Evolutionary Intelligence, LLC v. Groupon, Inc.

Filing 104

ORDER GRANTING DEFENDANTS' MOTIONS FOR A STAY 96 (Illston, Susan) (Filed on 1/23/2014)

1
2
3
4
5

IN THE UNITED STATES DISTRICT COURT

6

FOR THE NORTHERN DISTRICT OF CALIFORNIA

7
8

EVOLUTIONARY INTELLIGENCE, LLC,

9
United States District Court
United States District Court
For the Northern District of California California
For the Northern District of

10
11

No. C 13-4202 SI

Plaintiff,
v.

ORDER GRANTING DEFENDANTS’
MOTIONS FOR A STAY

FACEBOOK, INC.,

12

Defendant.
___________________________________/

13

EVOLUTIONARY INTELLIGENCE, LLC,

14
15
16
17

No. C 13-4204 SI

Plaintiff,
v.
GROUPON, INC.,
Defendant.
___________________________________/

18
19
20
21
22
23

Defendants in these parallel patent infringement actions have each filed a motion to stay the
proceedings pending inter partes review. A hearing on the motions is currently scheduled for January
24, 2013. Pursuant to Civil Local Rule 7-1(b), the Court determines that this matter is appropriate for
resolution without oral argument and VACATES the hearing. For the reasons set forth below, the Court
GRANTS defendants’ motions to stay.

24
BACKGROUND

25
26
27
28

In the present parallel actions, plaintiff Evolutionary Intelligence, LLC accuses defendants
Facebook, Inc. and Groupon, Inc. of infringing U.S. Patent No. 7,010,536 (“the ’536 patent”) and U.S.
Patent No. 7,702,682 (“the ’682 patent”).

1

On October 17, 2012, Evolutionary Intelligence filed complaints in the Eastern District of Texas

2

against defendants Facebook and Groupon. 13-cv-4202, Docket No. 1; 13-cv-4204, Docket No. 1. On

3

August 27, 2013, Magistrate Judge Caroline Craven granted defendants’ motions to transfer venue, and

4

the actions were transferred to this District on September 11, 2013. 13-cv-4202, Docket Nos. 112, 114;

5

13-cv-4204, Docket Nos. 71, 73. On October 22 and 23, 2013, several companies, including Facebook,

6

filed eight petitions for inter partes review with the U.S. Patent and Trademark Office (“PTO”),

7

combining to seek review of all the claims in the patents in suit. 13-cv-4202, Docket No. 129-1, Mace

8

Decl. Ex. 1. By the present motions, defendants move to stay the actions pending the inter partes review

9

of the patents in suit.1 13-cv-4202, Docket No. 128; 13-cv-4204, Docket No. 96.

United States District Court
For the Northern District of California

10
11

LEGAL STANDARD

12

“Courts have inherent power to manage their dockets and stay proceedings, including the

13

authority to order a stay pending conclusion of a PTO reexamination.” Ethicon, Inc. v. Quigg, 849 F.2d

14

1422, 1426-27 (Fed. Cir. 1988) (citations omitted); see also Clinton v. Jones, 520 U.S. 681, 706 (1997)

15

(“The District Court has broad discretion to stay proceedings as an incident to its power to control its

16

own docket.”). In determining whether to grant a stay pending PTO review, courts consider: (1)

17

whether discovery is complete and whether a trial date has been set; (2) whether a stay will simplify the

18

issues in question and trial of the case; and (3) whether a stay would unduly prejudice or present a clear

19

tactical disadvantage to the non-moving party. Telemac Corp. v. Teledigital, Inc., 450 F. Supp. 2d 1107,

20

1111 (N.D. Cal. 2006); accord Pi-Net Int’l, Inc. v. Focus Bus. Bank, 2013 U.S. Dist. LEXIS 118723,

21

at *11 (N.D. Cal. Aug. 16, 2013). “There is no per se rule that patent cases should be stayed pending

22

reexaminations, because such a rule ‘would invite parties to unilaterally derail’ litigation.” ESCO Corp.

