Imagevision.net, Inc. v. Internet Payment Exch., Inc., Civil Action No. 12-054-GMS-MPT

• Decision Date: 15 November 2012
• Docket Number: Civil Action No. 12-054-GMS-MPT
• Parties: IMAGEVISION.NET, INC., Plaintiff, v. INTERNET PAYMENT EXCHANGE, INC., Defendants.
• Court: U.S. District Court — District of Delaware

IMAGEVISION.NET, INC., Plaintiff,

v.INTERNET PAYMENT EXCHANGE, INC., Defendants.

Civil Action No. 12-054-GMS-MPT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

Dated: November 15, 2012

MEMORANDUM

I. INTRODUCTION

On January 18, 2012 ImageVision.Net, Inc. ("Imagevision") brought this action against Internet Payment Exchange, Inc. ("IPX") for infringement of U.S. Patent No. 7,567,925 ("the '925 patent"). (D.I. 1.) The court referred this case to Magistrate Judge Thynge to "conduct all proceedings related to discovery disputes, alternate dispute resolution, and dispositive and nondispositive motions, excluding claim construction, up to the pretrial conference." (D.I. 11.) On June 18, 2012, after filing an inter partes reexamination request with the Patent and Trademark Office (the "PTO"), IPX filed a motion in this court to stay the case pending such reexamination.¹ (D.I. 14.)

Pending before the court are Magistrate Judge Thynge's Report and Recommendation (the "R and R"), dated September 4, 2012 (D.I. 36), and IPX's Objections to the Report andRecommendation (D.I. 38). For the reasons that follow, the court will adopt in part and overrule in part the R and R.² The court will accept Magistrate Judge Thynge's ultimate recommendation that the court deny IPX's motion to stay pending the inter partes reexamination.

II. IPX'S OBJECTIONS

IPX argues that the magistrate judge erred in recommending that the court deny its motion to stay pending the PTO's reexamination and raises objections to three distinct portions of the R and R. Specifically, IPX contends that the magistrate judge applied an incorrect overarching legal standard, that the analysis of the "issue simplification" factor constituted legal error, and that the analysis of the "prejudice" factor was similarly flawed. The court will address each objection more fully below.

III. STANDARD OF REVIEW

A motion to stay is "not dispositive of a party's claim or defense," and the court's review is therefore governed by Rule 72(a) of the Federal Rules of Civil Procedure. Fed. R. Civ. P. 72(a). Accordingly, the court "must consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law." Id.

IV. DISCUSSION

Having reviewed the R and R, the parties' submissions, and the applicable law, the court concludes that the magistrate judge committed no error with respect to the legal standard applied or the analysis of the "prejudice" factor. The court, however, will modify the magistrate judge's ruling on the "issue simplification" factor. The court addresses each of IPX's objections in moredetail below.

A. Legal Standard

IPX first argues that Magistrate Judge Thynge applied an incorrect legal standard in the R and R. The magistrate judge began by noting that "[t]he court's 'inherent power to conserve judicial resources by controlling its own docket' includes the discretion to a stay a litigation" and that such discretion "has been found to extend to patent cases where a reexamination by the [PTO] has been requested." (D.I. 36 at 2 (internal citation omitted).) She then described the contested standard as follows:

In determining whether a stay is appropriate, the court's discretion is guided by the following factors: "(i) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (ii) whether a stay will simplify the issues in question and trial of the case; and (iii) whether discovery is complete and whether a trial date has been set."

(Id. at 2-3 (internal citations omitted).) This is an accurate illustration of the three-factor test engaged in by this court when considering a motion to stay, see, e.g., First Am. Title Ins. Co. v. MacLaren, L.L.C., No. 10-363-GMS, 2012 WL 769601, at *4 (D. Del. Mar. 9, 2012); Nokia Corp. v. Apple, Inc., No. 09-791-GMS, 2011 WL 2160904, at *1 (D. Del. June 1, 2011), and IPX does not challenge this particular description (D.I. 38 at 3). Rather, IPX takes issue with the R and R's additional pronouncement that,

[a] final decision is made with an eye toward maintaining an even balance between the competing interests of the parties at issue. "In maintaining that even balance, the Court must consider whether 'there is even a fair possibility that the stay would work damage on another party.'"

(D.I. 36 at 3 (internal citations omitted).) IPX suggests that the magistrate judge improperly appended this additional "test" to the court's well-established standard, and,by replacing the "undue prejudice" or "clear tactical disadvantage" assessment with a supposedly more sensitive "fair possibility of damage" inquiry, made it more difficult for IPX to demonstrate that a stay was appropriate. (D.I. 38 at 3-4.) According to IPX, the disputed language "is not found in any of this Court's precedent addressing stay motions" and "[s]imply put . . . is not the law of this Court." (Id.)

