Wonderland Nurserygoods Co. v. Baby Trend, Inc., Case No. EDCV 14-01153-VAP (SPx)
| Decision Date | 20 April 2015 |
| Docket Number | Case No. EDCV 14-01153-VAP (SPx) |
| Court | U.S. District Court — Central District of California |
| Parties | WONDERLAND NURSERYGOODS CO., LTD., Plaintiff, v. BABY TREND, INC., DENNY TSAI, AND BETTY TSAI, Defendants. |
[Motion filed on 3/9/15]
Before the Court is Defendants' motion to stay this action pending inter partes review by the U.S. Patent and Trademark Office of the patent claims asserted by Plaintiff in this action. (Doc. 49.) This matter came before the court for hearing on April 13, 2015. For the reasons set forth below, the Court GRANTS the motion.
Plaintiff Wonderland Nursery Goods filed this suit for patent infringement against Defendants Baby Trend, Denny Tsai, and Betty Tsai on June 6, 2014, alleging infringement of U.S. Reissue Patent No. RE43,919. (Doc.1.) Plaintiff asserts that Defendants infringe claims 1-5 and claims 8-29 of the '919 Patent. (Doc. 48-2 at 2.) Among their defenses, Defendants allege that the asserted claims of the '919 Patent are invalid under 8 U.S.C. §§ 102 and 103. (Doc. 24 at ¶ 32.)
On March 4, 2015, Defendants filed petitions with the U.S. Patent and Trademark Office ("USPTO") for inter partes review ("IPR") of the validity of the asserted claims, seeking cancellation of all 27 claims asserted in this action. (Docs. 49-9, 49-10.) Defendants subsequently filed the present motion to stay this action on March 9, 2015. (Doc. 49.) Plaintiff opposes staying the litigation. (Doc. 54.)
The Leahy-Smith America Invents Act ("AIA"), Pub.L. No. 112-29, § 6(a), 125 Stat. 284, 299-304 (2011), codified at 35 U.S.C. §§ 311-319 (2013), intended to improve the former inter partes reexamination proceeding by replacing it with a new inter partes review proceeding. Pursuing the AIA's goal "to establish a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs," H.R. Rep. No. 112-98, 40 (2011), the PTO sought "to create a timely, cost-effective alternative to litigation" in crafting the inter partes review regulations. Changes to ImplementInter Partes Review Proceedings, Post-Grant Review Proceedings, and Transitional Program for Covered Business Method Patents, 77 Fed. Reg. 48,680 (Aug. 14, 2012) ().
The inter partes review procedure is designed (1) to reduce to 12 months the time the PTO spends reviewing validity, from the previous reexamination average of 36 months (id. at 48,725); (2) to minimize duplicative efforts by increasing coordination between district court litigation and inter partes review (id. at 48,721); and (3) to allow limited discovery in the review proceedings (id. at 48,719). Inter partes review allows a party other than the patentee to bring an adversarial proceeding in the PTO to establish that the patent claims are invalid under 35 U.S.C. § 102 or 103. 35 U.S.C. § 311.
After a party has filed a petition requesting inter partes review, the patent owner has three months to file a preliminary response opposing the request. 35 U.S.C. § 313; 37 C.F.R. § 42.107(b). Within three months of the time set for the patent owner's response, the PTO will grant the inter partes review request if "there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition." 35 U.S.C. § 314(a). This standard for granting review is more stringent than the previous "substantial new question of patentability" standard.Universal Electronics, Inc. v. Universal Remote Control, Inc., 943 F. Supp. 2d 1028, 1030 (C.D. Cal. 2013).
If the PTO grants review, a final determination must be issued "not later than 1 year" after the petition is granted. 35 U.S.C. § 316(a)(11). The one-year period may be extended for good cause by not more than six months, id., but "[e]xtensions of the one-year period are anticipated to be rare." 77 Fed. Reg. at 48,695. The patent owner has an opportunity to add or amend claims during inter partes review. 35 U.S.C. § 318(b). After review concludes, the requester is estopped from asserting that a claim is invalid "on any ground that the petitioner raised or reasonably could have raised during that inter partes review." 35 U.S.C. § 315(e)(2).
The statute also seeks to limit the abuse of inter partes review as a tool for tactical litigation delay by requiring that a defendant petition for review within one year after being served with the complaint. 35 U.S.C. § 315(b). This one-year limit sets a ceiling on the PTO's ability to commence inter partes review where there is ongoing litigation.
