Pragmatus AV, LLC v. Facebook, Inc. et al

Filing 150

Order by Hon. Edward J. Davila granting 125 Motion to Stay. (ejdlc2, COURT STAFF) (Filed on 10/5/2011)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION
Case No. 11-CV-00494-EJD

PRAGMATUS AV, LLC,

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ORDER GRANTING DEFENDANTS’
MOTION TO STAY CASE PENDING
INTER PARTES REEXAMINATION OF
PANTENTS-IN-SUIT

Plaintiff,
v.

For the Northern District of California

United States District Court

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FACEBOOK, INC., ET AL,
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Re: Docket Item No. 125

Defendants.
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/

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Presently before the court is Defendants’ Motion to Stay Case Pending Reexamination of the
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patents-in-suit. For the reasons set forth below, the motion is GRANTED and the case is STAYED.
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I. BACKGROUND
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On November 15, 2010, Plaintiff Pragmatus AV, LLC (“Pragmatus”) brought this action
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against Defendants Facebook, Inc. (“Facebook”), YouTube, LLC (“YouTube”), LinkedIn
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Corporation (“LinkedIn”), and Photobucket.com Inc. (“Photobucket”) alleging infringement of the
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patents-in-suit in the Eastern District of Virginia. On January 7, 2011, Defendants moved jointly to
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transfer venue pursuant to 28 U.S.C. § 1404(a). (Joint Mot. To Transfer Case, ECF No. 38.) On
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January 27, 2011, the Eastern District of Virginia granted the Defendants’ motion and transferred
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this action to this court. (Mem. Op., ECF No. 59.)
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On April 20, 2011, Pragmatus filed an amended complaint. (Am. Compl., ECF No. 102.) On
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April 25, 2011, the case was reassigned to the undersigned. On April 28, 2011, Photobucket filed its
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answer and counterclaims for a declaration of noninfringement and invalidity. (Answer to Am.
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Compl. and Counterclaim, ECF No. 105.) On May 9, 2011, Facebook, YouTube, and LinkedIn filed

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their respective answers and counterclaims for a declaration of noninfringement and invalidity. (ECF

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Nos. 107, 112, 113).

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On June 8, 2011, YouTube filed a separate request for inter partes reexamination for each of

Stay ¶¶ 3-5, Exs. A, B, C.) The requests identified prior art references that YouTube argues raise

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substantial new questions of patentability that were not considered during prosecution of the

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applications that matured into the patents-in-suit, the ‘132 patent, the ‘813 patent, and the ‘663

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patent. (Id.) On June 17, 2011, Defendants filed this Motion to Stay Pending Inter Partes

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Reexamination. (Mot. To Stay, ECF No. 125.) The PTO has since granted YouTube’s requests for

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inter partes reexamination (Decl. of Robin L. Brewer in Supp. Reply Exs. A, B, ECF Nos. 140-1,

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For the Northern District of California

the patents-in-suit pursuant to 35 U.S.C. § 311. (See Decl. of Stefani E. Shanberg in Supp. Mot. To

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United States District Court

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140-2; Supplemental Decl. of Stefani E. Shanberg in Supp. of Reply Brief Ex. A., ECF No. 144-1)

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and rejected claims 1-20 of the ‘813 patent (Supplemental Decl. of Stefani E. Shanberg in Supp. of

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Reply Brief Ex. B., ECF No. 144-2), claims 1-20 of the ‘663 patent (Supplemental Decl. of Stefani

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E. Shanberg in Supp. of Mot. To Stay Ex. B., ECF No. 145-2), and claims 1-17 of the ‘132 patent

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(Id. Ex. A, ECF No. 145-1).

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II. LEGAL STANDARDS
“Any person at any time may file a request for reexamination by the [PTO] of any claim of a

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patent on the basis of any prior art” consisting of patents or printed publications. 35 U.S.C. § 302

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(amended 2011). “Congress instituted the reexamination process to shift the burden or

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reexamination of patent validity from the courts to the PTO.” Yodlee, Inc. v. Ablaise Ltd., Nos.

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C-06-07222 SBA, C-06-02451 SBA, C-07-01995 SB, 2009 WL 112857, at *2 (N.D. Cal. Jan. 16,

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2009) (quoting Canady v. Erbe Elektromedizin GmbH, 271 F. Supp. 2d 64, 78 (D.D.C. 2002))

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(quotation marks omitted). “Patent validity is a commonly asserted defense in litigation and courts

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are cognizant of Congress's intention of utilizing the PTO's specialized expertise to reduce costly

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and timely litigation.” Canady, 271 F. Supp. 2d at 78 (citation omitted).

