Last month, the Federal Circuit heard oral argument in VLSI Technology LLC v. OpenSky Industries, LLC, a patent case we have been tracking because it attracted an amicus brief. In this case, VLSI appeals a judgment of the Patent Trial and Appeal Board in an inter partes review proceeding. Notably, a related cross-appeal, OpenSky Industries, LLC v. VLSI Technology LLC, was argued separately this month. Judges Dyk, Linn, and Reyna heard the oral argument. This is our argument recap.
Lucas Walker argued on behalf of VLSI Technology LLC. He began by suggesting “the sanctions decisions rest on a policy, the June 2022 compelling merit memorandum, that the PTO has now repudiated and rescinded.” He claimed the “Supreme Court is clear that this kind of intervening policy change requires remand for the agency to determine in the first instance how the change affects the decision under review.” Walker also claimed “the Director lacked statutory authority to join Intel to these IPRs because its petition was not properly filed.” He further claimed “the Director’s failure to impose meaningful sanctions—despite finding extortion, abusive process, flagrant violations of her orders and misleading statements—were inconsistent with recent decision making.”
One judge stated his belief that the PTO “relied on the memorandum for the standard defining what compelling merit is, not . . . as a source of authority for doing what they were doing.” Walker responded by arguing that “the best reading is that the Director understood the memorandum as being relevant to how she should strike the policy balance.” The judge continued his line of thought by suggesting that, “if [the Director] just relied on it for a definition of what compelling merit is, there’s no problem.” Walker then made clear “the PTO has told us that under current policy it would not decide the issues the same way.”
Another judge questioned if the PTO has “a right to move forward in the absence of compelling arguments if [it] determine[s] that that’s the appropriate course of conduct.” Walker argued this “is a policy judgment that the agency needs to make that the court can’t make.” He explained that “the agency needs to decide: does this new policy, which rejects compelling merits as being dispositive, . . . apply to this case.”
A judge asked whether there is “any basis for saying that, apart from the memorandum and the rescission of the memorandum, . . . there’s any reason that the PTO can’t consider compelling merit.” In response, Walker contended that, while the PTO could consider compelling merit, “it still needs to provide a reasoned explanation for why that justifies going forward with a proceeding.” The judge pressed further and asked whether this is “all within the Director’s discretion and not subject to” the Federal Circuit’s review. Walker argued that “whatever discretion the Director has is certainly subject to the recent decision making requirements of the APA.”
Mark Fleming argued on behalf of Intel Corporation. Fleming began by claiming all arguments discussed by VLSI were “arguments that . . . Congress has not given this court jurisdiction to review because they all go to the decision on institution, which is final and non-appealable.”
One judge questioned if Fleming was arguing the Federal Circuit lacked “authority to review decisions based on sanctions.” Fleming clarified himself, explaining his “argument is that, when the sanction that is sought is vacatur of institution, then that is not something that is reviewable because Congress has made the institution decision non-reviewable.” He continued by arguing that what “VLSI has sought here, and ultimately what they need to get in order to get what they want, is vacatur of institution of the entire proceeding.” Fleming concluded by saying that, even if the court gets to the merits of the case, “VLSI has cited no case on the merits where this court, or frankly, any appellate court, has reversed as an abuse of discretion a lower tribunal’s determination of the appropriate sanction for conduct that occurred before it as being insufficiently severe.”
Austin Mayron argued on behalf of the USPTO, which intervened in the appeal. He began by attacking VLSI’s argument as relying “heavily on the language” from a particular case that, he said, is “a pure sanctions decision.” Mayron then reaffirmed Fleming’s claim that the present case “does not appear . . . to be a pure sanctions decision because the sanction at issue is the vacatur of an institution decision.”
One judge questioned the importance of the rescinded memorandum. Mayron claimed the former Director used it to “explain a standard that she was going to apply when she was evaluating what course to take in this case.” He admitted the previous position of the PTO has now changed “as a matter of policy,” but said the “former Director did not rely on the 2022 guidance memo that’s since been rescinded.”
In rebuttal, Walker reaffirmed his position that “the best reading is the Director was relying on the memorandum.” But, he said, “even if she was only relying [on it] for the definition of what is compelling, if that standard proves so unworkable that the PTO ended up rescinding it in the context from which it arose, it would need to consider whether it’s unworkable in the context to which [the Director] imported that definition here.” Walker ended by requesting the court remand the case to the PTO “to reconsider the intervening policy change.”
We will continue monitoring this case and report on developments.