EDTX Monthly Wrap-Up March 2020

This post analyzes three March 2020 opinions from the Eastern District of Texas deciding motions to stay pending: (1) an IPR filed by a third party; (2) a declaratory judgment action pursuant to the customer-suit exception; and (3) an appeal in a separate case on a related patent, third-party IPR, and the defendant's pending motion to dismiss. In each case, the motion to stay was denied. The most important inquiry in each case was the ability and likelihood of the ancillary proceeding to resolve the issues before the court.

Parallel Networks Licensing, LLC v. Ramquest Software, Inc., No. 4:19-CV-487, 2020 WL 1236266, at *1 (E.D. Tex. Mar. 13, 2020)

In Parallel Networks, Judge Amos Mazzant denied Defendant Ramquest Software Inc.'s motion to stay pending IPR. Parallel Networks, 2020 WL 1236266, at *5. The IPRs were filed by third-party Microsoft Corporation nearly six years prior to Parallel Networks filing its complaint against Ramquest. Id. at *1. The PTAB instituted IPR on the challenged patents but ultimately found that Microsoft had not demonstrated their unpatentability. Id. On appeal, the Federal Circuit vacated in part and remanded the PTAB's decision and required the PTAB to reconsider its invalidity rulings. Id. The PTAB in turn ordered Microsoft and Parallel Networks to brief the impact of the Federal Circuit's decision in Click-to-Call Techs., LP v. Ingenio, Inc., 899 F.3d 1321 (Fed. Cir. 2018).

Judge Mazzant considered three factors in determining Ramquest's motion to stay pending the Microsoft IPRs: (1) undue prejudice to Parallel Networks; (2) the stage of the proceedings; and (3) simplification of the issues. Id. at *2.

Although plaintiffs' interest in timely redress of their infringement claim "is entitled to some weight," Judge Mazzant noted that this factor is present in every case involving a stay, "and it is therefore not sufficient, standing alone, to defeat a stay motion." Id. at *2. The court considered it "significant" that Parallel Networks sought only monetary damages and noted that Ramquest was willing to be bound by estoppel pursuant to 35 U.S.C. § 315. Id. at *2–3 ("[T]his sufficiently obviates the concern that Defendant will be able to game the system and get a second bite at the apple."). The first factor therefore weight "slightly" in favor of a stay. Id. at *3.

As to the second factor, the court agreed with Ramquest that the case was still in its early stages as a scheduling order had only been entered a little over a month before the court issued the order on Ramquest's motion to stay. Id. at *3. This factor also weighed in favor of a stay. Id.

The third factor, however, cut against a stay and outweighed both previous factors. Id. at *3–5. Judge Mazzant considered the Click-to-Call decision, which held that service of a complaint triggers the one-year clock to file an IPR petition regardless of whether that complaint was voluntarily dismissed without prejudice. Id. at *4 (citing generally Click-to-Call, 899 F.3d 1321). Parallel Networks argued that because Microsoft filed its petitions three days after this one-year deadline, the PTAB would likely dismiss the Microsoft IPRs for lack of jurisdiction. Id. at *4. Judge Mazzant did not take up this issue. Rather, Judge Mazzant reasoned that because jurisdiction was an issue precedent to determining the merits of the Microsoft IPRs, the "IPRs are in the pre-institution phase." Id. at *4. Consistent with the preference of courts in the Eastern District to "decline[] to grant stays prior to the PTAB's institution decision," therefore, Judge Mazzant found the third factor" which is the most important in the analysis" weighed against a stay. Id.

Corydoras Techs., LLC v. Best Buy Co., No. 2:19-CV-00304-JRG-RSP, 2020 WL 1275782, at *1 (E.D. Tex. Mar. 17, 2020)

On September 4, 2019, Plaintiff Corydoras Technologies, LLC filed suit in the Eastern District of Texas against Best Buy, accusing of infringement products sold by Best Buy and manufactured by Amazon, Microsoft, Dell, Alienware, HP, Acer, Google, Nokia, and BLU. Corydoras, 2020 WL 1275782, at *1. Amazon filed a declaratory judgment action in the Western District of Texas on November 11, 2019. Id. Best Buy filed a motion to stay the Eastern District action pending Amazon's declaratory judgment action pursuant to the customer-suit exception. Id. The customer suit exception is an exception to the general "first to file rule" and permits a later-filed suit against manufacturers to proceed before an earlier-filed suit against its customers. Id. at *2.

Magistrate Judge Roy Payne issued an order finding the customer-suit exception inapplicable and denying Best Buy's motion to stay. Id. at *2–4. Judge Payne cited as "significant" an order issued by Judge William Bryson of the Federal Circuit who sat by designation in the Eastern District. Id. at *2 (citing CyWee Grp. Ltd. v. Huawei Device Co., No. 2:17-CV-495, 2018 WL 4002776, at *4 (E.D. Tex. Aug. 22, 2018)).[1] In Cywee, Judge Bryson considered four factors to determine whether the customer suit exception applies:

• whether the customer-defendant in the earlier-filed case is merely a reseller;
• whether the customer-defendant agrees to be bound by any decision in the later-filed case that is in favor of the patent owner; and
• whether the manufacturer is the only source of the infringing product.

