Two cases being argued at the Federal Circuit in May attracted amicus briefs. One of these cases is VLSI Technology LLC v. OpenSky Industries, LLC. This is a patent case on an appeal from a judgment of the Patent Trial and Appeal Board in an inter partes review proceeding. Notably, it includes both an appeal and a cross-appeal, and the U.S. Patent and Trademark Office intervened. This is our argument preview.
VLSI, the patent owner in this case, presents three issues in its opening brief:
- “Whether the Director’s sanctions rulings, including refusal to terminate the IPR, were arbitrary, capricious, contrary to law, or otherwise inconsistent with reasoned decisionmaking.”
- “Whether Intel was improperly joined because its IPR petition was untimely and thus not ‘properly file[d],’ 35 U.S.C. §315(c).”
- “Whether the PTAB’s obviousness rulings must be set aside because they rest on an erroneous claim construction and are unsupported by substantial evidence or reasoned decisionmaking.”
VLSI Technology argues that former U.S. Patent and Trademark Office Director Kathi Vidal’s “failure to impose meaningful sanctions,” even though she “found OpenSky committed egregious misconduct, including extortion and abuse of process,” was “arbitrary, capricious, and inconsistent with reasoned decisionmaking.” Additionally, VLSI argues, given “Intel’s petition was untimely, it was not ‘properly file[d],’” and so its joinder to the inter partes review was “improper.” As a result of Intel’s “unlawful participation,” VLSI argues, VLSI was prejudiced, because the “Director refused to terminate the IPR in part because Intel was a party.” Finally, VLSI also challenges the PTAB’s interpretation of a claim limitation, contending that “request” means “ask, not command.” Because the specification “uniformly describes the ‘request’ in permissive terms,” VLSI asserts, “[n]either murky prosecution history, nor forbidden extrinsic evidence, can overcome the term’s plain meaning.”
Intel filed a response brief. In it, Intel asserts the “Board correctly found each challenged claims obvious on two independent grounds.” First, it explains, “substantial evidence supports the Board’s factual finding that skilled artisans would have been motivated to combine . . . references to save power,” and that “this combination does not contradict” the “principle operation” of one of the prior art references. Next, Intel claims, the “Board correctly construed ‘request’ to . . . encompass signals that ask, instruct, or command” because its construction is “supported by the claim language, specification, prosecution history, and how skilled artisans would ordinarily understand the term.” Additionally, Intel alleges, “Intel’s joinder” was well “within [the Board’s] discretion.” Intel maintains “VLSI’s argument that Intel’s IPR petition was ‘untimely’ and not ‘properly filed’ is unreviewable.” Finally, Intel says, the “Director’s denial of VLSI’s request to terminate the IPR due to OpenSky’s conduct” is also “not reviewable.” Nevertheless, Intel claims, “the Director was well within her discretion not to impose such a sanction and provided a reasoned explanation for her decision: . . . balance deterring misconduct with ensuring reliable patent rights.”
Rather than file a simple response brief like Intel did, OpenSky filed a principal and response brief, which presents the following issues as a cross-appeal:
- “Did the Director act in excess of statutory authority by awarding VLSI attorney fees in IPR2021-01064 where the statute does not ‘specifically and explicitly’ authorize an attorney fee award, as required by the ‘American Rule’ and governing Supreme Court precedent?”
- “Was the Director’s award of sanctions ‘arbitrary and capricious’ or ‘contrary to constitutional right or immunity,’ 5 U.S.C. § 706(2)(A) or (B), because the award penalizes an objectively reasonable petition immunized under the Noerr-Pennington doctrine?”
- “Was the Director’s sanction award an abuse of discretion or contrary to law, because it failed to make showings of ‘sole,’ ‘but for’ causal links between wrongful conduct and costs, as required by Goodyear Tire & Rubber Co. v. Haeger, 581 U.S. 101 (2017)?”
- “Were the Director’s determination of abuse of process and award of attorney fees contrary to constitutional right or immunity, short of statutory right, arbitrary and capricious, or unsupported by substantial evidence, for failure to provide OpenSky with notice and opportunity to present its case, failure to observe requirements for an agency’s receipt of substantial evidence, and failure to provide the “cogent explanation” required by the APA?”
OpenSky claims the “Director has no authority to award attorney fees against” it because there is no “‘specific and explicit’ statutory authorization” in the relevant statute. Next, it asserts, sanctions against it “penalize conduct protected under the Noerr-Pennington doctrine, which shields petitioning activity and ‘ancillary’ litigation conduct from liability unless it qualifies as ‘sham litigation.’” The Director, it contends, “conflated lawful non-sham petitioning with alleged improper motives.” OpenSky points to Supreme Court precedent that it says provides “procedural requirements and substantive limitations on attorney fee sanctions,” and that fees are awardable for costs “‘solely,’ ‘but for’” caused by sanctionable conduct. Finally, it claims, the Administrative Procedure Act and due process “set certain procedural minima for agency adjudication” the Director failed to follow.
