In deciding whether to stay a matter pending reexamination, courts have developed a three-part test: “(1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether discovery is complete and whether a trial date has been set.” Xerox Corp. v. 3Com Corp., 69 F. Supp. 2d 404, 406 (W.D.N.Y. 1999).

Litigation stays and reexamination pendency are closely linked.  Pendency is, or at least should be, a factor in practically every stay decision.  If a district court judge can have reasonable confidence in a reexamination timeline, it can simplify the stay calculus.  For instance, if reexamination pendency is completely uncertain, or if the time to final decision extends years past an expected trial date, then stays become less likely as they severely prejudice the patent owner.  Conversely, if the reexamination is certain to conclude shortly, substantial resources may be saved by issuing a stay.

Once a district court judge is reasonably comfortable with the reexamination timeline, then a number of other factors come into play.  Judge Selna in the Central District of California has authored a number of nuanced stay decisions, including Allergan Inc. v. Cayman Chem. Co. (Order dated April 9, 2009).  In Allergan, Judge Selna denied the stay primarily because the parties were competitors, and “the PTO might not conclude its reexamination for several years, and that this delay would prejudice Allergan’s rights to exclusive use of its patented technology and would cause it irreparable harm.”  Noting that “the totality of the circumstances governs,” Judge Selna listed the following positive factors supporting the grant of a stay:

“Positive Factors Supporting the Grant of a Stay”

1. Prior art presented to the Court will have been considered by the PTO;
2. Discovery problems relating to prior art can be alleviated by the PTO;
3. If the PTO invalidates the patent-in-suit, the case will likely be dismissed;
4. The outcome of reexamination may encourage settlement;
5. The record of reexamination will likely be entered at trial;
6. Issues, defenses and evidence will be more easily limited;
7. The cost will likely be reduced for both the parties and the court;
8. The reexamination outcome might not affect the civil litigation;

“Negative Factors Supporting the Denial of a Stay”

1. Delay and changing market conditions may affect injunctive relief;
2. Substantial expense and time invested may be wasted;
3. A delay may grant a tactical advantage to the moving party;
4. The reexamination outcome might not affect the civil litigation;

In a recent development, execution of judgment may be stayed based at least in part on reexamination proceedings.  For example, the Federal Circuit recently granted an emergency request to stay enforcement of ITC cease-and-desist and exclusion orders.  In this case, on November 15, 2007, the ITC had instituted an investigation based on a complaint by Funai Electric Co., Ltd. that several respondents were infringing its digital television patents [ITC Investigation No. 337-TA-617].  Within weeks, an ex parte request for reexamination was filed.  In late 2008, the ALJ issued an Initial Determination finding infringement of one of the patents.  The ITC then issued a Final Determination finding infringement and issued exclusion and cease and desist orders on April 10, 2009.

On a March 11, 2009 the CRU issued a Final Office Action rejecting all of the claims in the patent at issue [See Reexamination Control Nos. 90/010,075 and 90/008,828].  Based in part on that final action, the respondents asked the ITC to stay enforcement of its orders.  At the same time, the respondents also filed a request that the Federal Circuit stay the ITC’s order pending appeal.  According to a recent press release on one of the respondents’ websites, the Federal Circuit has granted the emergency request [See http://www.vizio.com/about.aspx?cid=3496&id=1318].

While not the final word on the issue of a stay, the Federal Circuit’s order is nevertheless significant.  It suggests that a Final Office Action in a reexamination may be used as a basis for staying an ITC exclusion order even though the patent owner has not exhausted the right to appeal through the Board and much less the Federal Circuit.  The cynical view is that there are a sufficient number of factors involved to support either granting or denying at least a temporary stay in any given case.  Because stay decisions are reviewed under an abuse of discretion standard, district court judges have almost unfettered authority.  Nonetheless, more nuanced stay decisions are becoming the norm as ever more authority is developed on this issue.  Practitioners and judges alike should be aware of all the nuanced factors that are in play.

Because the issue of patent validity is running concurrently in two separate proceedings, judicial economy would seem to counsel a stay of one or the other proceeding in all instances.  In reality, this is far from true because each venue is bound by different rules and standards for assessing patent validity.  Further, each venue is bound by very different rules and standards for determining whether a stay is appropriate, and each stay decision is highly fact specific.  Some general patterns may be discerned, however, and these are described more fully below.

