PTAB's Fintiv Factors Mischief Unsurprisingly Causes Additional Mischief

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Under the NHK-Fintiv rule, the USPTO’s Patent Trial and Appeal Board considers and balances certain factors when deciding whether to exercise its discretion under 35 U.S.C. § 314(a) to deny institution of an inter partes review due to parallel district court litigation, without consideration of the substantive merits of the petitioner’s patent invalidity challenge. A patent owner who has benefitted from a so-called Fintiv denial of a litigation adversary’s IPR petition has now complained that institution of an IPR based on the merits of an identical petition filed by a stranger to the litigation – to whose petition the Fintiv factors simply do not apply -- somehow violates public policy regarding the American patent system. PTAB mischief begets more PTAB mischief, and no one should be surprised.

Inter partes review (IPR) was established by the America Invents Act (AIA) to provide a streamlined and specialized way to eliminate invalid patents without the substantial costs, burdens, and delays of litigation. A substantial feature of IPR is that instituted reviews are conducted by panels of three specially trained and experienced Administrative Patent Judges who are members of the USPTO’s Patent Trial and Appeal Board (PTAB). For the first six to seven years of existence of the IPR procedure, the decision to institute or deny institution of review was largely based on the substantive merits of the petition.

Then, along came the NHK-Fintiv rule. According to this non-statutory rule adopted by PTAB outside of the usual rulemaking process, PTAB considers and balances certain factors when deciding whether to exercise its discretion under 35 U.S.C. § 314(a) to deny institution of an IPR due to the existence of parallel district court litigation.[1] The Fintiv factors are:

1.            whether the court granted a stay or evidence exists that one may be granted if a proceeding is instituted;

2.            proximity of the court’s trial date to the Board’s projected statutory deadline for a final written decision;

3.            investment in the parallel proceeding by the court and the parties;

4.            overlap between issues raised in the petition and in the parallel proceeding;

5.            whether the petitioner and the defendant in the parallel proceeding are the same party; and,

6.            other circumstances that impact the Board’s exercise of discretion, including the merits.

Because overlap exists among the factors and some facts may be relevant to more than one factor, PTAB says that it “takes a holistic view of whether efficiency and integrity of the system are best served by denying or instituting review.” However, whether denial or institution of review serves to promote or maintain “integrity of the system” depends entirely on one’s point of view and particular situation. Moreover, in actual practice, PTAB rarely, if ever, actually considers the substantive merits of a petition when discussing the sixth Fintiv factor.

A recent situation illustrates how PTAB’s mischief in formulating and unpredictably applying the vague Fintiv factors has unsurprisingly and unavoidably resulted in additional mischief. Whether that further mischief serves to promote or maintain “integrity of the system” is also completely dependent on one’s particular point of view, as will become clear.

VLSI Technology LLC sued Intel Corporation for patent infringement of U.S. Patent No. 7,725,759 (the 759 Patent) in 2019. Intel then filed two petitions for IPR challenging validity of the 759 Patent. PTAB considered the preliminary submissions of Intel and VLSI and denied institution of IPR in both cases in exercising its discretion based upon its evaluation of the Fintiv factors. PTAB did not evaluate the substantive strength of the merits of Intel’s validity challenges presented in either position. A federal court jury trial was held in the U.S. District Court for the Western District of Texas. VLSI prevailed and the jury awarded damages of $2.175 billion against Intel for its infringement of the 759 Patent. That VLSI benefitted greatly from PTAB’s reliance on the Fintiv factors cannot be seriously denied.

After the jury verdict against Intel was announced, a new company called OpenSky Industries, LLC was formed for the sole purpose of copying verbatim Intel’s previously filed IPR petitions attacking validity of the 759 Patent. Because there is no parallel district court litigation, nor could there ever be, between VLSI and OpenSky, the PTAB’s Fintiv factors are irrelevant in the context of OpenSky’s IPR petition. After reviewing the parties’ preliminary submissions, and after considering for the first time the substantive merits of the validity challenges previously asserted by Intel in its Fintiv-denied petitions, PTAB has granted institution of an IPR trial of VLSI’s 759 patent. Should OpenSky’s IPR succeed, the entirety of the VLSI-Intel litigation after Intel’s petitions were denied, including the jury trial and the ongoing appellate proceedings, will have been precisely the sort of waste of the parties’ time and money, and federal court resources, that the IPR mechanism was specifically created to avoid when the U.S. Congress enacted the America Invents Act.

