EDTX & NDTX Monthly Wrap-Up — February 2019

This month, the Eastern District of Texas issued two opinions that are instructive for understanding how the court is likely to receive a request for stay of litigation on the grounds that an asserted patent is simultaneously being challenged with a petition for inter partes review ("IPR") before the Patent Trial and Appeal Board. Despite the similarities between the cases, the differing outcomes hinged on one key difference—whether the related IPR had been instituted.

Uniloc USA, Inc. et al. v. Samsung Electronics America, Inc. et al. (Payne, M.J.)

In Uniloc, Samsung moved for a stay pending a decision on an IPR petition that it filed in November of 2018. Magistrate Judge Payne considered the request by analyzing the three factors that the District uses when determining whether to stay litigation pending IPR:

(1) whether the stay will unduly prejudice the nonmoving party,

(2) whether the proceedings before the court have reached an advanced stage, including whether discovery is complete and a trial date has been set, and

(3) whether the stay will simplify issues in question in the litigation.[1]

As to the first factor, the court found that whether or not the petition was granted, a stay would result in a multi-month delay of the litigation, which would prevent the plaintiff from receiving timely redress for the alleged infringement of its patents.[2] Although "[a] delay of potential vindication of patent rights by itself is insufficient to prevent a motion to stay from being granted," the court found this factor to weigh against granting the stay.[3]

The court also found the second factor to cut against the stay, because claim construction briefing was "substantially underway" and "the vast majority of the time for factual discovery ha[d] already elapsed."[4] Thus, "a significant amount of time ha[d] already been invested into [the] case."[5]

Finally, the court gave no weight to the argument that an IPR proceeding could simplify the issues because the petition had not yet received an institution decision. The court found arguments of simplification too speculative, and reasoned that this factor also favored denying the motion to stay.[6] Because each factor counseled against the stay, the court denied the motion without prejudice and allowed its re-urging if the petition is later granted.[7]

CyWee Group Ltd. v. Samsung Electronics Co. Ltd. et al. (Bryson, C.J.)

Judge Bryson, sitting by designation, came to a different conclusion in another case in which Samsung had also requested a stay pending IPR. In a comprehensive opinion, Judge Bryson considered each of the factors discussed above, in addition to the fourth factor in the Covered Business Method ("CBM") review factor, which asks "whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court."[8] The court included this additional factor in its analysis of the third IPR factor.[9]

Like the decision in Uniloc, the court recognized that a "delay in the vindication of patent rights is prejudicial to the patent owner," but that this is insufficient to defeat a stay motion.[10] The court also found that the patentee would be "adequately compensated by a damages award in the event that a judgment is ultimately entered in its favor" because it is not a competitor to Samsung and so injunctive relief was not likely.[11] Finally, the opinion reasoned that Samsung's one-month delay in requesting a stay after the IPR petition was instituted was not excessive, especially considering the intervening holiday period.[12] In sum, the court determined that this first factor cut slightly in favor of denying the stay.[13]

The second factor, whether the proceedings have reached an advanced stage, also weighed somewhat against a stay. As in Uniloc, the case in CyWee had almost completed fact discovery[14] and trial was only a few months away.[15] However, Judge Bryson determined that "the most burdensome part of the case, for both the parties and the court, is the period immediately before, during, and after trial," and that had yet to occur.[16] This fact tempered the court's consideration of the second factor, but was ultimately deemed less persuasive than the case's advanced stage. This factor also slightly supported denying a stay.[17]

The third and final factor, potential simplification of the issues, is where these two cases significantly diverge. The Uniloc court was unwilling to place much weight on this question because it was deemed too speculative before the PTAB reached an institution decision. In contrast, the petition in CyWee had already been granted, so Judge Bryson was free to expound on the ways in which the IPR proceeding could streamline the litigation.

