OpenSky Reply Brief Argues USPTO Concedes Noerr-Pennington Flaw in Original Sanctions Ruling

Last week, patent challenging entity OpenSky Industries filed a reply brief as cross-appellant at the U.S. Court of Appeals for the Federal Circuit (CAFC) in patent owner VLSI Technology’s appeal of a sanctions ruling by former U.S. Patent and Trademark Office (USPTO) Director Kathi Vidal. Although VLSI challenges Vidal’s ruling for failing the requirements of the Administrative Procedures Act (APA) and for joining Intel to OpenSky’s patent challenge despite the time-barred nature of Intel’s validity challenge, OpenSky contends that the agency continues to engage in post-hoc rationalization of its sanctions determination and deprived OpenSky of an opportunity to cure and be heard on its Noerr-Pennington immunity argument.

VLSI: Inversion of Compelling Merits Standard Should Have Led to IPR Denial

In October 2022, then-USPTO Director Vidal entered sanctions against OpenSky for abuse of process in inter partes review (IPR) proceedings at the Patent Trial and Appeal Board (PTAB). VLSI, whose patent claims were challenged in OpenSky’s IPRs, appealed Vidal’s ruling to the Federal Circuit for abuse of discretion for failing to impose any meaningful sanctions. In its corrected opening brief filed with the Federal Circuit this October, VLSI argued that Director Vidal actually relieved OpenSky of its responsibility by relegating it to a silent understudy role and elevating Intel to lead petitioner in the IPR.

In pointing to former Director Vidal’s lack of reasoned decision making, VLSI’s brief argued that the Director inverted the institution standard under her own compelling merits memo, which states that the PTAB retains discretion to deny IPR institution for abuse of process despite the presence of compelling merits. Further, VLSI contends that the Director’s compelling merits analysis relies upon inadmissible hearsay consisting of expert declarations prepared for Intel’s non-instituted petitions that were refiled in OpenSky’s IPRs without contacting the expert.

VLSI also challenged the decision to allow Intel to join OpenSky’s IPRs despite its own petitions being time-barred under 35 U.S.C. § 315(b). Although requests for joinder under Section 315(c) may be filed outside of the one-year window following the filing of infringement allegations, the underlying IPR petition supporting the joinder request must be filed within Section 315(b)’s time bar, VLSI contended. Styling its appeal as a challenge to Director Vidal’s sanctions ruling and not the PTAB’s institution decision, VLSI argued that it was prejudiced by Intel’s use of joinder to “inject new evidence and arguments” into the proceedings.

The USPTO filed an intervenor’s brief  this May responding both to VLSI’s challenges as well as OpenSky’s argument that its IPR petition was protected under Noerr-Pennington immunity. Although Noerr-Pennington has covered pre-litigation communications alleging patent infringement, the USPTO countered that the First Amendment defense “does not abrogate the authority of tribunals to sanction abusive post-filing litigation conduct.” Here, this includes OpenSky’s abuse of process and failure to respond to mandated discovery regarding its offer to dismiss IPR proceedings in exchange for payment from VLSI, which falls outside of the petitioning-related conduct protected under Noerr-Pennington.

OpenSky: Fee Shifting Basis for Monetary Award Violates Supreme Court’s Goodyear Standard

In its reply brief , cross-appellant OpenSky said that the USPTO’s appellate brief provides a new post-hoc rationalization that confirms the agency’s due process violations. While the Director’s original abuse of process findings were predicated on OpenSky’s filing intent to extract payment from VLSI, the agency shifted the basis of liability to OpenSky’s conduct throughout the proceeding after OpenSky raised its Noerr-Pennington defense. In offering a different abuse of process theory, the USPTO failed to address the Noerr-Pennington defects that existed at the time of its sanctions ruling.

Along with falling short of reasoned factfinding in agency decisions from SEC v. Chenery (1947), the USPTO also deprived OpenSky of an opportunity to be heard by providing first notice of OpenSky’s sanctionable conduct in its October 2022 sanctions ruling, according to the cross-appellant’s reply brief. At best, the Director’s adverse inferences on sanctionable conduct without opportunity to cure was arbitrary and capricious, and OpenSky adds that 35 U.S.C. § 316(a)(5)’s language on setting forth evidentiary standards for IPR proceedings does not give the USPTO Director authority to sua sponte join an IPR as a party.

OpenSky also challenged the USPTO’s monetary fee award as being improperly based on the exceptional case standard for attorney’s fees awards pursuant to 35 U.S.C. § 285. According to the cross-appellant, this violated the U.S. Supreme Court’s holding in Goodyear Tire v. Haeger (2017) mandating that tribunals assess specific litigation expenses and determine which were incurred solely due to misconduct. In awarding more than $400,000 in monetary fees, the USPTO provided no explanation how the entire Director Review Process, which constituted 85% of the fee award, “was caused ‘because of, and solely because of’ any specific misconduct, let alone one email.”

OpenSky also argued that the USPTO violated the American Rule barring recovery of attorney’s fees absent an explicit Congressional directive. Citing the Ninth Circuit’s 1989 ruling in Zambrano v. City of Tustin, OpenSky noted that appellate courts have applied the American Rule to sanctions. The cross-appellant further argued that cases cited by VLSI and the USPTO distinguish fee shifting from sanctions for purposes other than the American Rule, and that the USPTO does not possess the same inherent authority as Article III courts to award attorney’s fees.

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