Last week, the Federal Circuit heard oral argument in OpenSky Industries, LLC v. VLSI Technology LLC, a patent case we have been tracking because it attracted an amicus brief. In this case, OpenSky cross appeals to challenge sanctions issued by the Director of the Patent and Trademark Office as part of an inter partes review proceeding before the Patent Trial and Appeal Board. Notably, this case is related to VLSI Technology LLC v. OpenSky Industries, LLC, which was argued in May. Judges Dyk, Linn, and Reyna heard the oral argument last week. This is our argument recap.
David Boundy argued on behalf of OpenSky Industries. He began by claiming the $413,000 attorney fee award was invalid because it “fails” under the “arbitrary and capricious standard” and “under statutory authority.” He suggested the relevant test “is to identify specific sanctionable conduct” causing “compensable harm” and “to explain how the misconduct caused the harm.”
Judge Dyk interjected to ask Boundy to identify “the misconduct.” In response, Boundy argued “there is no identification of misconduct [by] the Director.” Judge Dyk pressed further by asking whether “OpenSky behave[d] improperly by seeking compensation from Intel” in exchange for OpenSky continuing to pursue invalidity of VLSI’s patent claims. When Boundy attempted “to challenge the premise,” Judge Dyk objected, saying “[y]ou may not like the way it’s framed, but answer my question.” Judge Dyk said, “[e]ither your position is that it was improper or that it wasn’t improper.” Boundy responded by saying that in a hypothetical where the conduct was improper, it was the “Director’s burden was to connect [that] improper conduct to costs that VLSI bore because of that misconduct.”
Another judge continued to press Boundy, asking him if he was claiming the court “should send this [case] back because there’s a failure to explain.” The judge said, if this were the case, “[t]hat’s a really tall order for you to be arguing because I find consistent through here . . . clear rationale . . . that would support the Director’s actions, especially with respect to misconduct that occurred.” Boundy responded by saying “there’s no explanation to connect misconduct to compensable fees by VLSI because of, and solely because of, [the Director’s] explanation.”
Austin Mayron argued on behalf of the Director and the USPTO. He began by revisiting “Judge Dyk’s questions about what was the misconduct here.” Mayron said “there are three broad categories that were identified early in the proceeding.” The three categories were, he said, “the filing, the . . . outreach to Intel seeking a settlement, and the third was the other offers to VLSI and to Intel that amounted to an attempt to undermine the proceeding.”
Judge Dyk was “concerned about the first category, which is the idea that [OpenSky] pursued the proceeding to extract money from VLSI.” Mayron responded by quoting the Director as saying “I’m not sanctioning OpenSky based on whether it filed a meritorious petition.” Rather, Mayron said, she was “imposing sanctions because of the manner in which OpenSky conducted itself after the petition was filed.” In response, Judge Dyk asked whether current doctrine would “protect continuing a meritorious proceeding with a motive to extract money.” Mayron argued “the types of misconduct that the Director found sanctionable were not run-of-the-mill ordinary litigation conduct.” He claimed “the so-called settlement offers entailed . . . a party refusing to pay expert for time at a deposition so the expert does not appear.” And, he said, this was “an attempt to undermine, not just slow walk, but undermine and sabotage the integrity of the proceeding.”
Jeffrey Lamken argued on behalf of VLSI Technology. He began by laying out what he labeled as “the misconduct in this case: the misuse of IPRs, the false statements, and the flagrant violation discovery order.” As an initial point, he claimed that, “[b]ecause OpenSky disobeyed the discovery orders, it’s not . . . possible to ascertain whether or not OpenSky acted as a shell for other entities seeking to challenge the . . . patent.” But, Lamken suggested, as “a newly formed entity, seemingly created solely for filing this IPR, OpenSky must have had some source of undisclosed funding.” He claimed that, “[e]ven if we were to assume that it’s fine to file one of these lawsuits for the purpose of extracting money from the winner of a verdict, . . . the Director doesn’t have to entertain those types of filings and it is misconduct at the very least.”
Judge Dyk asked Lamken what would result if the court assumed that “continuing the proceeding [in] an effort to extract money from VLSI is protected.” Lamken suggested “the court could affirm,” but he said “unless [the court is] absolutely certain that it would be the exact same result, you remand.”
In rebuttal, Boundy argued that, “[a]fter all of these discussions and after VLSI declined the offer, OpenSky pursued the IPR, paid the expert, went through, [and] followed all the steps.” He argued “once the offer was declined, there was no slow walking.” He said that, “[i]f actions, not words matter, then there was no misconduct.”
We will continue monitoring this case and report on developments.