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Maximizing the Likelihood of a Litigation Stay Pending Inter Partes Review

IP Litigator
September/October 2016

Stach, Jason E., Saidman, Benjamin A.

Article

Authored by Benjamin A. Saidman and Jason E. Stach

In enacting the Leahy-Smith America Invents Act (AIA), Congress sought to "establish a more efficient and streamlined patent system that [would] improve patent quality and limit unnecessary and counterproductive litigation costs." [77 F. Reg. 48680-01 (Aug. 14, 2012).] As part of the AIA, Congress created inter partes reviews (IPR), where the Patent Trial and Appeal Board (PTAB) may review the patentability of patent claims. [See 35 U.S.C. §§ 311-319.] IPRs are intended "to create a timely, cost-effective alternative to litigation." [77 F. Reg. 48680-01 (Aug. 14, 2012).]

IPRs often occur in parallel with district court patent litigation on the same patent, and district courts must decide whether to proceed with a case when the patent-in-suit becomes the subject of an IPR. Each district court has the inherent power to manage its docket by staying its proceedings pending IPR. Although the test varies by jurisdiction, district courts typically consider three factors when determining whether to stay pending IPR: (1) "whether discovery is complete and whether a trial date has been set;" (2) "whether a stay will simplify the issues in question and trial of the case;" and (3) "whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party." [Drink Tanks Corp. v. Growlerworks, Inc., No. 3:16-cv-410-SI, 2016 WL 3844209, at *2 (D. Or. July 15, 2016).]

Status of the District Court Litigation

Under the first factor, district courts consider the progression of a litigation action under the procedural schedule. As a general rule, the more advanced the case, the more likely this factor will weigh against a stay. For example, if fact discovery has not yet begun or is not yet complete, this factor can weigh in favor of a stay. [See, e.g., IXI Mobile (R & D) Ltd., v. Samsung Elecs. Co. Ltd., No. 15-cv-03752-HSG, 2015 WL 7015415, at *2-3 (N.D. Cal. Nov. 12, 2015).] But as with each of the three factors, there are notable exceptions. In Surfcast, Inc. v. Microsoft Corp., a district court found that this factor was neutral despite the facts that "discovery [was] complete, a Markman order … issued, and briefing [was] complete on the pending summary judgment, Daubert, and related motions." [Surfcast, Inc. v. Microsoft Corp., No. 2:12-cv-333-JDL, 2014 WL 6388489, at *2 (D. Me. Nov. 14, 2014).] Rather than focus on the progress made to date, the court focused on the significant "volume of work" remaining before trial. [Id.]

Simplifying the Issues

Under the second factor, district courts determine whether an IPR will simplify the issues for trial. As part of this factor, many courts will first consider whether the PTAB has instituted an IPR or whether the parties are still waiting for an institution decision. Some courts are willing to stay the litigation before the PTAB has decided whether to institute review. [See, e.g., Wonderland Nursery Goods Co. Ltd. v. Baby Trend, Inc., No. 14-01153-VAP, 2015 WL 1809309, at *3-4 (C.D. Cal. Apr. 20, 2015).] Other courts deny stays as premature if the PTAB has not yet instituted the IPR. [See, e.g., Drink Tanks, 2016 WL 3844209, at *4.] The rationale is that the PTAB may deny institution, concluding the IPR without resolving many of the issues in the litigation and without triggering the IPR estoppel provisions that may further streamline the district court litigation. But courts that take this approach often will allow the moving party to refile for a stay at a later time if the PTAB institutes the IPR.

