May 2014
Managing Intellectual Property
Authored by Eric C. Jeschke and Jeffrey C. Totten
Since September 2012, parties sued for infringing a U.S. patent have had a new way to take control of the lawsuit against them–by challenging the patent's validity through an inter partes review (IPR) proceeding at the USPTO.
IPR proceedings present an attractive alternative to defending against a patent-infringement suit in district court. They are streamlined proceedings with limited discovery, no considerations of infringement, and a guarantee of a validity determination within 18 months. Further, by petitioning for an IPR, the defendant faces a lower burden of proving invalidity than it would by making the same arguments in district court. Since IPR procedures became available in September 2012, more than 1,000 petitions for IPR proceedings have been filed, most of them involving patents being asserted in district court litigation. Parties have routinely asked district courts around the country to stay pending patent litigations in favour of these IPRs.
Courts deciding on whether to stay ongoing patent litigation pending the outcome of IPR proceedings typically consider (1) the status of discovery and trial in the district court; (2) whether a stay will simplify the issues before the court; and (3) whether a stay would unduly prejudice or disadvantage the non-moving party (i.e., the patent owner). Reviewing the courts' approaches to these factors reveals several lessons for parties hoping to stay a pending patent-infringement lawsuit. By understanding these trends, a defendant can effectively petition for IPR in a way that increases the chances of later receiving a stay, can decide when best to move for a stay, and can pre-emptively address common concerns raised by district courts analysing stay motions.
Here are four strategies learned from experience of IPR for increasing the likelihood of receiving a stay.
Eager to reduce mounting discovery costs and shift momentum from the patent owner, many accused infringers waste little time and move to stay the related litigation immediately upon filing their IPR request. Although this approach may seem reasonable, parties seeking a stay should strongly consider waiting until after institution of the IPR to file a motion to stay.
Various district courts have refused to speculate as to whether a just-filed IPR petition will simplify the issues before the court. In Endotach Cook Medical (SD Ind, January 28 2014), for example, the Southern District of Indiana found that the fact that "there is no guarantee that the [USPTO] will grant Medtronic's petition for IPR" added to the uncertainty of how much the IPR proceedings would simplify the issues in this case.
As another example, the Northern District of New York in Rensselaer Polytechnic Inst v Apple (NDNY, January 15 2014) found that "whether any issues attendant to this litigation may [be] simplified through the IPR process is speculative primarily in light of the fact the [USPTO] has yet to accept or deny Apple's petitions for further review." Decisions from the other courts have applied similar reasoning in denying stay requests that were filed before the USPTO determined whether to institute an IPR petition, for example Otto Bock Healthcare v Össur HF (CD Cal, December 16 2013) and Dane Techs v Gatekeeper Sys (D Minn, August 20 2013).
Courts have been influenced by the fact that an IPR petition "can be pending before the [USPTO] for up to six months before the agency decides to 'initiate' an inter partes review", as noted in Automatic Mfg Sys v Primera Tech (MD Fla, May 13 2013). The Automatic Manufacturing court, for example, expressed concern that if the USPTO chose not to proceed, "then this action will have been left languishing on the Court's docket with no discovery, no positioning of the parties on claim construction, and no dispositive motions."
Other courts have also found the mere filing of an IPR petition, with the possibility of a USPTO institution within six months, too remote to warrant a litigation stay, see for example Ultratec v Sorenson Commc'ns (WD Wis, November 14 2013) which said no stay where the IPR "may not be complete until well after the current trial date" and Nat'l Oilwell Varco v Pason Sys USA Corp (WD Tex, June 20 2013). Because many district courts look more favourably on stay motions filed after the USPTO institutes an IPR—a process that can take up to six months—defendants are often best served by filing their IPR petition soon after the patent owner files suit, but then waiting for the USPTO to act before seeking to stay the lawsuit. In this manner, the defendant presents the best case for a stay.