District court judges have inherent and almost unfettered control over their own dockets.  A decision to stay a case is reviewed for abuse of discretion—a very difficult standard to overcome on appeal.  Further, district court judges have great flexibility in the types of stays they issue.  For instance, in one Eastern District of Texas case, Judge Everingham granted a motion to stay the litigation based on the accused infringer’s ex parte reexamination request.  In the order granting the stay, the court crafted a stipulation that the accused infringer must agree not to challenge the validity at trial of the patents-in-suit based on prior art patents or printed publications that were considered in the reexamination proceedings.  Ordinarily, these estoppels only apply to inter partes reexams, and only after the proceeding has concluded.  Further, the accused infringer was barred from directly or indirectly instituting any further reexamination proceedings, despite being statutorily allowed to do so.

Despite this nearly unfettered discretion, however, courts will generally consider at least the following high level factors in making stay determinations:  (1) whether a stay will unduly prejudice or present a clear tactical disadvantage to the nonmoving party; (2) whether a stay will simplify the issues at trial; and (3) whether discovery is complete and whether (or when) a trial date has been set.  For a thorough and nuanced stay analysis, see Judge Selna’s decision denying a motion to stay Allergan Inc. v. Cayman Chemical Co. (CDCA April 9, 2009).  These broad factors are discussed more fully below.

(1) Prejudice to Non-Moving Party

First, a court looks at the extent to which the non-moving party would be prejudiced in delaying the litigation.  Inherent in this factor is consideration of reexamination pendency.  Further, as noted in [1.3.1 Reexamination Pendency] and in [2.1.01 Reexamination Pendency], the extent to which the parties are competitors should be considered carefully.  In certain instances, the district court will mitigate any potential prejudice to the patentee by requiring a stipulation that the accused infringer will not challenge the patent on grounds considered during reexamination.  By doing so, the court reasons, the patentee “is afforded both the advantage of ex parte proceeding and an estoppel effect.”

(2) Simplification of the Issues

Second, courts take into account the possibility of simplifying issues with a stay.  Under this factor, the status of the reexamination is often considered.  The further along the reexamination, the more likely a stay will be granted.  Typically, stays are rarely granted on the basis of the reexamination grant and at least a first office action rejection is required.  Of course, potential invalidation of the only patent-in-suit would simplify many issues, but cases are often more complicated.  For example, an accused infringer may have a strong case for patent invalidity based on statutory subject matter or an on-sale bar.  Reexaminations may not be instituted on this basis and the court may still, therefore, have to determine patent invalidity on these grounds if the patent survives reexamination on the prior art.  As the PTO develops more information about the reexamination process, in particular the statistics of inter partes reexamination, courts will be better able to make an informed decision as to whether a stay will simplify a subsequent trial.

(3) Discovery and Trial Dates

Finally, the court asks if discovery is complete and whether trial dates have been set.  Judicial economy naturally favors requests made early in the litigation.  Therefore, in view of (1) and (2) above, any patent challenger hoping to stay the more costly district court litigation should strive to get its reexamination filed as soon as possible and to request a stay of a co-pending litigation as soon as feasible.  Denials due to premature requests are usually without prejudice and stay requests can be renewed based on developments during reexamination.

Of course, reexamination pendency remains a big factor.  Consider this extreme example of a litigation stayed pending an inter partes reexamination:  in July 2002, Harry Shannon filed an inter partes reexamination request (Control No. 95/000,005) challenging the validity of patent asserted in a patent infringement litigation in the Middle District of Florida (Enpat, Inc. v. Shannon, et al, 6:02-cv-00769).  In September 2002, the District Court stayed the litigation pending a final decision on the validity of the claims by the PTO.  In the reexamination proceeding, the right of appeal notice was issued by the CRU in August 2005, following an action closing prosecution.  The appeal has yet to be decided by the BPAI.  In May 2004, the district court directed administrative closure of the case pending final decision by the PTO.  In that order, the parties were required to provide periodic status reports on the reexamination proceeding to the district court.  In February 2005, the plaintiff Enpat filed an unopposed motion to dismiss the case without prejudice due to the pending reexamination request.

