Director Kathi Vidal assumed the role of Director of the U.S. Patent and Trademark Office (“PTO”) in April 2022. Prior to her appointment as the director of the PTO, Director Vidal was a senior partner and intellectual property litigator at Winston & Strawn and a member of the executive committee of the firm. She had also been a principal at Fish & Richardson P.C., prior to her time at Winston & Strawn LLP, and had served as a member of the management committee. There is little doubt that she brought a deep understanding of patent disputes and district court litigation to her leadership at the PTO. This may result in making the Patent and Trial Appeal Board (“PTAB”) a more popular venue for patent disputes.
A Brief History of the PTAB and its Impact on Patent Law
In 2012, the Leahy-Smith America Invents Act (“AIA”) created a system for challenging patents outside district courts using a post-grant review process before the PTAB. The purpose of this new forum was to provide “a more efficient and streamlined patent system that [would] improve patent quality and limit unnecessary and counterproductive litigation costs.”1 This efficiency is achieved when an accused infringer challenges the validity of a patent to resolve the question of validity in approximately eighteen months and with limited discovery, as compared to the lengthy and far greater expense needed to litigate the case in the district court. Since the AIA was passed, challenges to patent validity have primarily occurred through inter partes reviews (“IPRs”).2 Though there have been many patent disputes initiated before the PTAB, federal district courts are still the primary venue for resolving patent disputes. An analysis published by Unified Patents in 2022 indicates that over the last nine years the number of patent disputes at the PTAB have averaged about 39.5% of the disputes in the district court.3 On the other hand, district court litigation is a key driver of PTAB proceedings, as nearly two thirds of patents challenged in IPR proceedings are involved in parallel district court litigation involving the same patent and parties.4
Historically, parties could request review of a PTAB decision or request that an opinion be made precedential by submitting a written request to the Precedential Opinion Panel (“POP”).5 In June 2021, the U.S. Supreme Court issued a decision in U.S. v. Arthrex making decisions by Administrative Patent Judges (“APJs”) reviewable by the PTO director.6 The ability to have a decision reviewed by the PTO director provides another avenue for petitioners to seek rehearing of PTAB decisions. Review of decisions by the director may also serve to clarify the standards for instituting an IPR challenge and determining validity of a patent.
Director Vidal’s Approach as PTO Director
The PTO Director’s role has always been an important feature of the patent landscape, and the Arthrex decision made it even more so. Director Vidal has also taken an active role in reviewing PTAB decisions and clarifying PTAB policy. At the time of the Arthrex decision, an interim director implemented an interim process for director review, and only three requests were granted from the over a hundred requests submitted.7 After she became director, in just four months, between June and September 2022, Director Vidal initiated review of at least eight cases—most reviews were initiated on her own accord. She reviewed both final decisions on validity, as well as IPR institution decisions. Since assuming leadership of the PTO, Director Vidal has clarified policy regarding discretionary denials, clarified the standards for review and institution of serial petitions, and sanctioned abuse of the forum.
Making IPRs a Realistic Alternative to District Court Litigation
Two months after her confirmation, Director Vidal provided guidance on discretionary denials under Fintiv. Apple Inc. v. Fintiv Inc. is a decision that was made precedential by the PTAB in May 2020.8 In Fintiv, the PTAB identified six factors to be considered in exercising discretion to deny an IPR petition (without considering the strength of the invalidity case presented in the petition): (1) whether the district court has stayed the infringement case pending the outcome of the PTAB case; (2) the proximity of the trial date to the PTAB’s deadline to issue a decision, which would come one year after a review is instituted; (3) the amount of resources the court and parties have invested in the district court case; (4) overlap between the issues raised in the petition and those being considered in district court, for example if both the IPR petition and the invalidity case in the district court involve the same prior art and arguments, that would weigh in favor of denying the petition; (5) whether the petitioner is the defendant in the upcoming district court case over the patent; and (6) any other circumstances that could impact the case, for example if an invalidity argument in the petition is particularly strong, and institution may serve the interest of overall system efficiency and integrity.
