A Virginia judge spent two tense hours Wednesday unraveling whether VLSI Technology LLC can move forward with its VLSI, PQA conspiracy claims, accusing Patent Quality Assurance LLC of fraud, extortion, and abusing the federal patent review system during its successful attack on a lucrative VLSI chip patent. The hearing marked the latest chapter in a sprawling patent war already tied to billions of dollars in litigation.

VLSI Says PQA's Patent Challenge Was Built on a “Scam”

VLSI alleges PQA manipulated the Patent Trial and Appeal Board (PTAB) process, claiming the South Dakota entity wasn’t properly incorporated and used its IPR petition as leverage to extort money. PQA fired back, insisting VLSI is improperly asking a Virginia state court to second-guess federal PTAB determinations and the corporate rules of another state.

Judge Rebecca J. Wade previously tossed VLSI's first lawsuit in August, ruling the initial claims — centered on misuse of inter partes reviews — lacked merit. Now she is scrutinizing an amended complaint alleging PQA fraudulently misused the IPR system, a twist VLSI argues should survive dismissal.

Debate Over Res Judicata and Judicial Overreach

PQA’s attorney Craig C. Reilly insisted the new complaint merely repackages old arguments and is barred by res judicata. VLSI’s counsel Ellen Marcus countered that the doctrine only applies to separate actions, not refined amendments, and emphasized they are not trying to revive claims dismissed previously with prejudice.

Reilly shot back sharply: “They’re asking for forgiveness for violating your order — and blaming me for calling it res judicata.”

A Billion-Dollar Patent Battle Looms in the Background

The dispute stems from PQA’s successful challenge to a VLSI patent tied to a blockbuster infringement case against Intel, in which VLSI once won a $2 billion judgment. Parts of that verdict have since been vacated or reversed, but the PTAB challenge — which Intel was later allowed to join despite being time-barred — remains a critical pressure point.

Former USPTO Director Kathi Vidal found that PQA filed its IPR to extract a payout and misrepresented its relationship with a key expert. She sanctioned PQA by letting Intel take over the challenge — a decision VLSI is fighting elsewhere. Although Vidal ultimately softened her extortion characterization, she upheld the misconduct finding.

VLSI now claims it recently discovered the person listed as PQA’s organizer doesn’t exist, undermining the legality of the entire IPR. But PQA argues the USPTO already determined it was the real party in interest, and VLSI chose not to appeal.

“They want a jury of Alexandria residents to decide whether the PTO director made a mistake,” Reilly said. “This court has no jurisdiction to do that.”

Sham Litigation, Noerr-Pennington, and the Boundary of “Extortion”

A core issue was whether PQA’s actions are protected under the Noerr-Pennington doctrine, which shields petitioning activity from liability — unless the petition is a sham.

Judge Wade pressed Reilly on the potential consequences: “Does it matter that the IPR succeeded if, without the fraud, the hearing never would have happened? Why would there not be damages for that?”

Reilly maintained a state court cannot unwind federal findings — and stressed that even if PQA’s IPR had been dismissed, OpenSky Industries had filed an identical challenge that Intel could have joined.

VLSI attorney Michael Schachter argued that Noerr-Pennington does not immunize fraudulent tactics: “They told the PTAB their mission was to safeguard the integrity of the patent system — while telling us, ‘We will continue pressing a fraudulent claim unless you give us what we know we’re not entitled to.’ That is extortion.”

Reilly dismissed that as “hyperbole,” saying it was nothing more than a standard settlement discussion: “We didn’t bring a baseless claim. We won on the merits.”

No Ruling Yet as the Court Navigates Murky Territory

The hearing also explored limitations periods and what evidence can be aired at the pleadings stage. Judge Wade, unlike before, did not rule from the bench.

VLSI is represented by Ellen Marcus of Holmes Costin & Marcus PLLC and Michael Schachter of Willkie Farr & Gallagher LLP.

PQA is represented by Craig C. Reilly of the Office of Craig C. Reilly.