23

v. Berkeley Forge & Tool, Inc., 2009 U.S. Dist. LEXIS 94017, at *5 (N.D. Cal. Sept. 28, 2009); see also

24
25
26
27
28

1

Four other parallel patent infringement actions by Evolutionary Intelligence have been stayed
pending the inter partes review of the patents in suit. See Evolutionary Intelligence, LLC v. Yelp, Inc.,
13-cv-3587-DMR, Docket No. 108 (N.D. Cal. Dec. 18, 2013); Evolutionary Intelligence, LLC v. Apple
Inc., 13-cv-4201-WHA, Docket No. 123 (N.D. Cal. Jan. 9, 2014); Evolutionary Intelligence, LLC v.
Foursquare Labs, Inc., 13-cv-4203-MMC, Docket No. 99 (N.D. Cal. Jan. 10, 2014); Evolutionary
Intelligence, LLC v. LivingSocial, Inc., 13-cv-4205-WHO, Docket No. 96 (N.D. Cal. Jan. 17, 2014).
In addition, a motion to stay is pending in the parallel action Evolutionary Intelligence, LLC v. Twitter,
Inc., Case No. 13-cv-4207-JSW.
2

1

Viskase Corp. v. Am. Nat’l Can Co., 261 F.3d 1316, 1328 (Fed. Cir. 2001) (“The court is not required

2

to stay judicial resolution in view of the reexaminations.”).

3
DISCUSSION

4
5

I.

Stage of the Litigation
The first issue to be considered in determining whether to grant a stay pending inter partes

7

review is whether discovery is complete and whether a trial date has been set. These two actions are

8

still in their infancy. Little discovery has occurred: plaintiff has engaged in venue discovery and served

9

infringement contentions and a set of interrogatories. 13-cv-4202, Docket No. 133-4 at 3-4, 16. The

10
United States District Court
For the Northern District of California

6

claim construction hearing dates, discovery deadlines, and trial dates for the two actions have not been

11

set. “When, as here, there has been no material progress in the litigation, courts in this district strongly

12

favor granting stays pending inter partes [review].” Pragmatus AV, LLC v. Facebook, Inc., 2011 U.S.

13

Dist. LEXIS 117147, at *6-7 (N.D. Cal. Oct. 11, 2011) (granting stay where plaintiff had served

14

infringement contentions and written discovery); see also Tse v. Apple Inc., 2007 U.S. Dist. LEXIS

15

76521, at *5 (N.D. Cal. Oct. 4, 2007) (“A stay is particularly appropriate for cases in the initial stages

16

of litigation or in which there has been little discovery.”). Accordingly, this factor weighs in favor of

17

a stay.

18
19

II.

Simplification of the Case

20

The second factor to be considered is whether the stay would simplify matters at issue before

21

the Court. “[W]aiting for the outcome of the reexamination could eliminate the need for trial if the

22

claims are cancelled or, if the claims survive, facilitate trial by providing the court with expert opinion

23

of the PTO and clarifying the scope of the claims.” Target Therapeutics, Inc. v. SciMed Life Sys., Inc.,

24

1995 U.S. Dist. LEXIS 22517, at *4-5 (N.D. Cal. Jan. 13, 1995); accord Gould v. Control Laser Corp.,

25

705 F.2d 1340, 1342 (Fed. Cir. 1983); see also Fresenius USA, Inc. v. Baxter Int’l, Inc., 721 F.3d 1330,

26

1340 (Fed. Cir. 2013) (“[W]hen a claim is cancelled, the patentee loses any cause of action based on that

27

claim, and any pending litigation in which the claims are asserted becomes moot.”). This is particularly

28

true when a party has obtained PTO review of each of the asserted claims in the patents-in-suit.
3

1

Universal Elecs., 943 F. Supp. 2d at 1032; see also Yodlee, Inc. v. Ablaise Ltd., 2009 U.S. Dist. LEXIS

2

5429, at *12 (N.D. Cal. Jan. 16, 2009) (“To truly simplify the issues . . . the outcome of the

3

reexamination must ‘finally resolve all issues in the litigation.’”). Here, inter partes review has been

4

sought for all the claims in the patents in suit. Therefore, if the petitions for review are granted, there

5

is a chance that the review could simplify the case by rendering all of Evolutionary Intelligence’s claims

6

for infringement moot. See Fresenius, 721 F.3d at 1340; see also Evolutionary Intelligence LLC v. Yelp

7

Inc., 2013 U.S. Dist. LEXIS 178547, at *23 (N.D. Cal. Dec. 2013) (“Here, if the PTAB cancels all of

8

the asserted claims of the Asserted Patents, this action will be rendered moot. Should the PTAB cancel

9

or narrow any of the asserted claims of the Asserted Patents, the scope of this litigation may be

United States District Court
For the Northern District of California

10

significantly simplified.”).