After the PTAB designated Fintiv precedential, in the spring of 2020, the number of discretionary denials spiked.9 Later that year, however, another precedential decision, Sotera Wireless v. Masimo Corp, introduced a potentially powerful tool to avoid discretionary denials under Fintiv. In Sotera, the board held that a petitioner may clear the Fintiv bar if they stipulate not to pursue invalidity arguments in the district court, which were raised, or could have reasonably been raised before the PTAB.10 While there was a noticeable drop in discretionary denials overall in 2021, the year after the Sotera decision, there only seemed to be a slight change in discretionary denials due to Fintiv.11
In 2022, soon after she assumed her position, Director Vidal clarified the interplay between Sotera and Fintiv, specifying when discretionary denial is appropriate in view of a parallel litigation. In particular, on June 21, 2022, Director Vidal issued guidance prohibiting the board from denying a petition by relying on the Fintiv factors if a petitioner has provided a “Sotera stipulation.”12 She also clarified that the Fintiv analysis cannot be applied to result in a discretionary denial in cases where the merits of the petition are strong, or the parallel litigation is proceeding before the U.S. International Trade Commission.13 By clarifying the standard for discretionary denials and providing petitioners with clear guidance on how to eliminate the risk of a discretionary denial, Director Vidal reinforced IPRs as a meaningful alternative to district court litigation. Director Vidal’s guidance provides assurance to petitioners that the substantial effort and filing fees will not be wasted. The clarified policy increases the likelihood that an IPR petition initiates a review that will resolve the patent dispute before the case is resolved in district court. The data on discretionary denial through the third quarter of 2022, when compared to discretionary denials in 2021, indicates that Director Vidal’s guidance has been effective in reducing discretionary denials. The data shows a drastic drop in the number of discretionary denials based on the Fintiv factors.14
Despite her impact on PTAB policy, Director Vidal does not operate in a vacuum. The Federal Circuit’s decision in Apple Inc. et. al v. Vidal, may have an impact on discretionary denials under Fintiv.
In Apple Inc. et. al v. Vidal, the Federal Circuit is considering appeals from Apple, Cisco, Google, and Intel. The technology companies are appealing a lower court decision to dismiss their claims on procedural grounds. The appellants sued the USPTO in the District Court for the Northern District of California, alleging that the policy of discretionary denial based on the NHK and Fintiv factors was inconsistent with the AIA, invalid under the Administrative Procedure Act, and likely to lead to “speculative, unpredictable, and unfair outcomes.”15 One factor that has likely catalyzed the desire for this litigation is the feeling by appellants that a federal court can effectively deny accused infringers access to the IPR process by scheduling trials to take place before the timelines used by the PTAB for issuing a written decision, even if the trial ultimately takes place much later than that deadline.
The technology companies argued at the district court level that “[t]he agency’s application of Fintiv has dramatically reduced the availability of IPRs, regardless of the weakness of the patent claims being challenged, thereby undermining IPR’s central role in protecting a strong patent system.” The Northern District of California Court concluded that the parties “alleged injury is not that they were denied IPR, but that the director is using unlawful considerations that increase the risk of denial, thereby depriving them of the benefits of IPR.”16 The court held that that while the parties had a sufficient injury to proceed, they could not overcome the fact that their claims are barred by the AIA, as under the court’s reading of the law, decisions as to whether petitions are heard are final and not appealable.17
In their appeal to the Federal Circuit, the technology companies argued that barring their appeal on procedural grounds would allow the PTO to “adopt any rule , no matter how unlawful or irrational, with no judicial scrutiny.”18 During oral arguments, appellants stated that “[i]f th[eir] suit is precluded, the consequence is that there is no avenue available for any rule governing institution of IPR – not on appeal, not on mandamus, not under the APA.”19 In making this argument, and responding to questioning from the judicial panel, counsel for the appellants highlighted a prior ruling from the Federal Circuit on a mandamus petition from a decision by PTAB denying Mylan’s IPR petition under the Fintiv-NHK analysis. There the Federal Circuit held that “the scope of review of a mandamus petition over a denial institution is very narrow” and limited to constitutional issues.20 Given this precedent on mandamus petitions for denial of institution, it would seem unlikely that the Federal Circuit would reverse direction and now conclude that a denial of institution by the PTAB should be subject to appeal but that remains to be seen.