Id.

Judge Payne found the stay inapplicable under the third factor. Id. at *3-4. In particular, "Amazon is just one of nine manufacturers of the accused products." Id. at *3. "Even if the declaratory judgment action somehow resolved all claims related to Amazon's accused products, all of the other non-Amazon accused products would still remain in this case." Id. Moreover, Amazon's declaratory judgment action did not seek to invalidate the asserted patents Id. Finally, because the asserted claims were predominantly method claims, resolution of Corydoras's infringement claims against Amazon would not resolve its direct or indirect infringement claims against Best Buy. Id. at *4. For example, "even if a jury found no indirect infringement by Amazon, Best Buy may still directly infringe." Id.

Judge Payne also considered the "traditional stay factors"[2] and found the customer-suit exception equally inapplicable under those factors for largely the same reasons discussed above.

In addition, Judge Payne noted that on the same day Best Buy filed its motion, Amazon filed a motion in its declaratory judgment action to enjoin Corydoras from proceeding in the Eastern District action against Best Buy. Id. at *1. Judge Payne noted that as the court hearing the first filed suit, the Eastern District should decide the applicability of the customer-suit exception not the Western District. Id. at *1–2. "Thus, regardless of whether an exception might determine that a case other than the first-filed case should be the first to go forward, the first-filed court should always decide whether the second suit filed must be dismissed, stayed or transferred and consolidated." Id. at *2.

Uniloc 2017 LLC v. Samsung Elecs. Am., Inc., No. 2:19-CV-00259-JRG-RSP, 2020 WL 1433960 (E.D. Tex. Mar. 24, 2020)

The third order, Uniloc, was also issued by Judge Payne and addressed a request for stay pending (1) appeal of an order invalidating a related patent; (2) instituted IPRs on the asserted patent; and (3) resolution of a pending motion to dismiss.

Plaintiff Uniloc 2017 LLC filed its complaint against Samsung on July 31, 2019. Uniloc, 2020 WL 1433960 at *1. Uniloc had earlier accused LG of infringing a related patent, and a court in the Northern District of California had granted LG's motion to dismiss under 35 U.S.C. § 101. Id. Uniloc appealed, and the Federal Circuit heard oral argument on March 3, 2020. Id.

Judge Payne denied Samsung's motion to stay pending the LG appeal under both the Nken[3] factors and the traditional stay factors. First, Judge Payne noted that "Samsung never addresse[d] or analyze[d] the standard described in Nken" and "this alone would be fatal to Samsung's argument." Id. at *3. Even considering the factors, however, Judge Payne found the "demanding" standard was not met, largely because Samsung applied the Nken factors to an appeal in which Samsung was not a party. Id. Judge Payne also found a stay under the traditional factors unjustified because of importance difference between the Samsung case and the LG appeal namely, the different parties, the different claims, and the different specifications. Id. at *5-6.

Applying the same traditional factors to the instituted IPRs, Judge Payne again found a stay inappropriate. See id. at *6–7. Two third parties—Microsoft and Cisco—had filed IPRs on some of the claims at issue against Samsung. Id. at *1. Samsung filed a petition to join the Cisco IPR and indicated that it would seek to join the Microsoft IPR as well, but the PTAB had not instituted any petition filed by Samsung. Id. at *6. Judge Payne therefore found a stay "premature . . . due to Samsung's non-instituted petition." Id. In addition, "only eight of the nineteen Asserted Claims are challenged" in the IPRs, leaving eleven live claims even if the PTAB invalidated every instituted claim. Id. Judge Payne also rejected Samsung's attempt to use one claim challenged in every IPR as representative of all claims. Id. at *6–7 ("Samsung never conducted such an analysis in the context of § 102 and § 103.").

Finally, Judge Payne cited "the presumption" in the Eastern District "that discovery shall proceed notwithstanding the filing of a motion to dismiss" to reject Samsung's request to stay the case pending its § 101 motion to dismiss. Id. at *8.

[1] Judge Payne also cited as persuasive Judge Gilstrap's recently issued decision in Fractus, S.A. v. AT&T Mobility LLC, No. 2:18-CV-00135, 2019 WL 3253639 (E.D. Tex. July 19, 2019) (Gilstrap, J.). Id. at *3.

[2] The traditional stay factors overlap with the three factors discussed above in the Parallel Networks case.

[3] The Nken factors ask "(1) whether the stay applicant has made a strong showing that it is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies." Nken v. Holder, 556 U.S. 418, 434 (2009).

Author: Rae Crisler