Guest Post: A Solution to the OpenSky Problem

Joe Matal is a former Acting Director and Acting Solicitor of the USPTO and a current partner at Haynes and Boone, where he specializes in PTAB trials and Federal Circuit appeals.

I have written several times about the $2.2 billion verdict in the VLSI v. Intel case.  The case is extraordinary not just because of the size of the verdict, but because Intel was blocked from challenging the patents by the Fintiv policy—and the patents are clearly invalid.  

The specification for the main patent discloses the insight that in an integrated circuit “the processor may be able to operate at a lower voltage than is possible for the memory.”  That is, “in many embodiments, the memory has a higher minimum operating voltage than the processor.”

Armed with this insight, the patent claims the invention of giving the processor a lower “regulated voltage” if it can operate at a lower voltage than the memory.  In other words, give each component only the power that it needs.    

As I wrote last September,

Integrated circuits have been around since the early 1960s.  They were used heavily in the space program in the build up to the moon landings.  The VLSI patent’s filing date is 2006.  You might think that in the intervening 40 years, electrical engineers had come to appreciate that the different parts of an integrated circuit sometimes have different voltage needs.  It is hard to imagine that a judge with an engineering degree and a knowledge of patent law would not have agreed that the claims were obvious.  

The VLSI case offers a stark illustration of why PTAB review is necessary.  A reliable check on post-issuance patent validity is essential if the United States is to maintain an advanced manufacturing capability.  It would make little sense to invest the billions of dollars that it costs to build a new chip fab if equivalent amounts could be taken away by a patent as weak as VLSI’s.  

Throughout 2021, however, there was very little commentary on this case in the patent press.  The fact that one of our nation’s most important chip makers may be forced to pay ten figures for an invalid patent seemed to be of little interest.  

But all that changed once an entity called OpenSky Industries refiled Intel’s inter partes review petitions as its own and succeeded in having review instituted.  In the last few months, the VLSI case has been the subject of multiple news stories and op-eds, all of them expressing outrage about the case—on behalf of VLSI.  No fewer than seven individuals and groups have filed amicus requests with the USPTO protesting that review was instituted.  Members of the patent community are up in arms about the “harassment” of VLSI, and most recently have alleged that this case poses a dire “PR problem” for the USPTO.  

In light of the renewed interest in this case, allow me to raise several additional points—and to propose a solution to all of these problems.

1. Fintiv enables OpenSky’s business model.

During what has been nearly a decade of AIA proceedings, no one had pursued OpenSky’s strategy of leveraging PTAB challenges against infringement verdicts.  Erich Spangenberg, a patent-assertion financier, briefly tried shorting the stocks of companies whose patents he would challenge, but soon abandoned the strategy once the market wised up and stopped panicking just because a petition had been filed.  

The reason OpenSky’s strategy had not been viable in the past is that when weak patents were asserted in high-stakes cases, the defendants themselves would challenge the patents at the PTAB.  Theoretically, if a defendant’s challenge failed, an entity like OpenSky could file its own PTAB petition.  But filing substantially the same challenge would likely get you a section 325(d) bar, and finding your own prior art and crafting your own grounds is hard.  Litigation defendants are motivated to press their best challenges and tend not to leave low-hanging fruit for a subsequent petitioner to use.

That all changed with Fintiv.  Now there are hundreds of cases where institution-worthy petitions were filed with the PTAB but were not decided on their merits.  All those petitions are publicly available on the USPTO’s website (as required by law) and are ripe for picking.  Because these petitions were not decided on their merits, no 325(d) bar applies.  And because an entity such as OpenSky has not been sued for infringement, “discretionary denial” based on district-court trial dates is not an issue.  