There is, however, one geographical exception to the general rule suggesting that a defendant not move for a stay until the USPTO acts. Certain district courts—all in California—have granted "partial" or "conditional" stays halting litigation until the USPTO makes its institution decision. Examples include: Warsaw Orthopedic v NuVasive (SD Cal, January 10 2014) setting a date for the parties to provide a joint status report on the requests for IPR and noting that "[i]f all the asserted claims are subject to review, the stay will continue until the completion of the IPRs"; Evolutionary Intelligence v Apple (ND Cal, January 9 2014) saying a "modest partial stay to learn the [USPTO's] decision whether to grant inter partes review of any (or all) of the asserted claims, however, may be helpful to this action"; Software Rights Archive v Facebook (ND Cal, September 17 2013) granting a motion to stay filed before institution of an IPR "until the court has had an opportunity to review the [USPTO's] decision on whether or not to grant defendants' IPR petitions"; PI-Net Int'l v Focus Bus Bank (ND Cal, August 16 2013) (conditionally granting a stay "up until the September 2013 date that the [USPTO] makes a final determination on whether to grant [the] IPR petitions". An accused infringer before those courts should consider moving for a stay as early as possible to take advantage of this additional opportunity to control the pace of litigation.
In litigation, patent owners often assert multiple claims or even multiple patents. Where an IPR challenges some, but not all, of the claims asserted by the patent owner, courts will be less inclined to stay the litigation. Indeed, even if the USPTO instituted the IPR as requested and cancelled all challenged claims, infringement and validity would remain at issue in the district court—at least as to the unchallenged claims—and potentially require a trial. This was the case in Otto Bock: "The fact that Össur's petition for inter partes review encompasses only two of the four asserted claims in this case further weigh[]s against granting a stay. Had Össur petitioned for review of each of the asserted claims in this case, the review could have eliminated the need for a trial."
District courts have accordingly denied motions to stay when the petitioner has not sought review of all claims asserted in the related litigation. In Davol v Atrium Medical Corp (D Del, June 17 2013) for example, the District of Delaware concluded that, because the accused infringer failed to seek review of one of the three asserted patents, "a stay of this action in its entirety will do little to advance the parties' dispute over the [unchallenged] patent, and allowing litigation to proceed solely with respect to that patent while the parties await a [USPTO] decision on the other two patents-in-suit would invite substantial inefficiency." Other courts have reached similar conclusions where defendants have challenged only selected patents or selected claims, for example: Endotach's no stay based on IPR petition seeking review of only one of the two asserted patents; TruePosition v Polaris Wireless (D Del, October 21, 2013) seeking review of only two of the three claims asserted; Dane Techs's no stay where defendant "has only petitioned for review of two of the three patents in this case". Thus, an accused infringer seeking to stay litigation based on an IPR should, in the petition, seek review of all asserted claims in all of the asserted patents.
But what if counsel or a client has already failed to heed this advice or if the USPTO fails to institute IPR on all challenged claims? Even in these situations, a party can take action to increase the chances of a district court granting a stay. If an earlier-filed petition sought review of only a subset of the asserted claims or patents, a party may consider filing another IPR petition seeking review of the as-yet unchallenged claims. And if the Patent Office institutes review on only a subset of the asserted claims or patents, consider moving (at least in the alternative) for a stay as to the claims that are under review. See, e.g., Pentair Water Pool & Spa v Hayward Indus (EDNC, January 31 2014) (granting a stay only as to the patents for which the USPTO instituted IPR, while allowing case to proceed on the other asserted patents).
Courts also routinely consider whether entering a stay will prejudice the non-moving party—the patent owner. As illustrated by various decisions in the past year, courts may hesitate to stay litigations brought by a patent owner against a direct competitor. Thus, when seeking a stay, the moving party should highlight the absence of competition between the parties if such a favourable factual scenario indeed exists.
As explained, for example in Davol, the direct competitive situation between the parties is "[a]n important factor in determining if a stay will prejudice the plaintiff." Where the patent owner directly competes with the accused infringer, the court is more likely to find undue prejudice based on a delayed opportunity to regain market share. Where the parties "compete head-to-head," harm to the patent owner may be "exacerbated by the fact that defendants' products are sold alongside the patented products at significantly lower prices", as was the case in Procter & Gamble Co v Team Techs (SD Ohio, February 11 2014). Lippert Components Mfg v Al-Ko Kober (ND Ind, January 16 2014) stated that the plaintiff had not presented evidence of the extent of potential lost market share based on a stay but still "presum[ing] that [plaintiff] will be prejudiced to some degree by a stay" because of the competitive relationship with defendant. Hunter Douglas v Nien Made Enter Co (D Colo, January 14 2014) said: "This court finds that plaintiff would be unduly prejudice[d] since during [the pendency of the IPR] Defendants could continue in making sales on the alleged infringing products that could cause continuing harm to Plaintiffs, noting that defendants are direct competitors." Thus, courts routinely deny requests for stay during the pendency of USPTO proceedings where the parties are direct competitors.
