As discussed last week, defendants are increasingly employing patent reexamination as a mechanism to stay a district court action. For this reason, patent owners must adapt their game plan. Last week’s post explained that an early motion for preliminary injunction can go a long way in demonstrating potential prejudice relative to a direct competitor. Additionally, while pending, an injunctive dispute may forestall the ability to stay the court action altogether.

In Medicis Pharmaceutical Corp., v. Acella Pharmaceuticals Inc. (DCAZ), the court explained that a motion to stay pending patent reexamination is inappropriate where a request for injuctive relief remains pending.

The court explained:

Medicis filed a Motion for Preliminary Injunction on December 10, 2010. (Doc. 53.) The parties have submitted their Proposed Findings of Fact and Conclusions of Law (Docs. 122 & 123), and the Court set a hearing on the Motion for Preliminary Injunction for February 23, 2011. If the Court stayed the case pending reexamination, the Court effectively would deny the Motion for Preliminary Injunction without first addressing the merits, which would be inappropriate. Procter & Gamble Co. v. Kraft Foods Global, Inc., 549 F.3d 842, 849 (Fed. Cir. 2008)(holding the district court erred in granting a stay pending reexamination when the plaintiff had filed a motion for preliminary injunction). Because the Court has not yet ruled on the merits of the injunction motion, the Court declines to enter a stay at this time.

Further, the court noted that the defendant chose to seek ex parte patent reexamination rather than inter partes. See the earlier post on the importance of this decision. (here)

This case was brought to my attention by the great Docket Navigator.

Obtaining a stay of an ongoing district court infringement action is one of the many benefits of patent reexamination concurrent with litigation. Defendants that are able to obtain a stay pending patent reexamination can avoid cost prohibitive litigation discovery during the course of the USPTO proceeding. 

In addition to cost savings, there are also tactical advantages to the USPTO proceeding. Unlike the courts, in patent reexamination, the USPTO does not recognize the presumption of validity. Moreover, the USPTO does not require the “clear and convincing” standard to demonstrate invalidity in patent reexamination, but employs the more liberal ”preponderance of the evidence” standard. As such, defendants can enhance the strength of their invalidity defense via patent reexamination. 

As defendants increasingly employ patent reexamination as a litigation tool, patent owners must adapt their game plan.Patent Owners often select patent friendly forums for their perceived reluctance to invalidate U.S. Patents, such as the Eastern District of Texas. Such forums are oft times equally reluctant to stay an ongoing infringement action in favor of a patent reexamination proceeding. However, for those Patent Owners forced into less friendlier fora, what steps can be taken to avoid a stay pending patent reexamination?

One of the factors generally considered when ruling on a  motion to stay is whether or not the stay will unduly prejudice, or present a clear tactical disadvantage to, the non-moving party. In the case of direct competitors, court’s will often give greater weight to the potential business prejudice in delaying the court action. Therefore, to emphasize this potential for prejudice, and to anticipate the need to demonstrate such, it is imperative that Patent Owners move for a preliminary injunction.

In weighing the relative merits of staying an ongoing court action between competitors, the Patent Owners request for injunctive relief is given significant weight. As recently discussed in Osmose, Inc. v. Arch Chemicals, Inc., et al., 2-10-cv-00108 (VAED, Norfolk) (previous post here)

Although Osmose has not filed a motion for a preliminary injunction, the complaint does seek injunctive relief. Osmose therefore might be prejudiced by a multi-year stay that could allow defendants to both continue selling the allegedly infringing products and further increase their market share.   

Further, last week it was emphasized that the timing of the request for injunctive relief may also impact the relative equities of staying the case. In Richtek Technology Corp., et al., v. uPI Semiconductor Corp. et. al., 3-09-cv-05659 (NDCA), the court emphasized that:

Richtek has not filed a motion for a preliminary injunction in this year-and-change-old district court action. Although Richtek expressed intent to eventually file a preliminary injunction motion at the October 2010 case management conference and in its early January discovery dispute letter brief, it did not even request permission to file such a motion until nearly a week after motion practice was suspended in mid-January (Dkt. Nos. 108 at 14, 229 at 2, 242). If the threat of irreparable harm truly were imminent, then Richtekwould not have dragged its feet this long. Richtek has not shown that it would suffer irreparable harm or clear tactical disadvantage as a result of a stay of this action.