On the other hand, because of the possibility that the PTO director can review institution decisions, there is a possibility that regardless of the decision the Federal Circuit reaches in Apple v. Vidal, it will not have a monumental impact on PTAB practice.
Allowing Serial Petitions to Give Petitioners a Chance to Make their Invalidity Case
Another area of importance for petitioners looking to access the IPR process is serial IPR petitions. Serial petitions occur where an IPR petition challenges a patent and a subsequent IPR petition challenges the same patent. PTAB has applied General Plastic Industrial Co. Ltd. v. Canon Kabushiki Kaisha, to deny serial petitions on a discretionary basis. Director Vidal weighed in on discretionary denial where the serial petition is filed by the same party. She clarified that future challenges to the same patent should not be automatically denied, particularly if the merits of the first petition were not evaluated by the PTAB.21 In her view, the need to improve the quality of patents outweighs any inefficiencies associated with having to review petitions challenging the same patent multiple times. She noted that where a first-filed petition was discretionarily denied or otherwise not evaluated on the merits, it could still result in a denial under the General Plastic factors if there is evidence the petitioner strategically “stage[d] their prior art and arguments in multiple petitions, using the [PTAB’s] decisions as a roadmap, until a ground [was] found that results in a grant of review.”22
Another important circumstance involving serial petitions occurs when a patent owner asserts the same patent(s) against multiple defendants. Director Vidal has not spoken directly to the standard for discretionary denial of subsequent IPR petitions filed by different petitioners challenging the same patent. PTAB litigants should follow developments in Director Vidal’s reviews closely to see whether she provides any guidance on this issue in the future.
Discouraging Abuse of the PTAB
The PTAB issued decisions granting institution of IPR petitions filed by OpenSky Industries, LLC (“OpenSky”) and Patent Quality Assurance (“PQA”), challenging patents owned by VLSI Technology (“VLSI”).23 VLSI asserted the patents against Intel and obtained a $2.2 billion jury verdict. Both OpenSky and PQA were entities created after the billion-dollar verdict against Intel, and their IPR petitions mirrored petitions that had been filed by Intel and denied by the PTAB under a Fintiv analysis. Director Vidal initiated review of the Board’s institution decision on June 7, 2022, and joined Intel as a party to both IPRs.
To aid in her review of the OpenSky institution decision, Director Vidal asked the parties to respond to interrogatories and mandated additional discovery to assist her in evaluating an issue of first impression: “what actions the Director, and by delegation the Board, should consider when addressing allegations of abuse of process or conduct that otherwise thwarts the goals of the ‘USPTO’  and the ‘AIA.’”24 OpenSky failed to engage in the mandated discovery. In October 2022, Director Vidal applied a negative inference to OpenSky’s failure to respond to discovery, and in a lengthy opinion, concluded that OpenSky was using the IPR process to extract payment from either Intel or VLSI without meaningfully pursuing unpatentability grounds
OpenSky had offered to undermine or pursue the IPR in exchange for monetary payment. After filing the IPR petition but before it was instituted, OpenSky engaged in settlement discussions with VLSI. After the institution of the petition, OpenSky sought monetary payment from Intel in return for success in the IPR. When Intel declined OpenSky’s proposal, OpenSky reengaged in discussions with VLSI. OpenSky promised VLSI that if PQA, which was seeking to join the proceeding, was successful in its joinder petition, OpenSky would not produce its expert for deposition. As PQA had relied on OpenSky’s expert, OpenSky reasoned that failure to produce the expert would be fatal to PQA’s case. OpenSky pressed the urgency of its proposal to VLSI noting that any deal would not benefit VLSI unless it led to dismissal of the petition, or affirmance of the claims. OpenSky also stressed that there was substantial value to VLSI in settling with OpenSky before the Board ruled on Intel’s and PQA’s joinder petitions, which at the time were pending. VLSI reported the scheme to the Board, which caused OpenSky to end its discussions with VLSI. The record also showed that once Intel was joined to the case, it became clear that OpenSky had no interest in mounting invalidity challenges and was happy to let Intel do all the work necessary to litigate the invalidity grounds.