Under this factor, courts generally examine the overlap between the patents and claims at issue in the litigation and those involved in IPRs. For example, in Acqis, LLC v. EMC Corp., the district court found that this factor weighed in favor of a stay where only two of the eleven patents-in-suit and only three of the twenty-two asserted claims were under review in the instituted IPRs. [Acqis, LLC v. EMC Corp., 109 F. Supp. 3d 352, 357 (D. Mass. 2015).] The court noted, however, that there was a significant overlap in claim terms between all twenty-two of the asserted claims, as well as among all eleven patents. [Id. at 357-358.] While the Acqis court stayed the entire case, some courts will only stay the overlapping portions of cases. In Hewlett Packard Co. v. ServiceNow, Inc., the court granted a stay for only two of the four asserted patents because the PTAB had instituted IPR on only those two patents. [See Hewlett Packard Co. v. ServiceNow, Inc., No. 14-cv-00570-BLF, 2015 WL 5935368, at *3 (N.D. Cal. Oct. 13, 2015).]

Undue Prejudice or Clear Tactical Advantage

Under the third and final factor, courts consider any prejudice or tactical advantage that might result from a stay. Often, courts consider the amount of time that a party waits to file the IPR petition and request a stay because some patentees contend that the delay may cause harm to the patentee’s business, provide a tactical advantage to the defendant hoping to learn about a patentee’s litigation positions before entering the IPR, or be unfairly prejudicial if the parties have expended significant resources and are close to trial. Some courts consider the length of the delay after being served with infringement contentions, while other courts focus on the original complaint service date. For example, one district court found that preparing and filing an IPR petition four months after service of infringement contentions was reasonable and weighed in favor of a stay. [Acqis, 109 F. Supp. 3d at 359.] In another case, however, a district court found that it was unreasonable to wait between seven and eleven months after service of the complaint to file IPR petitions and between one month and seven months after the petitions to file the stay motion. [See, e.g., Realtime Data LLC v. Actian Corp., No. 6:15-cv-463-RWS-JDL, 2016 WL 3277259, at *3 (E.D. Tx. June 14, 2016) (discussing diligence in the context of the status of the case).]

Courts also have found that a variety of other circumstances can lead to undue prejudice or a clear tactical advantage. In one case, a court found that the patentee’s decision not to seek a preliminary injunction undermined the patentee’s prejudice argument. [Acqis, 109 F. Supp. 3d at 358.] Another court found undue prejudice where the defendant was not a party to the IPR and thus would not be bound by the estoppel attendant to IPR proceedings. [Koninklijke Philips N.V. v. Amerlux, LLC, No. 15-cv-13086-LTS, 2016 WL 917898, at *4 (D. Mass. March 10, 2016).]

Covered Business Methods

The AIA also created Covered Business Method reviews (CBMs). CBMs are similar to IPRs in that they are intended to provide a timely, cost-effective alternative to litigation for challenging patent validity. They differ from IPRs by being limited to certain types of patents, among other things. Relevant here, they also differ from IPRs because Congress provided four factors under AIA § 18(b)(1) that the district court "shall" consider when deciding whether to stay litigation pending CBM review:

(A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;

(B) whether discovery is complete and whether a trial date has been set;

(C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and

(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

Three of the factors above are similar to the factors that many district courts use to assess stays. The additional fourth factor, (D), overlaps significantly with the first factor, (A), but must be separately considered. [VirtualAgility Inc. v. Salesforce.com, Inc., 759 F.3d 1307, 1313 (Fed. Cir. 2014).] The Federal Circuit has explained that "even when both factors point in the same direction—in favor of or against the stay—they continue to be separate, individual factors which must be weighed in the stay determination." [Id.] In fact, courts have found that the fourth factor further tilts the scale in favor of a stay where review has been instituted. [See, e.g., Trading Techs. Int’l, Inc. v. BCG Partners, Inc., 2016 WL 2622301, at *7 (E.D. Ill. May 9, 2016).]

Conclusion

Despite variations among cases and jurisdictions, in many jurisdictions, courts appear to treat IPRs as viable alternatives to litigation and are staying litigation when appropriate. Courts generally balance all three factors, and no single factor is dispositive in staying a litigation. Defendants can place themselves in the best position for a stay by filing an IPR petition as early as possible, ensuring that the scope of the IPR petition is as coextensive as possible with the claims in litigation, and moving for a stay as quickly as possible after the petition has been filed or the IPR has been instituted.

Reprinted with permission from the IP Litigator, published by Wolters Kluwer. 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.