Issue: Motion to Stay Pending Ex Parte Reexamination and Preclusion
Judge: District Judge Margaret M. Morrow
Order: Granted
Date: July 16, 2010

Aspex Eyewear and Contour Optik initiated this infringement action against Revolution Eyewear involving U.S. Patent No. RE37,545. In 2008, the court granted defendant’s motion to stay the proceeding pending resolution of related claims in the Central District of California filed in 2002. The 2002 action was transferred to Judge Virginia Phillips prior to trial and the jury returned a verdict against Revolution on September 21, 2007.

On August 27, 2009, plaintiffs filed a request to lift the stay in the present case and defendant opposed since, at the time, the 2002 action was on appeal in the Federal Circuit. The Federal Circuit subsequently affirmed the district court’s judgment on April 29, 2009. Just prior to the Federal Circuit’s ruling, however, Revolution filed a request for ex parte reexamination of the claim subject in both litigations. Judge Philips denied Revolution’s request for a stay of execution of judgment in the 2002 action finding that Revolution had delayed its request for reexamination until significant litigation, including a jury trial, had been completed, and had failed to demonstrate a likelihood that its reexamination request would be successful. Given that the reexamination process was in its early stages, Judge Phillips found that Revolution’s predictions of success were “nothing more than speculation.”

On January 4, 2010, the PTO issued a non-final office action that rejected the subject claim as obvious.

Since the court originally stayed the matter believing that final resolution of Revolution’s liability in the 2002 action would be controlling and clarify the issues (and all litigation and appeals in the 2002 action were now completed), the original basis for a stay no longer existed. As such, normally the court would reopen the matter. Revolution, however, argued that the PTO’s reexamination of the patent-in-suit supported maintaing the stay, contending that this was particularly true given the PTO’s rejection on grounds of obviousness.

Plaintiffs argued that Revolution should not be rewarded for its “negligence in delaying the filing of its request for reexamination until the eve of the Federal Circuit’s decision in the 2002 action.” They suggested that the delay was particularly egregious given Revolution’s reliance on a reference that was before the PTO at the time the patent issued. The court found that: “Revolution has paid a price for its dilatoriness, however, in that it has been required to pay a multimillion judgment in the 2002 action. Vis-á-vis this matter, which is in its infancy, Revolution’s reexamination request is less dilatory. Consequently, the court concludes that this factor weighs in favor of maintaining the present stay.”

The court also considered the issue of preclusion. Specifically that while the subject claim was found “not invalid” in the 2002 action, the Court did so on grounds other than obviousness. Here the PTO provisionally rejected the claim as unpatenable on different grounds. In its order staying the action pending completion of proceedings in the 2002 action, the court noted the possibility that Revolution would assert a new invalidity defense and commented that the defense might be barred by collateral estoppel because it “could most probably have been raised in the 2002 action.” Although the court made that comment before it learned of the reexamination proceeding, plaintiffs argued that the PTO’s reexamination is irrelevant because the final judgment in the 2002 action had a collateral estoppel effect. Here the court here declined to decide the issue since neither party cited any authority addressing whether this impacts the preclusion analysis.

The Court found that: “The record the parties have presented … does not adequately address the preclusive effect of the 2002 judgment on plaintiffs’ allegations in this case, or whether the outcome of the reexamination proceeding would alter that preclusive effect in any way. Should plaintiffs wish to request that the court lift the stay for the limited purpose of litigating the preclusion issue, including the impact of the reexamination proceeding on the preclusive effect of the 2002 judgment, they may file a properly noticed motion requesting that relief.” Order p. 10.

The Court concluded that, until such time as the preclusive effect of the 2002 judgment in light of the reexamination proceeding becomes clear, the conservation of judicial and party resources weighed in favor of maintaining the stay since the parties now contemplated securing expert testimony on willful infringement and plaintiffs seek to add a new defendant whom they allege actively induced Revolution’s patent infringement. Discovery would be required concerning sales of the products at issue, including those that were not accused in the 2002 litigation. The court was not persuaded that the extended process of reexamination would unfairly prejudice the plaintiff noting that, since only the patent owner can appeal the PTO’s final decision in an ex parte reexamination, mere inherent delay did not support a finding of prejudice.