The court finds that the magistrate judge committed no error with respect to the legal standard applied in the R and R. First, the court is unconvinced that the disputed language rises to the level of an additional "test." For the reasons that follow, it is most naturally read as describing the lens through which the court views and measures "whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party."

As an initial matter, it is important to recognize that the assessment of "whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party" does not occur in a vacuum. Rather, in making such a determination, the court necessarily performs a balancing, comparing the burdens that a stay or the denial of a stay would impose upon the respective parties. For example, the concept of undue prejudice demands a reference point. It is not enough that a non-movant simply be harmed by a decision to stay—it must be unduly prejudiced, and this requires some reference to the comparative harm that the movant would otherwise suffer. Likewise, the finding of a "clear tactical disadvantage" requires the court to determine that its stay decision would place the non-movant at a disadvantage relative to its adversary.

The balancing implicitly required by the three-factor test becomes even more apparent when one considers the alternative formulation of the stay analysis often employed in thisdistrict. Judges in Delaware have often articulated a version of the stay test that explicitly weighs the hardship a movant would face in proceeding with litigation against the burden that a stay would impose upon the non-movant. See, e.g., Hartford Fire Inc. Co. v. Encore Mktg. Int'l, Inc., No. 10-620-SLR, 2011 WL 766587, at *3 (D. Del. Feb. 24, 2011); Cooper Notification, Inc. v. Twitter, Inc., No. 09-865-LPS, 2010 WL 5149351, at *2 (D. Del. Dec. 13, 2010) (citing St. Clair Intellectual Property Consultants, Inc. v. Fujifilm Holding Corp., No. 08-373-JJF-LPS, 2009 WL 192457, at *2 (D Del. Jan. 27, 2009)); Del. Dep't of Natural Res. & Envtl. Control v. U.S. Army Corps, of Eng'rs, 751 F. Supp. 2d 715, 732 (D. Del. 2010). Far from representing an entirely different standard, Judge Thynge's three-factor test and , in particular, the question of "whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party" can be viewed as simply consolidating the court's assessment of the relative burdens of the movant and non-movant within a single "factor." Undue prejudice and clear tactical disadvantage are more likely to exist where the grant of a stay imposes a greater burden on the non-movant than its denial would inflict on the movant.

With this proper understanding that the three-factor stay analysis requires the court to engage in some degree of balancing, it becomes clear that the "fair possibility" inquiry is not an additional test but simply a means of better understanding the balancing implicit in the "undue prejudice" factor. As the R and R states, the "fair possibility" test requires that a court look to the "competing interests of the parties at issue. 'In maintaining that even balance, the Court must consider whether 'there is even a fair possibility that the stay would work damage on another party."" (D.I. 36 at 3 (internal citations omitted).) Where such possibility exists, "the party requesting a stay must demonstrate that the denial of a stay would result in a 'clear case ofhardship or inequity.'" Bagwell v. Brewington-Carr, No. 97-321-GMS, 2000 WL 1728148, at *20 (D. Del. April 27, 2000) (quoting Denstsply Int'l, Inc. v. Kerr Mfg. Co., 734 F. Supp. 656, 658-59 (D. Del. 2000)). The "fair possibility" inquiry merely frames the way in which the court undertakes its "undue prejudice" balancing —where there is a "fair possibility" that a stay would prove detrimental to the non-movant, and the movant is unable to demonstrate a clear case of hardship or inequity, granting that stay is likely to result in undue prejudice to the non-movant.³

Moreover, contrary to IPX's assertion, the court has previously employed this language and called for the movant to "demonstrate that the denial of a stay would result in a 'clear case of hardship or inequity'" where "there is even a 'fair possibility' that a stay would prove detrimental to one of the parties." Bagwell, 2000 WL 1728148, at *20 (quoting Denstsply Int'l, Inc., 734 F. Supp. at 658-59). As Imagevision points out, this requirement actually originated in Supreme Court and Third Circuit precedent. See Landis v. N. Am. Co., 299 U.S. 248, 255 (1936) ("[T]he suppliant for a stay must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to someone else."); Gold v. Johns-Manville Sales Corp., 723 F.2d 1068, 1075-76 (3d Cir. 1983) ("It is well settled that before a stay may be issued, the petitioner must demonstrate 'a clear case of hardship or...