11

Moreover, even if all of the asserted claims survive inter partes review, the case could still be

12

simplified because Facebook would be bound by the estoppel provisions for inter partes review and thus

13

could not raise before this court any arguments that it raised or reasonably could have raised at the PTO

14

in its petition. See 35 U.S.C. § 315(e)(2); Software Rights Archive, LLC v. Facebook, Inc., 2013 U.S.

15

Dist. LEXIS 133707, at *15 (N.D. Cal. Sept. 17, 2013). Further, although Facebook’s petition did not

16

challenge all of the asserted claims, Facebook agrees to be estopped from raising before this Court any

17

invalidity grounds that were raised and finally determined by the PTO in the other petitions. 13-cv-

18

4202, Docket No. 135 at 8. The Court recognizes that Groupon is not a party to the petition and has not

19

agreed to be bound by the petitions. 13-cv-4204, Docket No. 200 at 10-11. The Court agrees with

20

Evolutionary Intelligence that Groupon’s failure to agree to be bound weakens this factor as it applies

21

to Groupon’s motion. Nevertheless, even if Groupon is not bound by the petitions, simplification of the

22

issues could still occur in the event the PTO affirms the claims because the PTO’s upholding of the

23

claims “is strong evidence that the court must consider in assessing whether the party asserting

24

invalidity has met its burden of clear and convincing evidence.” Internet Patents Corp. v. eBags, Inc.,

25

2013 U.S. Dist. LEXIS 122868, at *11 (N.D. Cal. Aug. 28, 2013).

26

Evolutionary Intelligence argues that defendants’ motions to stay are premature. 13-cv-4202,

27

Docket No. 133-4 at 8-9. Specifically, plaintiff argues that it is unclear at this stage whether the PTO’s

28

review will simplify the case because the PTO has yet to decide whether to grant the petitions and
4

1

institute review. Id. However, “it is not uncommon for [courts] to grant stays pending reexamination

2

prior to the PTO deciding to reexamine the patent.” Pragmatus AV, 2011 U.S. Dist. LEXIS 117147, at

3

*10 (collecting cases). The PTO must issue its decision on whether to grant the petitions within six

4

months after the date they were filed. See 35 U.S.C. §§ 313-14. Therefore, the PTO must issue its

5

decision on the petitions by late April 2014. In addition, if parts of the petitions are denied by the PTO,

6

any party may file a motion to lift the stay, and the Court will reevaluate whether to continue the stay

7

in light of the PTO’s determinations. Therefore, any concern that the motions are premature is

8

alleviated by the short time frame of the initial stay and the Court’s willingness to reevaluate the stay

9

if inter partes review is not instituted for all of the asserted claims. Accordingly, the Court concludes

United States District Court
For the Northern District of California

10

that this factor weighs in favor of a stay.

11
12

III.

Undue Prejudice

13

The last factor to be considered is whether a stay would unduly prejudice or present a clear

14

tactical disadvantage to the nonmoving party. The “‘delay inherent in the reexamination process does

15

not constitute, by itself, undue prejudice.’” ESCO Corp. v. Berkeley Forge & Tool, Inc., 2009 U.S. Dist.

16

LEXIS 94017, at *10 (N.D. Cal. Sept. 28, 2009); accord Telemac Corp. v. Teledigital, Inc., 450 F. Supp.

17

2d 1107, 1111 (N.D. Cal. 2006) (“the likely length of reexamination is not, in itself, evidence of undue

18

prejudice”).

19

Evolutionary Intelligence argues that it would be prejudiced because a stay would cause the

20

spoliation of critical evidence. 13-cv-4202, Docket No. 133-4 at 10-13. Plaintiff speculates that the

21

defendants’ source code would not be preserved during the stay. Id. Plaintiff also speculates that

22

witnesses with knowledge about the source code may leave the defendants’ companies during the time

23

of the stay. Id. But, “[s]peculative assertions that evidence may be lost as a result of a stay pending

24

reexamination are insufficient.” Yelp, 2013 U.S. Dist. LEXIS 178547, at *23. Both defendants have

25

represented to the Court that they adequately maintain and preserve their source code. 13-cv-4202,

26

Docket No. 135 at 11; 13-cv-4204, Docket No. 100 at 9. Plaintiff has failed to present the Court with

27

any specific evidence demonstrating that “the risk of evidence loss is greater here than in any other case

28

and that it amounts to more than the delay inherent to the reexamination process.” Pragmatus, 2011
5

1

U.S. Dist. LEXIS 117147, at *12; see also Evolutionary Intelligence, LLC v. Apple, Inc., 2014 U.S. Dist.