Read or Download Order (PDF): Motion for Stay Pending Reexamination; 2010-07-16; Granted; District Judge Margaret M. Morrow; Aspex Eyewear, Inc et al v. Revolution Eyewear Inc (2-07-cv-05042) CACD

On October 13, 2009, Pitney Bowes sued Zumbox, Inc. alleging infringement of Pitney Bowes’s U.S. Patent Nos. 6,690,773 (“the ’773 patent”), 7,058,586 (“the’586 patent”), and 7,478,140  (”the ‘140 patent”), each directed to delivery systems for digital mail.  On January 22, 2010, Zumbox submitted requests at the USPTO for inter partes reexamination of all claims in each of the three patents-in-suit.  One month later, Zumbox moved the district court to stay the litigation pending the reexaminations.  On March 15, 2010, the USPTO granted the inter partes reexamination of the ’140 patent and issued a first non-final Office action that rejected all 20 claims in the ’140 patent.  On April 16, 2010, the USPTO granted inter partes reexaminations of the ’586 and ’773 patents but issued Office Actions that same day preliminarily confirming the claims in those patents.

In granting Zumbox’s motion to stay, the court found three factors weighed in its favor.  First, the case was “in its earliest stages—the Case Management Conference was held in February 2010. Second, the court found that the reexaminations would likely result in a simplification of the issues.  The court observed that all of the claims in the ’140 patent were preliminarily rejected by the USPTO meaning the parties would not need to litigate any issue relating to the ’140 patent infringement.  The Court also stated that the USPTO’s confirmation of the patentability of the claims in the remaining two patents (if made final) also would benefit the litigation by allowing the court to rely on the “office’s expertise, analysis of the claims, and evaluation of the relevant prior art.”  The court also noted that the absence of counter-claims brought by defendant weighed in favor of staying the litigation and that the high likelihood that some claims would be canceled or amended in the reexaminations likely would narrow or clarify the issues for claim construction and trial.

Third, the court found a stay would not unduly prejudice the plaintiff.  Pitney Bowes waited over six months from the filing of its lawsuit to seek any injunctive relief and in its Complaint asked for only permanent injunctive relief, not preliminary injunctive relief.  Pitney Bowes fought the stay motion by citing to the Central District’s decision in Allergan v.Cayman Chemical Co. denying a motion to stay pending reexamination. Allergan Inc. v. Cayman Chemical Co., No. SACV 07-01316-JVS (C.D. Cal. Apr. 9, 2009). The court distinguished this case from the decision in Allergan because Pitney Bowes unlike the Allergan plaintiff was not exploiting the patents-in-suit:  “non-patent exploiters” or NPEs “have a more difficult time obtaining injunctions” because they cannot adequately demonstrate irreparable harm under the Supreme Court’s recent decision in eBay, Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006).” That is, any delay could be addressed by monetary damages.  This decision and the Allergan case are among a small number of stay decisions where a court considered whether a patent-owner plaintiff was currently exploiting its patents, even where the patent-owner plaintiff does not fit the traditional definition of NPE as a “non-practicing entity.”  Neither decision clarifies whether exploitation of a patent includes practicing the patent, licensing the patent, or both.

The Court laid out the factors for determining whether to grant a stay pending reexamination as (1) the stage of litigation, including whether discovery is completed or nearly completed, (2) whether a stay will cause undue prejudice or tactical advantage to the non-moving party, and (3) whether a stay will facilitate resolution of the action. (See Stays)

Read Court Order: Motion for Stay Pending Reexamination; 2009-11-23; Denied in Part, Granted in Part; District Judge Dale S. Fischer; Valueclick, Inc. v. Tacoda, Inc. (2-08-cv-04619) CACD

The Court concluded that all three factors favor granting a stay. With respect to the first factor, the Court noted that “the case is at a somewhat advanced point with non-expert discovery complete, but expert discovery has not commenced and trial is still eight months away.” Despite these facts NOT seeming to indicate that the litigation was in its early stages, the Court nonetheless concluded that the circumstances favored a stay.