Significantly, Judge Bryson considers this issue to be the "most important factor bearing on whether to grant a stay."[18] This is so because if the IPR results in "cancellation of some or all of the asserted claims that have been challenged in the IPR proceeding, a large portion of the litigation will fall away."[19]

One wrinkle in this third factor's analysis was the fact that there was not complete overlap between the asserted claims in the litigation and the challenged claims in the IPR. While this weakens the case for a stay, courts in the District have still granted stays in such situations because an IPR on only some of the asserted claims can still achieve substantial simplification for the district court case.[20] For one, invalidation of any claim would necessarily reduce the considerations before the court.[21] Even if no claims are invalidated, the IPR would simplify the litigation by "limiting the arguments Samsung can make regarding validity"[22] through the statutory estoppel provision 35 U.S.C. § 315(e)(2), which "applies to any ground that was not included in the IPR petition but reasonably could have been."[23] The court's concluding reasons cited the benefit of avoiding "duplication of effort and a possibility of inconsistent results" with the PTAB,[24] the effect of invalidated claims on non-invalidated claims by nature of their common technology,[25] and the assistance that the PTAB judges could provide with their expertise.[26] The court found this final factor to cut strongly in favor of a stay.

Despite the first two factors supporting denying the stay, the significant potential for simplification of the issues tipped the balance toward staying the case pending the IPR's outcome. Because the petition was instituted, the court was not burdened by the cloud of speculation that shadowed the facts in Uniloc, but could instead make a more definite assessment about the potential for simplification. The court therefore granted the stay pending the completion of the IPR proceeding.

Concluding Thoughts

These cases make clear that motions for a stay in the Eastern District of Texas will almost surely be denied if the IPR petition has not yet been instituted. This is evident in the reality that "[c]ourts within this district have uniformly denied motions to stay when the motions are filed before the PTAB has granted petition to review."[27] Judge Bryson recognized this as well by noting, "It would have been virtually pointless for Samsung to have sought a stay before the IPR was instituted, as this Court would have almost certainly denied it; the decisions of courts in this district as well as other district courts make that abundantly clear."[28]

Although the outcome of a post-institution motion for stay is less certain, CyWee provides support for the argument that courts do observe the "liberal policy in favor of stays"[29] in such instances. The fact that the case in CyWee was stayed two years after it commenced and only three months before trial suggests that prolonged litigation is not sufficient to defeat a motion to stay. The case also demonstrates that an IPR's incomplete coverage of claims is not fatal because there is still the potential for major efficiencies to be gained. The court's staying of a case with these significant facts weighing against a stay should encourage future defendants who move for stays pending the outcome of instituted IPRs. Although an IPR's institution is not outcome-determinative, it is likely to be the most heavily-weighted factor in a court's consideration.

 

[1] Uniloc USA, Inc. et al. v. Samsung Electronics America, Inc. et al., No. 2:18-cv-00041 at 1 (E.D. Tex. Feb. 19, 2019) (Payne, M.J.) (quoting Trover Grp., Inc. v. Dedicated Micros USA, No. 2:13-cv-01047, 2015 WL 1069179, at *1 (E.D. Tex. Mar. 11, 2015)).

[2] Id. at 2.

[3] Id.

[4] Id. at 3.

[5] Id.

[6] Id.

[7] Id.

[8] CyWee Group Ltd. v. Samsung Electronics Co. Ltd. et al., No. 2:17-cv-00140 at 3–4 (E.D. Tex. Feb. 14, 2019) (Bryson, C.J.) (recognizing that Congress's four-factor CBM test is applicable to IPR cases because "the policy considerations that apply in the two contexts are similar").

[9] Id. at 4.

[10] Id. at 7.

[11] Id. at 7–€“9.

[12] Id. at 11–12.

[13] Id. at 13.

[14] Id.

[15] Id. at 1.

[16] Id. at 14.

[17] Id. at 15.

[18] Id.

[19] Id. at 16.

[20] Id. at 17 (collecting cases).

[21] Id. at 18.

[22] Id.

[23] Id. at 18 n.4 (citing PGS Geophysical AS v. Iancu, 891 F.3d 1354, 1360 (Fed. Cir. 2018)).

[24] Id. at 19.

[25] Id.

[26] Id.

[27] Uniloc at 2.

[28] CyWee at 10–11.

[29] Id. at 5 (internal quotations omitted).