2

LEXIS 2763, at *9-10 (N.D. Cal. Jan. 9, 2014) (“Evolutionary alleges that Apple’s source code is

3

frequently modified as new versions are released, employees often leave Apple, and a stay of up to two

4

years could harm Evolutionary’s ability to obtain discovery because memories fade. This argument is

5

untenable. Without specific evidence based on sworn testimony that spoliation has in fact occurred, a

6

vague generalized ‘loss of evidence’ argument is unpersuasive.”).
Evolutionary Intelligence also argues that it would be prejudiced because a stay would deprive

8

it of its ability to exclude others from practicing the invention. 13-cv-4202, Docket No. 133-4 at 13-16.

9

Plaintiff concedes that it is a non-practicing entity. Id. at 14. Plaintiff attempts to argue that it is not

10
United States District Court
For the Northern District of California

7

a typical non-practicing entity because it has licensed its patent to a third party that is engaging in efforts

11

to develop software that embodies the patents in suit. Id. However, potential harm to non-parties is

12

irrelevant to this factor. See Semiconductor Energy Lab. Co. v. Chimei Innolux Corp., 2012 U.S. Dist.

13

LEXIS 186322, at *9 (C.D. Cal. Dec. 19, 2012) (“While [plaintiff] SEL claims that Sharp and

14

Sony—both of which fund SEL research and license LCD technology from SEL—will be at a

15

competitive disadvantage, . . . the Court need only weigh the prejudice to the non-moving party—SEL

16

itself.”). Even assuming a non-party is currently developing a product that embodies the patents, it does

17

not change the fact that plaintiff itself is a mere licensor of the patents and does not practice the claimed

18

inventions. “‘[C]ourts have consistently found that a patent licensor cannot be prejudiced by a stay

19

because monetary damages provide adequate redress for infringement.’” Pragmatus AV, 2011 U.S. Dist.

20

LEXIS 117147, at *11.

21

Finally, Evolutionary Intelligence argues that defendants’ motions to stay are simply a delay

22

tactic because the petitioners waited until the last possible day to file their petitions for inter partes

23

review. 13-cv-4204, Docket No. 99 at 10-11. In response, defendants argue that the petitioners were

24

entitled to file the petitions at that time under 35 U.S.C. § 315(b). 13-cv-4204, Docket No. 100 at 5-6.

25

Section 315(b)’s one year limit “sets a ceiling on the PTO’s ability to commence inter partes review

26

where there is ongoing litigation. The one year ceiling does not change the fact that delay in seeking

27

the PTO’s review of a patent within that year can adversely affect a district court’s view of a request for

28

a stay pending review.” Universal Elecs., Inc. v. Universal Remote Control, Inc., 943 F. Supp. 2d 1028,
6

1

1030 (C.D. Cal. 2013). 2 Nevertheless, although the Court does not condone the petitioners waiting until

2

the last possible day to file their petitions, the Court concludes that this factor overall slightly weighs

3

in favor of a stay.

4
5

CONCLUSION

6

All factors weigh in favor of staying the actions pending inter partes review of the patents in suit.

7

Accordingly, for the foregoing reasons and for good cause shown, the Court GRANTS defendants’

8

motions to stay pending inter parties review.
The parties shall file a joint status report within seven days of the PTO issuing its final

10
United States District Court
For the Northern District of California

9

decisions on all of the petitions for inter partes review challenging the patents in suit, informing

11

the court of the PTO’s decisions. In addition, every 90 days the parties shall file a joint status

12

report advising as to the status of the inter partes review proceedings. Because the actions are

13

stayed, the case management conferences scheduled for January 24, 2014 are vacated.

14
15

IT IS SO ORDERED.

16
17
Dated: January 23, 2014
18

SUSAN ILLSTON
United States District Judge

19
20
21
22
23
24
25
26
2

27
28

As Judge Alsup noted in a parallel Evolutionary Intelligence case, “this reeks of
gamesmanship. This action was filed in October 2012. [Defendant] did not have to wait until the last
day of the statutory period—in October 2013—to file its inter partes review petitions. [It] also did not
have to wait until December 2013 to file this motion to stay.” Apple, 2014 U.S. Dist. LEXIS 2763, at
*11. However, Judge Alsup granted the requested stay in that action, as does the Court here.
7