On September 28, 2009, Judge Saundra Brown Armstrong denied a motion to stay proceedings pending reexamination of the patents-in-suit in the District Court for the Northern District of California in the matter of Esco Corp. v. Berkeley Forge & Tool, Inc.  The Court identified the factors to determine whether to grant a stay pending reexamination as (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.   (Read the Court’s Order Denying the Stay here:  Order Denying Stay)

The Court determined that the case was in its “embryonic stage,” and therefore consideration of the first factor weighed in favor of a stay.  The lawsuit was filed on April 14, 2009, and no discovery had occurred and no trial date was set.

The Court then considered the second factor, and noted that “to truly simplify the issues … the outcomes of the reexamination must finally resolve all issues in the litigation.”  In the present case, U.S. Patent Nos. 7,171,771 (’771 Patent) and 7,174,661 (’661 Patent) are being litigated.  In the ‘661 Patent, a reexamination request was filed and the PTO issued a first office action rejecting all the claims.  In the ‘771 Patent, a reexamination request was also filed.  However, the PTO issued a first office action in which most of the claims were found to be valid.  The Defendant argued that the ‘771 Patent was likely not to play a major role in the litigation.  The Court was not persuaded.  The Defendant also cited PTO data indicating that 73% of inter partes reexaminations result in all claims being canceled.  The Court countered with more recent data indicating that only 42% of inter partes reexaminations result in all claims being canceled.  The Court concluded that consideration of the second factor weighed in favor of not issuing a stay.  The Court observed that “[g]iven the fact that the average time for completing the reexamination process exceeds three years, coupled with the possibility that at least some claims may have to be litigated notwithstanding reexamination, the Court concludes that the second factor weighs against a stay.”

With regards to the third factor, the Plaintiff argued that it would be prejudiced by a stay because the stay would allow the Defendant to continue to manufacture an inferior product and thereby damage the Plaintiff’s reputation.  The Plaintiff also complained that the reexamination process could take years to complete, and the delay would reduce its ability to prepare a case due to fading memories and loss of evidence.  The Court appeared to discount these arguments, and noted that the inherent delay in a reexamination proceeding does not by itself create undue prejudice.  Rather, the Court focused on its view that the Defendant was using the reexamination process to gain a tactical advantage in the litigation.  In support of this view, the Court noted that the Defendant waited until three months after the lawsuit was commenced, and after the PTO issued its first office action before filing the motion for stay.  Moreover, the Court noted the Defendant’s failure to comply with the initial scheduling order and its Rule 26 obligations provide further support to the notion that the Defendant was attempting to use the reexamination process to derail Plaintiff’s efforts to prosecute its patent infringement claims.  Thus, the Court found that consideration of the third factor weighed against granting a stay.

The Court concluded by stating “[o]n balance, the relevant factors counsel the Court to exercise its discretion against imposing a stay of the proceedings pending reexamination of the patents-in-suit.”  The case is Esco Corp. v. Berkeley Forge & Tool, Inc., case number C 09-1635 SBA, in the United States District Court for the Northern District of California.

More information regarding Stays Pending Reexaminations can be found at http://reexamcenter.com/2009/09/stays/.