For Patent Owners anticipating a motion to stay pending patent reexamination, an early motion for preliminary injunction can go a long way in demonstrating potential prejudice relative to a direct competitor.

For Patent Owners, one of the more frustrating aspects of ex parte patent reexamination is that the experience can be never ending. That is to say, even when an ex parte patent reexamination is favorably concluded, the same challenger can simply refile a second request to take another shot at the patent. Of course, the second request must present new, non-cumulative questions of patentability. Still, as the SNQ standard is a relatively low bar, seriatim filings are fairly commonplace. (In inter partes patent reexamination, estoppel provisions effectively prevent this tactic).

Practically speaking, in the case of a parallel litigation, seriatim requests are not viewed favorably by courts. After all, you can’t simply present new invalidity contentions in court should the first set fail.

Recently, in Voda v. Medtronic Inc., et. al. (OKWD) (here) the defendants were able to secure a stay pending a first request for patent reexamination. Shortly thereafter, the reexamination concluded favorably to the Patent Holder and the stay was lifted. Next, the defendants filed a second request for ex parte patent reexamination, and then a third request along with a second motion to stay the case. The court denied the second motion to stay, explaining: 

The court finds the first factor weighs against granting a stay. The first reexamination request resulted in a fourteen-month delay, and notice of the USPTO’s decision on that request was further delayed by defendants’ filing a second ex parte request for reexamination. Moreover, defendants’ filing of the third reexamination request and concomitant request for a stay has already resulted in additional delay as the court had to reschedule the status conference set for January 2011. Simplification of the issues to be tried in this action is likely to occur only if the USPTO issues a decision rejecting the patent’s claims. Given the recent confirmation of the ‘213 patent, that outcome is not certain and therefore this factor does not weigh in favor of granting a stay. Finally, defendants’ argument that this matter is in its early stages ignores the fact that the case has been pending for two years. This factor, therefore, also weighs in favor of denying defendants’ second motion to stay. (emphasis added)

USPTO statistics indicate that inter partes patent reexaminations are far more effective for Requesters (i.e., claims amended and/or cancelled). Of course, such proceedings are not available for all patents, as was the case in Voda.

The greater success rate of inter partes patent reexamination is often attributed to Requester participation; yet, this only be  part of the story. Due to the estoppel provisions of inter partes patent reexamination, the number of SNQs presented relative to ex parte patent reexamination tend to be higher. In other words, there is no “holding back” of art as is often the case with initial ex parte filings. Additionally, inter partes requests tend to be of a much higher quality due to the estoppel risk involved.

For those Requesters seeking to employ an ex parte patent reexamination for stay purposes, the first shot might need to be your best shot.

This case was brought to my attention by the great Docket Navigator.

When implementing a patent reexamination strategy, a threshold determination is whether or not to initiate ex parte or inter partes patent reexamination, or both. This decision is very straight forward for older patents (i.e., those patents that did not mature from an application filed on or after November 29, 1999). This is because applications filed prior to the 1999 date are not eligible for inter partes patent reexamination.

Yet, as the years progress, fewer and fewer patents are outside of the inter partes date provision. So, where both options are available, which is the better option?

Like most legal inquiries, the answer is “it depends.” For those seeking a stay of a parallel litigation, the answer will vary in accordance with the practice of the presiding judge.

As detailed previously, a Nevada judge found that ex parte patent reexamination pendency is controlled by the Patentee, and determined that a stay is appropriate. The judge reasoned that any potential delays in the ex parte proceeding could be controlled by the Patentee.

Last week, in eComSystems Inc., v. Shared Marketing Sevices Inc., and Ace Hardware Corp (MDFL), the judge found that the potential for an ex parte patent reexamination to simplify issues for trial was limited compared to inter partes patent reexamination. The judge explained that estoppel provisions of inter partes patent reexamination would prevent a defendant from arguing the same art in the parallel litigation.