Nor is OpenSky’s supply of filed-but-undecided review petitions going to dry up while Fintiv remains in place.  For district-court cases with a scheduled trial date within a year of when the Board’s decision will issue, it is basically impossible to predict whether a Fintiv bar will apply.  But in cases involving advanced technologies, defendants facing weak patents have little choice but to try to seek PTAB review.  For complex technologies (such as integrated circuits), it is unlikely that a district-court jury will understand or even engage with an obviousness challenge based on patents and printed publications.  

These defendants are going to keep filing PTAB challenges—and Fintiv ensures that a portion of those challenges will remain in suspended animation.  Those who are upset about OpenSky’s activities should also support draining the Fintiv swamp.  It is the steady supply of carefully researched and prepared but unresolved PTAB petitions that makes OpenSky’s business model viable. 

2. The real scandal is the damage that the VLSI verdict would do to the U.S. economy.

The USPTO, after extensive briefing by the parties and a careful analysis by the Board, has now found that it is at least “reasonably likely” that both of VLSI’s patents are invalid.  Indeed, VLSI’s own briefing presented only a cursory merits defense of the patents, instead relying first and foremost on various “discretionary denial” arguments. 

In one of its preliminary responses, VLSI does highlight the “enormous investment” that it has made in its district-court litigation.  It notes that this investment includes “testimony from over a dozen expert and percipient witnesses” and the work of “forty-four attorneys [who] appeared in the case.”

The patent system, however, exists to encourage investment in research and development, not in litigation.  VLSI is not a research entity or a manufacturer.  It is one of the litigation arms of Fortress Investment Group, a hedge fund that invests in patent assertion—and which is now principally owned by a Japanese conglomerate.  

The Biden Administration recently announced economic policies that emphasize the importance of manufacturing advanced products in the United States.  Microprocessors are clearly such a technology—indeed, they are critical to many other industries in the United States.    

It would be hard to think of a policy that would be more damaging to U.S. economic interests than to allow $2 billion to be extracted from one of our nation’s premier chip manufacturers based on invalid patents and transferred to a foreign hedge fund.  The Administration would have to be insane to allow this.  If it does so, it may as well jettison its new economic policies and announce that the lawyers and litigation investors come first and all manufacturing can be conducted in China and other foreign countries.  

3. To stop OpenSky, let Intel join the case.

Although OpenSky is currently adverse to VLSI, OpenSky is not Intel’s ally.  OpenSky has no stake in the underlying chip technology or in obtaining an authoritative determination of patent validity.  In this sense, OpenSky and VLSI are two sides of the same coin.  What both dread most is the possibility that the PTAB will reach a final decision in these cases.  

To cure the abusive behavior of both these entities, the USPTO should allow Intel to join the instituted reviews.  Intel timely filed joinder motions in the cases, and Congress expressly contemplated that a party filing such identical joinder petitions would be allowed to join “as of right.”  

The legislative purpose behind such joinder was to prevent exactly what appears to be happening in this case: a patent owner buying off one petitioner who succeeded in instituting a review so that it can enforce an invalid patent against another party.  Joinder would ensure that Intel—the only party with a legitimate interest in the underlying technology—can have the patent’s validity finally determined.  

Allowing joinder would also shut down the OpenSky business model.  It would make little sense for such an entity to even pay the filing fees for a petition if a party with a stake in the matter could join the proceeding and see it through to conclusion.  A decision on the merits would eliminate any opportunity for an extortionate settlement.  Joinder would make this entire case a deadweight loss for OpenSky’s investors—who, like Spangenberg, would likely move on to more productive investment opportunities. 

Conclusion

Those who are unhappy about OpenSky should also acknowledge the other pertinent aspects of the situation: that none of this would have happened if PTAB petitioners could still reliably get their cases heard on the merits, and that allowing Fortress to collect $2 billion for what are likely invalid patents would be a major black eye to the patent system.  

To all those writing or complaining about OpenSky, I issue the following challenge: join me in also urging that joinder be allowed in the case and that Fintiv be repealed.  That would be the simplest and most effective way of putting all these embarrassments behind us and ensuring that they do not happen again.