against Intel in the past several years totaling more than $3 billion and is embroiled in a high-profile case at the Patent Trial and Appeal Board (PTAB) with Intel that is under review by U.S. Patent and Trademark Office (USPTO) Director Kathi Vidal.
VLSI filed its original complaint against Intel on June 28, 2018.
On March 2, 2021, a Western Texas jury ruled that Intel had to pay $2.175 billion in a verdict related to two patents, U.S. Patent No. 7523373 and U.S. Patent No. 7725759. Intel was slapped with another $949 million in a separate patent infringement case involving VLSI last month.
After the ruling last month, Intel was delivered another blow when the U.S. Court of Appeals for the Federal Circuit (CAFC) ruled partially in favor of VLSI and reversed the PTAB’s holding that U.S. Patent No. 7,247,552 was unpatentable.
In addition to this pending case, there are other outstanding cases in Northern California and Delaware, which are expected to be heard in the following two years.
The $4.1 billion case was paused in August by Connolly when he issued a stay order. Connolly found that VLSI’s response to the standing order to disclose investors was “clearly inadequate,” and the company failed to identify a reason why investors should be kept anonymous from the public.
In Intel’s latest filing, the petitioner claimed the “lack of transparency places the Court in an untenable position with respect to its ethical obligations and risks undermining public confidence in the courts.”
Delaware Standing Order
Connolly filed a standing order in April 2022 that ordered “all cases assigned to Judge Connolly where a party is a nongovernmental joint venture, limited liability corporation, partnership, or limited liability partnership” must file a disclosure statement that includes “the name of every owner, member and partner of the party.”
Connolly’s standing orders are currently being appealed at the CAFC and have caused considerable controversy.
Stephanie Smiertka Riley from Womble Bond Dickinson wrote in IPWatchdog, “heightened mandatory initial disclosures in patent litigation may affect a client’s decision to pursue litigation in a forum, especially if there is a risk (real or perceived) of having to disclose sensitive company information from the outset of litigation.”
In a separate case involving the standing orders, Nimitz Technologies LLC asked the CAFC to vacate them, with the petitioner arguing that Connolly’s court is pursuing “its own crusade to enforce its own version of patent policy without regard that its policy defies governing law.”
In that case, the CAFC ruled against Nimitz and found that the district court had provided enough assurances to Nimitz that privileged information would not be made public.
Connolly’s standing order has caused some to speculate that it will lead to an increase in mandatory disclosures nationwide.
VLSI filed a response on December 2 to Connolly’s memorandum order that paused the case. VLSI argued that “any…dismissal would be unwarranted and would constitute reversible error.”
VLSI’s lawyers made the case that Connolly’s standing order “covers subject matter not appropriate for a standing order,” and it should have been vetted more thoroughly.
The filing continues by claiming that the court lacks authority to enforce the standing order and that the court has sufficient information about the ownership of VLSI to know there is no conflict of interest or appearance of impropriety.
Naturally, Intel sees the case very differently and argued that the court “clearly has authority to issue and enforce the Order.”
Additionally, Intel argued, “VLSI’s complicated structure is having its intended effect—allowing Fortress and VLSI’s investors to control VLSI and reap any benefits from this suit, while concealing their identities from the Court and the public.”
A hearing on both of the company’s arguments was scheduled to be held Wednesday, December 14, but it has also been postponed.
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