Inter partes reexaminations provide a third party the right to participate in the reexamination process and, thus, have a res judicata effect on the third party requester in any subsequent or concurrent civil action. See 35 U.S.C. §§ 314-315. . . .. Ex parte reexaminations, on the other hand, do not bar the requestor from relitigating the exact same issues in district court.

Accordingly, the Court does not find that judicial economy will be served by a stay because the pending ex parte reexaminations of the patents-in-suit would still leave Shared Marketing and Ace free to relitigate the exact same issues before this Court.

In this case, the patents were subject to inter partes patent reexamination; yet the defendants opted for the lower risk, ex parte option. While the Order is silent as to the perceived  gamesmanship of this choice, the decision may be more about this choice then the loss of estoppel. Indeed, as pointed out by the judge, even had estoppel applied, patent reexamination will not defeat all invalidity defenses (e.g., public use, on-sale bar, inequitable conduct).

This case was brought to my attention by the great Docket Navigator.

When it comes to staying a district court litigation pending concurrent patent reexamination, defendants are always arguing to  halt the proceedings while plaintiffs urge the court to continue. Yet, in Se-Kure Controls, Inc. vs. Sennco Solutions, Inc. et al. (ND.Ill) the tables were turned.

Plaintiff, Se-Kure asserted three patents against Sennco RE37,590, 5,861,807 and 7,081,882. In an unrelated litigation, the ‘590 was determined to be invalid by another district court and on appeal to the CAFC. Sennco then requested a stay of the litigation based on the ‘590 development. The court granted the stay as to the ‘590 patent only. Shortly thereafter, Sennco pursued patent reexamination of the ‘807 and ‘882 patents at the USPTO (Spring of 2010). As a result of the initiation of the reexamination proceedings, both Sennco and Se-Kure agreed that the ongoing case should be stayed; the court obliged.

In May of 2010, the ‘590 patent was determined invalid at the CAFC, in July of 2010 both the ‘807 and ‘882 patent were being actively reexamined at the USPTO.

In updating the status of the case to the judge in October 2010, Sennco explained to the judge that the PTO is going to gut the claims of the 807 and 882 [Patents] as an expert hunter guts deer. (Who knew Hannibal Lecter was a patent litigator). At the same time, Sennco then asked the judge to lift the stay…wait, what?

With the recent string of good fortune, Sennco seemingly realized that the plaintiff’s patent infringement charges had been significantly undermined.  Likewise, with the ‘590 Patent invalidated, Sennco may have been emboldened as to strength of certain pending counter claims. In this regard, the court explained:

To the extent that Sennco argues that the stay should not apply to its counterclaim for antitrust violations related to the prosecution of the now-invalidated ‘590 Patent (see Sennco’s Resp. 7; Dkt. No. 13, Answer 28 ¶¶ 38-45), the court disagrees. Instead, at this point in the litigation, the court finds that proceeding solely on Sennco’s counterclaim rather than simultaneously addressing all the parties’ claims and counterclaims risks a duplication of efforts on overlapping or related issues once the ‘807 and ‘822 Patents complete the reexaminations. Thus, continuing the stay with respect to all the parties’ claims and counterclaims will better support judicial economy and efficiency and will reduce the burden of this litigation on both the parties and the court. The stay, therefore, continues to apply to all the parties’ claims and counterclaims.

Although not exactly the typical scenario, this case serves as a reminder that losing in patent reexamination (once a case is stayed) could result in extra painful consequences for those defendants subject to certain counterclaims.

This case was brought to my attention by the great Docket Navigator.

Nevada Court Rules Patent Owners Control Delay

Back in 2009, TableMAX IP Holdings sued Shufflemaster for infringement of U.S. Patent 6,921,337. The ‘337 Patent relates to a multi-player card gaming system. In June of 2010, Shufflemaster filed an ex parte request for reexamination citing various prior art references, including an Atari Blackjack game manual. (The Atari art is not especially relevant to this post. But, it makes me happy that I can now prove to my parents that I was not wasting my youth. Turns out I was a young visionary preparing for my career as a patent attorney through intense study of future prior art systems, take that mom!!)