After reaching the conclusion that OpenSky had abused the process, Director Vidal sanctioned OpenSky by restricting it from participating actively in the IPR and instructed the PTAB to review the original decision to institute the petition and then proceed, with Intel now driving the process. Director Vidal also directed OpenSky to provide briefing to show why it should not have to pay compensatory damages, including attorney fees.
On December 16, 2022, while the institution of PQA’s IPR was under review, Director Vidal issued an order staying the IPR. Less than a week later, Director Vidal dismissed OpenSky and PQA from their respective IPRs. She concluded that, like OpenSky, PQA abused the process, even though its conduct was less egregious than OpenSky’s conduct. She also faulted VLSI for supporting its arguments for rehearing regarding the institution decisions with misleading statements of law and fact. She ordered VLSI to provide briefing as to whether it should be responsible for attorney fees for the effort entailed by Intel in responding to VLSI’s rehearing request. She noted that though “the amount of these fees may not be significant,” she wanted to “make clear to the parties and public that [she would] hold attorneys and parties accountable for the ethical obligations they owe to the board.”25 She allowed Intel to proceed with the petitions as the party-in-interest and affirmed the PTAB’s decision to institute the IPR petitions after the review of their initial institution decisions.
These decisions by Director Vidal demonstrate that she intends to hold petitioners who abuse the IPR process for financial gain, or other improper purpose, accountable. While her sanctions may not be financially punitive, there is reputational harm incurred from having the director of the PTO publicly communicate that a petitioners’ or respondents’ conduct is unethical. This risk of reputational harm will deter practitioners from similar filings and arguments in the future. Petitioners are less likely to raise arguments that mischaracterize the law or facts, and both petitioners and patent owners are also assured that parties cannot use the PTAB as a venue to file frivolous IPRs to extract economic concessions.
Director Vidal has been in her role for less than a year. It remains to be seen all the ways in which she will impact patent disputes at the PTAB. Her orders clarifying the limits of discretionary denials, where there is parallel district court litigation or serial petitions, and her willingness to enforce ethical standards in the petition process show that she is paying close attention to the operation of the PTAB and is willing to use her power as head of the PTO to provide guidance to the Administrative Patent Judges of the PTAB and PTAB practitioners in important ways.
1 77 F. Reg. 48680-01 (Aug. 14, 2012)
2 Figure 19 2022 PATENT DISPUTE REPORT: FIRST HALF IN REVIEW, available at https://www.unifiedpatents.com/insights/2022/7/1/2022-patent-dispute-report-first-half-in-review
3 Unified Patents, 2022 Patent Dispute Report: First Half in Review, dated July 1, 2022, Figure 1, available at https://www.unifiedpatents.com/insights/2022/7/1/2022-patent-dispute-report-first-half-in-review/
4 RPX, The PTAB Sees a Relatively Small Percentage of Patents Litigated in District Court, Sept. 16, 2020, available at https://www.rpxcorp.com/data-byte/the-ptab-sees-a-relatively-small-percentage-of-patents-litigated-in-district-court/
5 Patent Trial and Appeal Board, Standard Operating Procedure 2 (Rev. 10), at 2-3, 11 (noting any party, PTAB member, or member of the public may request that an opinion be made precedential by submitting a written request to the Chief Judge of the PTAB within 60 days of issuance of the opinion. Precedential decisions may be cited to and replied upon in other PTAB cases). The POP typically includes the Director, the Commissioner for Patents, and the Chief Judge of the PTAB.