Here, the deadline for the PTO's decision on whether to grant Defendants' IPR petitions is September 4, 2015. Defendants seek a stay of the case starting now and, assuming the PTO grants the IPR petitions, extending through the conclusion of the IPR proceedings.
"Courts have inherent power to manage their dockets and stay proceedings, including the authority to order a stay pending conclusion of a PTO reexamination." Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426-27 (Fed. Cir. 1988) (internal citations omitted). While the case law enumerates several general considerations that are helpful in determining whether to order a stay, ultimately "the totality of the circumstances governs." Universal Electronics, Inc. v. Universal Remote Control, Inc., 943 F. Supp. 2d 1028, 1031 (C.D. Cal. 2013).
In determining whether to stay a case pending inter partes review, courts generally consider the following factors:
Universal Electronics, 943 F. Supp. 2d at 1030-31.
Though a stay is never required, it may be "particularly justified where the outcome of the reexamination would be likely to assist the court in determining patent validity and, if the claims were cancelled in the reexamination, would eliminate the needto try the infringement issue." In re Cygnus Telecomms. Tech., LLC, Patent Litig., 385 F. Supp. 2d 1022, 1023 (N.D. Cal. 2005) (citing Gould v. Control Laser Corp., 705 F.2d 1340, 1342 (Fed. Cir. 1983)). Indeed, "an auxiliary function [of the IPR] is to free the court from any need to consider prior art without the benefit of the PTO's initial consideration." In re Etter, 756 F.2d 852, 857 (Fed. Cir. 1985).
Thus, while "[t]here is no per se rule that patent cases should be stayed pending reexaminations," Tokuyama Corp. v. Vision Dynamics, LLC, No. 08-cv-02781-SBA, 2008 WL 4452118, at *2 (N.D. Cal. Oct. 3, 2008), there is a "liberal policy in favor of granting motions to stay proceedings pending the outcome of re-examination." Universal Electronics, 943 F. Supp. 2d at 1031.
To determine if a stay is appropriate, the Court assesses the three Universal Electronics factors in turn below.
Regarding the first factor, fact discovery is not yet complete, expert discovery has not yet begun, and a trial date has not yet been set. Furthermore, although the parties have submitted claim construction briefs, the Markman hearing has not yet taken place and no disputed claim terms have been construed by this Court. Thismakes the present case unlike Universal Electronics, in which the court had already expended significant resources in conducting a Markman hearing and in construing disputed claim terms. "The Court's expenditure of resources is an important factor in evaluating the stage of the proceedings." Universal Electronics, 943 F. Supp. 2d at 1032.
It is true that Defendants could have saved both parties substantial expense by filing petitions for IPR earlier. As Defendants point out, however, they did not know which claims were being asserted against them until Plaintiff served its preliminary infringement contentions on November 21, 2014. (Reply at 3.) Thus, Defendants' delay in filing petitions for IPR is not as great as Plaintiff suggests.
In sum, while the case has been pending for 10 months, the litigation is at a relatively early stage, which weighs in favor of granting a stay.
Regarding the second factor, the Court concludes that a stay has the potential to simplify the issues in this case. First, because Defendants have petitioned for review of all claims asserted in this action, the outcome of the IPR has the potential to be case-dispositive. Second, if an IPR is instituted and the claims are not cancelled, estoppel will prevent Defendants from raisingin this Court invalidity grounds that were or could reasonably have been raised during the IPR. In either case, significant judicial resources will be saved.
Plaintiff argues that this motion to stay is premature because it is uncertain whether the USPTO will choose to institute an IPR based on Defendants' petitions. It is certainly true that the USPTO may choose not to institute an IPR, in which case no simplification of issues will result from the stay. However, if an IPR is not instituted, the stay will be relatively short and the action can continue with minimal delay.
If, on the other hand, the case is not stayed, but an IPR is instituted, the court will undoubtably be faced with another motion to stay, at which point Plaintiff will argue that the stay should be denied due to the significant resources expended by the parties and the Court in the intervening months. The Court will then have to balance this expenditure of resources against the benefits of staying the case at that time. Additionally, refusing a stay incurs the risk that developments in the IPR proceedings, if they are instituted, will...
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