The request was granted on August 2, 2010. Shortly thereafter, Shufflemaster moved to stay the case. In granting Shufflemaster’s request, the court went through the familiar factors, and dismissed the plaintiff’s prejudice argument based on the nature of the ex parte proceeding. The court reasoned that Patent Owners control ex parte reexamination pendency, noting that defendants do not participate, and that appeal shouldn’t be necessary if the patent is valid.

TableMAX IP Holdings, Inc. v. Shuffle Master, Inc. (D. Nev., 2009). Stay granted (here)

Specifically, the court stated:

Plaintiffs argue that the reexamination takes time which would cause unnecessary delay. However, this is an ex parte application by Defendant, which means that the Defendant is not permitted to have any further input. The deadlines are all in the control of the Plaintiffs. They are not required to take the maximum time to file the necessary documents or appeals. Any undue delay in the reexamination will not be caused by Defendants. If Plaintiffs’ patents are upheld, there will be no need to appeal–and Defendant may not appeal. (emphasis added)

It is true that delay will not be caused by the defendants (assuming they don’t file additional requests). Yet, undue delay in the reexamination will also not be caused by the plaintiff. Patentees complain about the patent reexamination pendency of the USPTO. Only the USPTO controls the timing of office action issuance in patent reexamination and appeal pendency. Likewise, extensions of time are not granted as a matter of right in reexamination, and there is no continuation/RCE practice.

Still, with such new programs as the Pilot Program for Waiver of Patent Owner’s Statement in Ex Parte Reexamination Proceedings, the court’s rationale may become more compelling going forward. (the ’337 Patent was filed prior to the effective date of the pilot program).

Giving Up What You Never Had

On September 20, 2010, Judge Ward of the Eastern District of Texas stayed the case of Microlinc LLC., v. Intel Corp et al. 2:07-CV-488. The patent at issue, 6,009,488 was asserted in 2005, but the action was voluntarily dismissed at the request of Microlinc to allow a first reexamination to conclude. Once this reexamination was terminated Microlinc reasserted the ‘488 Patent in 2007 against the same defendants. About the same time, Intel sought a second reexamination of the ‘488 Patent. A final rejection was issued in the second reexamination on May 26, 2010. On July 26, 2010, Microlinc filed a response adding 25 new claims.

Judge Ward stayed the case (decision here). While the case is now stayed, in his decision, Judge Ward offered the plaintiff an option to lift the stay that will necessitate the Patent holder give up, well….nothing.

In staying the case, Judge Ward seemed quite annoyed that Microlinc had pulled the plug on the case previously, and was now adding claims in the pending reexamination. Yet, in the decision, the judge provided an escape hatch to Microlinc, explaining:

[A]t the present time Microlinc seeks to further drag out the reexamination proceeding by filing twenty-five new claims. Thus, it is Microlinc that is delaying enforcement in this case. Finally, Microlinc expresses concern that since Intel has made multiple reexamination filings that it could continue to keep the ‘488 patent in reexamination proceedings and the action could take years to complete—thus prejudicing Microlinc. But Microlinc need not be so concerned. This Court chiefly finds that a stay is warranted in this case because Microlinc itself has amended many claims and asserted twenty-five new claims in reexamination. When the PTO takes action on these new claims this Court will consider lifting the stay. Or, alternatively, since Microlinc‟s amendments are minor, if Microlinc were to stipulate that it would not assert any of the twenty-five new claims against Defendants, then the Court would allow the case to proceed.(emphasis added)

Generally speaking, I believe stipulated stays are very helpful in managing the conditions of a stay pending patent reexamination. However, here the stipulation is largely meaningless. In other words, Patent Holder is given the option of a continued stay, OR, continuing to trial by relinquishing the right to assert claims that are unlikely to ever exist.

The 25 new claims were added after final rejection. Amendments after final in patent reexamination, like application prosecution, are governed by 37 CFR § 1.116. It is a near certainty that 25 new claims will be denied entry at this stage of the proceeding (the USPTO has yet to respond to the latest filing).

Unlike application prosecution there is no RCE option to pursue for entry of such claims after final rejection. This is why almost every first action includes the boilerplate:

If I am Microlinc I am rushing back to court to stipulate to non-assertion of these “new claims” before the USPTO makes it clear that my bargaining chips are illusory.