6 200 U.S. 321 (2021)
7 Darby and Griswold, USPTO Director Review Is a Rare Remedy After Arthrex, LAW360, available at https://www.fr.com/insights/thought-leadership/articles/fish-principals-author-law360-article-uspto-director-review-is-a-rare-remedy-after-arthrex/
8 Apple Inc. v. Fintiv, Inc., Case IPR2020-00019, Paper No. 11, March 20, 2020, available at https://www.uspto.gov/sites/default/files/documents/IPR2020-00019%2C%20Apple%20v.%20Fintiv%2C%20Paper%2011%20%283.20.20%29.pdf noting date Designated as 5/5/20
9 Trial Statistics IPR, PGR, CBM from the Patent Trial and Appeal Board September 2020, slide 6 https://www.uspto.gov/sites/default/files/documents/trial_statistics_20200930.pdf
10 IPR2020-01019 (Dec. 1, 2020), available at https://www.uspto.gov/sites/default/files/documents/SoteravMasimoWirelessIPR2020-01019Paper12.pdf
11 Q3 PTAB Discretionary Denial Report: Use of Fintiv Drops to Near-Zero, available at https://www.unifiedpatents.com/insights/2022/10/27/q3-ptab-discretionary-denial-report-use-of-fintiv-drops-to-near-zero
12 Vidal, Memorandum “INTERIM PROCEDURE FOR DISCRETIONARY DENIALS IN AIA POST-GRANT PROCEEDINGS WITH PARALLEL DISTRICT COURT LITIGATION,” June 21, 2022.
13 Id. at 3.
14 Q3 PTAB Discretionary Denial Report: Use of Fintiv Drops to Near-Zero https://www.unifiedpatents.com/insights/2022/10/27/q3-ptab-discretionary-denial-report-use-of-fintiv-drops-to-near-zero
15 Apple et. al v. Iancu, 5:20-cv-06128, N.D. Cal, Complaint.
16 Apple et. al v. Iancu, 5:20-cv-06128-EJD, Dkt. # 64, 65 (N. D. Cal. Nov. 10, 2021)
18 Apple et. al v. Vidal, 22-1249, Dkt. #18 (Fed. Cir. Feb. 8, 2022)
19 Kass, Fed. Cir. Stuck on How to Appeal PTAB Policy In Fintiv Case, Jan. 12, 2023, available at https://www.law360.com/articles/1551185/fed-circ-stuck-on-how-to-appeal-ptab-policy-in-fintiv-case
20 Mylan Lab. v. Janssen Pharmaceutica, N.V., 21-1071, Dkt. #32 (Fed. Cir. Mar. 12, 2021)
21 Director PTAB Review Decision of Code 200, UAB et. al v. Bright Data LTD., IPR2022-00861, IPR2022-00862 (Aug. 23, 2022), available at https://www.law360.com/articles/1523881/attachments/0
22 Gen. Plastic Indus. Co. v. Canon Kabushiki Kaisha, IPR2016-01357, Paper No. 19 (PTAB Sept. 6, 2017), at 17
23 OpenSky Ind. LLC et. al v. VLSI Tech. LLC, IPR2021-01064, Paper No. 47 (Jul. 7, 2022); Patent Quality Assurance, LLC et. al v. VLSI Tech. LLC, IPR2021-01229, Paper No. 35 (Jul. 7, 2022).
24 OpenSky Ind. LLC et. al v. VLSI Tech. LLC, IPR2021-01064, Paper No. 47 (Jul. 7, 2022), at 7.
25 OpenSky Ind., LLC et. al v. VLSI Tech LLC, IPR2021-01064, Paper No. 121 (Dec. 22, 2022) at 3.
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