ValueClick argued that a stay would allow the defendants to sell infringing products in competition with ValueClick for a longer period of time. The Court discounted this argument, noting that “this kind of harm is suffered by many patent plaintiffs when a stay pending reexamination is granted. If this consideration were given much weight, stays pending reexamination would rarely be granted.”

Finally, the Court reasoned that “there is a reasonably good chance that a stay will facilitate the resolution of the litigation.” The Court noted that the PTO either cancels or requires modifications to a patent in 75% of reexaminations. The Court further stated that “[e]ven if the claims at issue were not altered or canceled, the Court will be provided with a more extensive prosecution history that will likely shed light on why the PTO believes the claims should have been issued.”

In granting the six-month stay, the Court indicated that “[w]hile the Court finds that a stay is appropriate, it does not believe that the stay should be open ended.”

The case is Valueclick, Inc. v. Tacoda, Inc., case number 2-08-cv-04619, in the United States District Court of in the Central District of California. Patent ‘396 is associated with 90/010,543 (filed on 05-18-2009) and 90/010,544 (filed on 05-18-2009). Patent ‘735 is associated with the 90/010,543 request.

In Allflex, the Court was about to render its Markman order when Avid’s counsel disclosed to the Court that the patents-in-suit had been undergoing reexamination for the past two years.  While Fish & Richardson received notification of the reexamination in 2007 when representing Avid, Kirkland & Ellis contends that it learned of the reexamination proceedings in March 2009 during one of its “periodic sweeps” of Avid’s files to locate responsive documents.  Indeed, Avid told Fish & Richardson about the reexamination proceedings, and Avid assumed Fish & Richardson would tell Kirkland & Ellis.  During the litigation, Allflex served discovery requests on Avid, including a request for “all documents relating to the prosecution histories” for the patents-in-suit.  Avid did not produce documents relating to the reexamination proceedings.  There was no dispute that documents relating to the reexamination proceeding fall within the scope of Allflex’s document requests.

After learning of the reexamination proceedings, the Court issued a stay of the litigation, stating “if the re-examination of the remaining patents-in-suit had been disclosed as it should have been in 2007, this Court would have stayed this entire litigation until the conclusion of the re-examination proceedings before the PTO (as is its practice and that of nearly every district court of which this Court is aware).  Because that was not disclosed, this Court and Allflex have, for the past two years, proceeded to hear and litigate whether the patents in question have been infringed, patents that unbeknownst to the Court and Allflex may have been found unpatentable because of agency proceedings then underway before the PTO.”

Allflex protested the stay, seeking a stay of litigation relating to the question of infringement, but wanting to continue to prosecute its inequitable conduct and unclean hands arguments, based on Avid’s alleged failure to disclose prior art in its initial patent application and during the reexamination before the USPTO.  The Court responded, “allowing that sliver of the litigation to proceed, as sought by Allflex, potentially adds further wasted expense and resources into what has already turned out to be a less than productive exercise in litigation.”

The Court then recognized that it could impose monetary sanctions on Avid, Fish & Richardson, and Kirkland & Ellis for discovery violations.  Avid argued that it had no duty to disclose the reexamination proceedings to either the Court or Allflex under the local rules or Federal Rule of Civil Procedure 34.  The Court found, however, that Avid had a duty to supplement its earlier discovery responses and to produce documents from the reexamination proceedings.  For that reason, the Court ordered Avid, Fish & Rirchardson and Kirkland & Ellis to show cause as to why they should not be required to pay costs and fees incurred by Allflex in preparing and submitting its various Markman briefs, and in attending the Markman hearing.  To that end, all three must file their written response to show cause no later than October 20, 2009.

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

Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., et al. (pdf)