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March 24, 2016Newsletter

Obtaining Stays in Parallel Litigation

A Newsletter for Inter Partes Proceedings at the PTAB – March 2016

By: Kenneth M. Albridge III

I.          INTRODUCTION

The number of motions to stay patent litigation pending United States Patent & Trademark Office (USPTO) administrative proceedings has exploded since the enactment of the Leahy-Smith America Invents Act (AIA), which created inter partes review (IPR), post-grant review (PGR) and covered business method patent review (CBM) proceedings. This article briefly reviews the history of that explosion, a general discussion of the approaches of the district courts to such motions and practical considerations that impact the success of a motion to stay pending IPR, PGR and CBM proceedings (collectively, AIA Trials).

II.        BACKGROUND

Obtaining stays of district court litigation pending completion of USPTO administrative proceedings has been a part of the patent litigation process for over 30 years.

In 1980, Congress created the ex parte reexamination proceeding, providing for the first time an administrative proceeding for a third party to obtain reexamination of a patent by the USPTO. Congress foresaw three principal benefits to these administrative proceedings: (1) they could settle validity disputes more quickly and less expensively than litigation; (2) they would allow courts to refer patent validity questions to the expertise of the USPTO; and (3) they would reinforce investor confidence in the certainty of patent rights by affording the USPTO a broader opportunity to review doubtful patents. Given that the stay of pending litigation to enable USPTO review of contested patents was expressly contemplated by the reexamination legislation, federal courts soon began receiving motions for such relief.

In response, some (though not all) district courts adopted a liberal policy in favor of granting motions to stay litigation pending the outcome of USPTO reexamination proceedings. Nevertheless, the courts generally applied three factors in assessing whether to ultimately order a stay: (1) whether litigation is at an early stage; (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 nonmoving party. After considering and weighing each of these factors, courts would exercise their discretion to grant or deny the stay.

In 2011, Congress amended the reexamination statutes and created AIA Trials. These trials provided new administrative proceedings for a third party to challenge the patentability of patents before the USPTO. Similar to the prior reexamination proceedings, AIA Trials were intended to provide a more efficient system for challenging the validity of doubtful patents, establish a more efficient and streamlined patent system and improve patent quality and limit unnecessary and counterproductive litigation costs.

Given their similar purposes, the preexisting legal framework governing motions to stay pending reexamination proceedings has largely carried over to motions to stay pending IPR, PGR and CBM proceedings. In fact, with respect to motions to stay pending CBM proceedings, Congress expressly adopted factors similar to the traditional factors used by district courts and made district court decisions on such motions directly appealable to the U.S. Court of Appeals for the Federal Circuit.

III.       RECENT STATISTICS

AIA Trials are frequently sought in response to litigation. Because there is more certainty about the duration of these proceedings, defendants routinely move to stay the litigation. Hence, stay motions have become increasingly common in recent years.

As revealed by one recent study, “[t]he overall number of decisions on motions to stay [pending reexamination, IPR, and CBM proceedings] has been steadily climbing since 2011, with the most dramatic increase in between 2013 (with 351 decisions) and 2014 (with 443 decisions).” District courts rendered approximately 460 decisions on such motions in 2015. Of these decisions, roughly 60% granted a stay pending the conclusion of an AIA Trial.

The likelihood of obtaining or avoiding a stay pending an AIA Trial in a given case, however, varied greatly depending on the forum. For instance, the Northern District of Illinois granted approximately 65% of motions to stay between September 2012 and July 2015, while the Eastern District of Texas and Middle District of Florida each denied approximately 65% during that same time period. Meanwhile, the Northern District of California and the District of Delaware each granted around 55-60% of such motions.

IV.       PRACTICAL CONSIDERATIONS

District court decisions addressing motions to stay pending AIA Trials reveal a number of important considerations litigants should emphasize to tip the scales in their favor.

For example, timing can significantly affect the likelihood of obtaining a stay. Courts tend to disfavor delays in seeking to institute AIA Trials or moving to stay litigation, as it can place the non-moving party at a tactical disadvantage. On the other hand, acting expeditiously allows the court to conserve resources and minimize the risk of issuing a potentially inconsistent ruling. Thus, courts are generally more likely to grant a stay when a case is still in the early stages of litigation. Where a case is past the early stages of litigation, however, courts have often refused to grant a stay.

In addition to timing, the likelihood of obtaining a stay pending AIA Trials can be influenced by the extent to which the issues in the AIA Trials overlap with the issues in the pending litigation. For instance, courts often grant a stay where the petition challenges all of the claims asserted in the litigation because cancellation of those claims would moot further litigation. In addition, if the claims are upheld in the AIA Trials, invalidity arguments might no longer be part of the litigation because of the AIA’s estoppel provisions, which preclude a petitioner from re-litigating invalidity on any ground that was raised (and in the case of IPR and PGR proceedings, reasonably could have been raised) during the AIA Trial. When the AIA Trials do not involve all of the claims asserted, however, courts may be less inclined to issue a stay because the potential for simplifying the litigation is reduced. The same holds true when the litigation involves claims and defenses that cannot be decided in an AIA Trial—for example, IPR proceedings cannot resolve questions of validity under 35 U.S.C. §§ 101 or 112 or invalidity arguments based on non-publication prior art. Thus, the more the issues in the AIA Trial and pending litigation overlap, the more likely it is a court will grant a stay.

Prejudice to the patent owner is another important consideration affecting the likelihood of a stay. Delay of the litigation alone generally does not establish prejudice. When evaluating the prejudice of a stay on the patent owner, courts typically look for evidence that the AIA Trial was initiated for an improper purpose. But the courts will also consider the relationship between the parties. When the parties are direct competitors, there is an increased risk that infringement will cause loss of market share and goodwill and other irreparable harm.  In contrast, if the parties are not direct competitors, there is little risk of irreparable harm or loss of market share. Thus, the greater the level of competition between the parties, the more likely it is a court will find prejudice and deny a stay.

V.        CONCLUSION

The number of motions to stay pending USPTO proceedings has steadily climbed since Congress created the AIA Trials. Some district courts have adopted liberal policies in favor of granting motions to stay litigation pending the outcome of those proceedings; however, the likelihood of obtaining a stay in a given case can vary greatly depending on a number of factors. These factors include the forum, the timing of the motion, the overlap of issues in both the proceeding and the litigation and the prejudice to the patent owner. How a court views these factors will ultimately dictate whether a motion to stay will be successful, and it is important that litigants consider each in turn.

This Newsletter is a publication of Michael Best & Friedrich LLP and is intended to provide clients and friends with information on recent legal -developments. This Newsletter should not be construed as legal advice or an opinion on specific situations. For further information, feel free to contact the authors or other members of the firm. We welcome your comments and suggestions regarding this publication. © 2015 Michael Best & Friedrich LLP. All rights reserved.

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