Judges deciding a motion to stay, or presiding over a concurrent litigation stayed pending a reexamination, may consider contacting the CRU.  The Office of Patent Legal Administration (OPLA) has a hotline for questions dealing with “Reexamination and Reissue Legal and Policy Guidance.”  It’s found that the staff to be very helpful and responsive to all manner of requests.   Calls from judicial clerks to the PTO have occurred.  Some commentators argue that this ability to contact the CRU when deciding a motion to stay is a valuable tool to a judge deciding whether to grant a stay motion.  What restrictions, if any, should be placed on communications between federal judges and CRU officials?  Should these communications be limited strictly to procedural details or as fellow government officials should judges be provided less restrictive communication?  These questions remain open.

If a party is successful in obtaining a stay in the district court litigation pending resolution of a reexamination, that fact immediately should be brought to the attention of the CRU.  The CRU has set forth procedures to increase the pace at which reexaminations involved in concurrent litigations are handled.  For example, in situations where a stay is granted in a concurrent litigation, the PTO will take up a reexamination request within 6 weeks of filing and “all aspects of the proceeding will be expedited to the extent possible” [MPEP § 2686.04].  It is therefore critical for parties to keep the CRU informed of the status of the concurrent litigation.

Stays are also technically available in reexaminations.  Unlike the district courts, however, the PTO does not have an unfettered ability to control its docket.  The rules provide the ability for the patent owner to request a stay [37 C.F.R. §§1.565(b) and 1.987].  Generally, the PTO has been unwilling to grant such stay requests due to the statutory mandate to handle reexaminations with special dispatch.  However, in an inter partes reexamination, the PTO may be amenable to a stay where the reexamination proceeding is at its beginning stages, the litigation is near a final resolution, and estoppel would render all issues in the reexamination moot when the litigation becomes final.  To avoid a possible stay of the reexamination proceeding, the requester should file a reexamination request as early as practical in a concurrent litigation.

Finally, the Federal Circuit will not likely issue a stay of any case before it.  If an appeal arrives from the BPAI, the Federal Circuit will rule and any decision adversely affecting the validity of any patent claim would trump any district court decision to the contrary.  If an appeal from the district court arrives first, the Federal Circuit will likewise rule on the district court case.  The PTO would be bound by any ruling invalidating a claim, but the reverse is not true.  An unsuccessful validity challenge in the district court is not binding on the PTO as it reviews patent validity under different standards.

To the extent that the cases arrive simultaneously at the Federal Circuit, the court may review the BPAI decision first.  For instance, the Federal Circuit was presented in an appeal from a district court decision and from the BPAI on the same patent [In re Translogic Tech., Inc., 504 F.3d 1249 (Fed. Cir. 2008)].  In the district court decision, a jury awarded over $85 million for Hitachi’s infringement of its patent.  In a parallel decision, the BPAI found the patent to be invalid as obvious.  Both appealed to the Federal Circuit.  The Federal Circuit first heard the appeal from the BPAI and affirmed the patent’s invalidity in a precedential decision.  The Court then vacated the district court’s decision and remanded for dismissal.

In the end, the best source for how a particular district court judge will deal with a motion to stay is local counsel.  Local counsel should have their finger on the pulse of the court and its judges at any moment in time.  For the PTO, stays are highly unlikely given the statutorily imposed mandate to deal with reexaminations with special dispatch.  Finally, the Federal Circuit likely will deal with appealed cases as they are presented to it, without issuing any stay.  This is especially true where the BPAI decision arrives prior to, or simultaneously with, a district court decision.

Concepts

• Motion to Stay Pending Reexamination
• Stay ITC Order Pending Appeal
• Judicial Economy
• Abuse of Discretion Standard
• Expedited Proceedings [MPEP § 2686.04]
• Stay of Reexamination [37 C.F.R. §§1.565(b) and 1.987]

Cases

• Allergan Inc. v. Cayman Chemical Co. (CDCA April 9, 2009)
• In re Translogic Tech., Inc., 504 F.3d 1249 (Fed. Cir. 2008)