After a few years of dancing around a first plaintiff initiated suit in Texas, followed by a second defendant initiated suit in Virginia (later consolidated to Texas), Juniper Networks was able to successfully execute the Texas Two Step.  On Monday, the Northern District of California (receiving the dispute by transfer from Texas) stayed the dispute between Juniper Networks and Graphon Corp pending the outcome of patent reexamination.

In the dispute, four patents are asserted against Juniper, U.S. Patents 7, 249, 378; 7,269, 847; 7,383,573; and 7,424,737. Once the case was transferred from Texas to the Northern District of California, Juniper filed inter partes reexamination requests (just last month) against two of the four patents.  The two requests are yet to be decided by the USPTO. Shortly thereafter, Juniper motioned to stay the case.

The court was not dissuaded by the fact that Juniper had only filed their reexamination requests last month, nor that these requests were yet un-granted. Likewise, the fact that the other two patents were not yet subject to a request did not give the court pause either. Surprisingly, the court noted that :

On August 6, 2010, the Juniper Defendants filed an Inter Partes Reexamination Request of the ‘378 Patent in the United States Patent and Trademark Office (“USPTO”). On August 30, 2010, the Juniper Defendants filed an Inter Partes Reexamination Request of the ‘847 Patent, and they assert that they intend “in the near future ” to file similar requests for the remaining patents-in-suit.

The decision deciding to stay the case is found here.

By transferring into the Northern District of California, seems Juniper chose the ideal dance partner.

The court denied the motion to stay the litigation citing familiar factors, noting that (1) the stay would prejudice the plaintiff, (2) the stay would not likely simplify the issues in litigation and facilitate trial, and (3) discovery will soon be complete. Yet, clearly, of more interest to the court was why Envisionware chose to ignore the ‘870 Patent altogether.

In explaining his decision, the magistrate judge expressed concern that Envisionware was seeking a stay for purely tactical reasons. The Court explained that, with respect to the ‘870 Patent, there would still need to be an infringement analysis, claim construction, expert discovery and fact discovery despite the fact that the ’870 Patent shares a common specification with the ’780 Patent. At the hearing counsel for Envisionware explained that inter partes reexamination of the ‘870 Patent was not possible. Envisionware offered no clear answer as to why ex parte reexamination of the ‘870 Patent was not pursued.

PPG Comment: Third parties are reluctant to pursue ex parte reexamination believing that the lack of third party participation will lead to an unfavorable result. Yet, as pointed out by the court in this case, if the USPTO were to conclude that the claims in the reexamination were patentable, this would not bind the Court from reaching a contrary determination. Indeed, as we noted last week, courts do not even give deference to the decisions of the USPTO. By deliberately choosing to avoid the risk of a favorable ex parte patent reexamination result, Envisionware seemingly failed to see the forest for the trees.

It is difficult to identify many circumstances in which an “effectively out of court” situation would be presented for substantive issues based on concurrent reexamination.  One possible example may be the need to litigate priority of invention issues in a  reexamination proceeding (assuming the Patent Owner needed to swear behind an anticipatory reference claiming the same invention).  Under those circumstances, the reexamination, if carried to completion, is likely to result in the cancellation of all of the claims of the Patent Owner’s patent. That in turn would require a dismissal of a interfering patents suit under 35 U.S.C.  291, since a necessary condition for such an action is the existence of two valid and interfering patents. As a result, the district court would have no occasion to consider the issue of priority of invention following the resolution of the PTO reexamination proceeding. Such a consequence provides sufficient finality to make the stay order a “final decision” for appealability purposes.

Outside of such unique situations, the delay associated with patent reexamination may significantly undermine the value of injunctive relief. For example, where Patent Holder market share is being eroded, significant delay may effectively moot the controversy to the Patent Holder’s detriment, especially in quickly advancing areas of technology. While the Patent Owner may be able to pursue infringement claims once the stay is lifted, where money damages are inadequate, the redressability aspect of the dispute may be lost.

Likewise, as noted in our post last week, “rolling ex parte reexamination requests” are often times abused by district court defendants. Where a concurrent litigation is under stay, rolling reexamination requests effectively keep the Patant Owner out of court. In such cases, appelate review may be in order for defendants gaming the system.