An invervenor brief was filed by the Acting Director of the U.S. Patent and Trademark Office at the relevant time, Coke Morgan Stewart. Stewart argues the “USPTO’s handling of these IPRs charted a permissible course that is not reviewable in significant part, and was otherwise within the Director’s discretion and authority and supported by substantial evidence.” Stewart says “the sanction argument is judicially unreviewable under 35 U.S.C. § 314(d), as it ultimately seeks to reverse an institution decision.” Moreover, she explains, “even if the sanction argument is considered, the Director had and articulated a permissible explanation for her decision not to deinstitute.” Next, Stewart says, VLSI’s “challenge to the timeliness of Intel’s joinder petition is unreviewable” under 35 U.S.C. § 315(b) because it is “contrary the plain language . . . that exempts the petition from the time bar.” Next, Stewart contends, “[t]he Director’s attorney’s fees sanction was permissibly based solely on post-filing misconduct, and the settlement discussions at issue were sufficiently tainted by OpenSky’s misconduct that they do not constitute protected activity.” Furthermore, she argues, “[t]he record demonstrates that the Director correctly applied a ‘but for’ rationale in setting the sanction amount and adequately explained the basis for that amount.” Finally, she argues, “the Director gave ample notice of both the possible bases for sanctions and the sanctions that might be applied, while providing repeated opportunities for OpenSky to respond through discovery and multiple rounds of briefing.”
In its response and reply brief, VLSI responds to OpenSky’s cross-appeal and replies in support of its appeal, replying to the briefs filed by Intel, OpenSky, and the government.
As for its reply, VLSI argues the “PTO fails to answer a simple question: How could the Director find that OpenSky committed egregious misconduct in pursuing this IPR—including abuse of process and extortion—yet still allow the IPR to proceed?” VLSI contends the PTO asks the Federal Circuit “to uphold a decision resting on authority the agency has abandoned addressing parallel IPR and district-court proceedings.” Next, it asserts, although the “Director announced that . . . OpenSky’s abuse of process did not matter because its petition purportedly exhibited ‘compelling merits’ . . . no one disputes that the Memorandum says ‘abuse of process’ is reason to reject an IPR despite ‘compelling merits.’” VLSI also maintains the “PTO cannot salvage the Director’s other errors” and that all other efforts “to defend the PTAB’s patentability rulings” fail.
Turning to OpenSky’s cross-appeal, VLSI argues the “Director properly concluded that OpenSky pursued this IPR for improper purposes, including to extort VLSI.” According to VLSI, “[u]sing a legal proceeding for extortion constitutes an abuse of PTO processes, and the Director has ample authority to sanction such an abuse.” Next, it argues, “OpenSky brazenly violated the Director’s discovery orders,” which “were amply supported by statute, regulation, and the facts of this case.” Finally, VLSI asserts, the “Director had statutory and regulatory authority to order OpenSky to pay attorney’s fees.”
In its reply brief related only to its cross-appeal, OpenSky replies to the arguments made by VLSI and the government. OpenSky argues the Director’s appellate brief “abandons the only reasoning below and substitutes a new theory for which the Director never gave notice and opportunity to be heard.” OpenSky contends the Director now disclaims earlier findings on abuse of process, limiting the case to “only post-filing conduct” without consideration of “motive,” which it asserts effectively concedes defects in the original decision. It maintains the Federal Circuit “may not accept appellate counsel’s post hoc rationalizations for agency action.” OpenSky also argues the Director incorrectly “invokes the standard of review for court decisions” when this is an appeal from a formal agency adjudication requiring review for “reliable, probative, and substantial evidence” and non-arbitrary decisionmaking. It further contends the Director’s decision-making “violated basic guarantees of due process and the Administrative Procedure Act,” arguing the Director’s abuse-of-process findings and the judgment on liability came simultaneously, with no prior notice of the specific facts and law relied upon and no meaningful opportunity to respond.
In an amicus brief in support of Intel and OpenSky, the National Retail Federation argues joinder of a petition filed outside the one-year deadline is permitted, contending that VLSI’s “contrary interpretation would render both the joinder authority” and “the joinder-motions deadline” “entirely superfluous.” The Federation further argues established doctrine “precludes the Director from sanctioning OpenSky for filing a meritorious inter partes review petition,” emphasizing that the doctrine “is not limited to the antitrust field” but “applies generally to any attempt to punish or sanction the act of petitioning the government.” The Federation concludes that, “[w]hatever ill motives OpenSky harbored when it filed its petition,” the doctrine protects it from sanctions for advancing a petition that is “neither baseless nor part of a pattern of meritless petitions.”
Oral argument is scheduled to be heard on Friday, May 8 at 10:00 a.m. in Courtroom 402.