Now, however, VLSI wants to stop the IPR trial of its 759 Patent from ever deciding whether the patent should not have been granted in the first place. In addition to seeking rehearing of PTAB’s decision to institute the IPR trial, VLSI has also requested review of the institution decision by PTAB’s Precedential Opinion Panel (POP).[2] VLSI asserts that the POP’s answers to the following “precedent-setting questions of exceptional importance” are required:

1.         Whether the Office should exercise its discretion to deny institution of petitions filed substantially for the purpose of harassing patent owners who prevail in Article III courts, such as re-filings of previously rejected petitions by newly formed entities seeking to extract compensation in exchange for withdrawing such abusive challenges.

2.         Whether the Office should preclude petitioners from relying on inadmissible hearsay in the form of declarations prepared for separate proceedings for purposes of institution.

With respect to the first question, VLSI fails to acknowledge anywhere in its POP review request any of the following points: (1) that the AIA, 35 U.S.C. Section 311(a), specifically allows any person who is not the owner of a patent to file a petition seeking to institute an IPR of a patent, without regard to the petitioner’s motives; (2) that while VLSI may feel it is being harassed, the fact that PTAB instituted the IPR trial shows that the IPR mechanism is working as intended, that is, as a way to clear the field of patents that should never have been granted in the first instance. The fact that VLSI’s $2.15 billion damages award against Intel may be in jeopardy should be of no consequence to the POP.

In its request for rehearing, VLSI argues that by focusing on the general inapplicability of the Fintiv factors to OpenSky’s petition, PTAB “failed to weigh the overarching interests of fairness to the parties and the integrity of the patent system.” Intel, for its part, undoubtedly feels that PTAB’s previous denials of its own IPR petitions on the basis of the vague and discretionary Fintiv grounds likewise failed to weigh the overarching interest of fairness to the parties and the integrity of the patent system. After all, Intel was denied the opportunity to have the 759 Patent reviewed by a panel of three experienced and specially qualified Administrative Patent Judges, as intended by the U.S. Congress. That result could reasonably be argued as equivalent to driving a wooden stake through the heart of any conceivable patent system “integrity.”

VLSI’s second question is far more mundane and of far less importance. OpenSky’s petition, including all of its exhibits and its associated expert declaration, were copied verbatim from Intel’s previously denied proceeding. OpenSky paid the same technical expert initially engaged by Intel to serve as OpenSky’s expert, thus ensuring that OpenSky could provide that expert for a deposition in the event VLSI chooses to interrogate and cross-examine the expert. VLSI’s question reflects an apparent lack of awareness that this happens all the time and is, in fact, a common feature of current PTAB legal practice. In the typical situation, PTAB institutes an IPR trial on the first petition filed by an accused infringer, the parties then settle their dispute, and the IPR is then terminated by PTAB. One or more subsequently accused infringers will “hire” the same technical expert, change the title page of the expert’s report to reflect the new petitioner, and re-file an otherwise exact copy of the set of papers previously filed and which already resulted in institution of an IPR trial of the relevant patent. Once PTAB institutes IPR in the first-filed (but later terminated) proceeding, it is hard-pressed to deny institution in response to any subsequently filed identical petitions. This issue is hardly important at all, let alone being of “exceptional importance.”

In essence, VLSI has already once benefitted from the Fintiv factors employed by PTAB despite those factors being found nowhere in the AIA, and the factors being seemingly contrary to the interests of “patent system integrity” and fairness to the petitioner, as well, as many have argued (without success, to date). In VLSI’s view, PTAB should now, through its POP review mechanism, establish additional non-statutory restrictions on who can and cannot file petitions for IPR, to VLSI’s further advantage and benefit. 

A patent owner who has benefitted from a so-called Fintiv denial of a litigation adversary’s IPR petition has now complained that institution of an IPR based on the merits of an identical petition filed by a stranger to the litigation – to whose petition the Fintiv factors simply do not apply -- somehow violates public policy regarding the American patent system. PTAB mischief begets more PTAB mischief, and no one should be surprised.