An accused infringer seeking a stay should consider whether it can define the relevant market such that three or more entities are present, thereby demonstrating that it is not in direct competition with only the patentee. Davol stated there "may be less cause for concern [of a prejudicial impact] when there are multiple firms in the relevant market." As with a calculation of damages, expert testimony on this issue may prove helpful.
Although accused infringers often argue that a patentee's failure to move for a preliminary injunction undermines a finding of direct competition, this argument has been rejected by a number of courts. But at least one court has found the plaintiff's failure to seek a preliminary injunction as weighing slightly in favour of a stay, as in TruePosition.
When faced with a patent-infringement complaint, accused infringers typically include in their answer nearly all conceivable defences, regardless of whether any particular defence could actually prevail. These defences often include non-infringement, estoppel, waiver, laches, and various invalidity defences, such as lack of novelty (under 35 USC § 102), obviousness (under 35 USC § 103), and inadequate written description and enablement (under 35 USC § 112). In the early stages of litigation, this strategy often has merit; it allows a party to avoid possible waiver while it assesses the legal and factual bases for each defence. In addition to these defences, some defendants add counterclaims asserting their own patents against the plaintiff. While these strategies are sound in certain situations, raising certain defences and counterclaims can decrease a district court's willingness to grant a stay pending an instituted IPR.
Unlike district-court litigation, a petitioner for IPR can raise only limited invalidity grounds. Specifically, the statute only permits IPR proceedings based on novelty and obviousness, and even then only permits a subset of the numerous types of sources of invalidating prior art typically available in litigation. 35 USC § 311(b) states: "A petitioner in an inter partes review may request to cancel as unpatentable 1 or more claims of a patent only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications." Thus, a defendant may raise litigation defences and counterclaims that, by statute, cannot be addressed in the IPR. If so, courts may highlight this fact in denying a stay, reasoning that the IPR cannot sufficiently simplify the issues.
For example, in Procter & Gamble, the Southern District of Ohio noted that "defendants have asserted many defences that the [USPTO] will not review, including invalidity under 35 USC § 112, estoppel, laches, and res judicata," reasoning that because the IPR could not address these defences, "their presence demonstrates further that significant issues remain for this Court to address regardless of the outcome of the IPRs." Other courts have similarly found that pleading defences not available in an IPR counselled against a stay, for example Rensselaer (invalidity claim under 35 USC § 112), Endotach (35 USC § 112 invalidity claims), TruePosition (defences under 35 USC § 112 in denying stay), and Davol (validity issues under 35 USC § 112 and equitable defences).
By putting a plaintiff on the defensive, infringement counterclaims asserted by a defendant can shift the dynamic of litigation and improve the defendant's settlement options. But pending counterclaims against the plaintiff frequently result in the denial of a stay request based on an IPR. Nutraceuticals v Cyanotech Corp (MD Fla, October 15 2013) stated: "The inter partes review proceeding will have no bearing on Defendants' counterclaims, such as for unfair competition." Other courts have similarly expressed reluctance to order partial stays that would allow a defendant's counterclaims to proceed while halting the plaintiff's claims.
For these reasons, before moving to stay a litigation based on an instituted IPR, a defendant should reassess any pending counterclaims and defences to weigh their chances of success against the importance of a stay. If, for example, the counterclaims are unlikely to prevail and the defences based on novelty and obviousness appear the strongest, the defendant may want to withdraw the counterclaims and other defences to maximize the chance of a stay.
As the cases above illustrate, convincing a court to stay patent litigation while the Patent Office considers invalidity is not a certainty. But by applying the four strategies above, an accused infringer can significantly increase its odds. This strategic approach to the timing and preparation of the IPR, the defences and counterclaims in the litigation, and the arguments made to support the stay request will put the defendant in the best possible position for a stay.
Originally printed in Managing Intellectual Property. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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