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

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

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F.2d 1422, 1426–27 (Fed. Cir. 1988) (citing Landis v. North American Co., 299 U.S. 248, 254
(1936); Gould v. Control Laser Corp., 705 F.2d 1340, 1342 (Fed. Cir. 1983)). “[T]here is a liberal
policy in favor of granting motions to stay proceedings pending the outcome of USPTO

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reexamination or reissuance proceedings.” ASCII Corp. v. STD Entm't USA, 844 F.Supp. 1378,

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1381 (N.D. Cal. 1994). However, “[a] court is under no obligation to delay its own proceedings by

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yielding to ongoing PTO patent reexaminations, regardless of their relevancy to infringement claims

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which the court must analyze.” NTP, Inc. v. Research In Motion, Ltd., 397 F. Supp. 2d 785, 787

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(E.D. Va. 2005) (citing Viskase Corp. v. Am. Nat'l Can Co., 261 F. 3d 1316, 1328 (Fed. Cir. 2001);

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Medichem, S.A. v. Rolabo, S.L., 353 F.3d 928, 936 (Fed. Cir. 2003); Patlex Corp. v. Mossinghoff,

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758 F.2d 594, 602–03 (Fed. Cir. 1985)). Nevertheless, a court may decide to grant a motion to stay

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“in order to avoid inconsistent results, narrow the issues, obtain guidance from the PTO, or simply to

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avoid the needless waste of judicial resources, especially if the evidence suggests that the
patents-in-suit will not survive reexamination.” MercExchange, L.L.C. v. eBay, Inc., 500 F. Supp.

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For the Northern District of California

United States District Court

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2d 556, 563 (E.D. Va. 2007).

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Courts consider three main factors in determining whether to stay a case pending

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reexamination: “(1) whether discovery is complete and whether a trial date has been set; (2) whether

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a stay will simplify the issues in question and trial of the case; and (3) whether a stay would unduly

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prejudice or present a clear tactical disadvantage to the nonmoving party.” Telemac Corp. v.

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Teledigital, Inc., 450 F. Supp. 2d 1107, 1111 (N.D. Cal. 2006) (citing In re Cygnus Telecomms.

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Tech., LLC Patent Litig., 385 F. Supp. 2d 1022, 1023 (N.D. Cal. 2005)).

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III. ANALYSIS
A. STAGE OF PROCEEDINGS
The early stage of a litigation weighs in favor of granting a stay pending reexamination. See

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Target Therapeutics, Inc. v. SciMed Life Sys., Inc., 33 U.S.P.Q.2d 2022, 2023 (N.D. Cal. 1995)

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(holding that the absence of “significant discovery” or “substantial expense and time . . . invested” in

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the litigation weighed in favor of staying the litigation); see also ASCII Corp., 844 F.Supp. at 1381

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(granting stay where parties had undertaken little or no discovery and the case had not yet been set

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for trial).

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On January 20, 2011, Pragmatus served Defendants with discovery requests. (Pl.’s Opp’n at

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3:8-10). Facebook also served discovery requests on Pragmatus. (Id.) Less than two weeks later, on

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February 2, 2011, Pragmatus and Defendants agreed “that all disclosure and discovery deadlines . . .
are stayed through the completion of the Case Management Conference in the Northern District of
California.” (Joint Case Management Statement Ex. A, ECF No. 106-1.) Despite that agreement,

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Pragmatus served infringement contentions on April 7, 2011. (Pl.’s Opp’n at 3:19-22). At the June

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29, 2011 case management conference, this court continued the stay pending a hearing on the

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current motion. (ECF Nos. 131, 135). No discovery has been taken, and no trial date has been set.

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Thus, the only substantive event in this case resulted from Pragmatus serving infringement

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contentions despite the agreement to stay all disclosures until the case management conference.

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

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strongly favor granting stays pending inter partes reexamination. Accordingly, the court finds that

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this factor weighs heavily in favor of a stay.

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B. SIMPLIFICATION OF ISSUES
According to the USPTO, 44% of all inter partes reexamination proceedings between 1999

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For the Northern District of California

United States District Court

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and June 30, 2011 resulted in all claims being canceled, 43% changed the claims, and only 13%

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confirmed all claims. (Pl.’s Opp’n Ex. B, ECF No. 138-2.) “[W]aiting for the outcome of the

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reexamination could eliminate the need for trial if the claims are cancelled or, if the claims survive,

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facilitate trial by providing the court with expert opinion of the PTO and clarifying the scope of the

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claims.” Target Therapeutics, 33 U.S.P.Q.2d at 2023; see also Gould v. Control Laser Corp., 705

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F.2d 1340, 1342 (Fed. Cir. 1983); Pegasus Devel. Corp. v. DirectTV, Inc., No. Civ.A.

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00–1020–GMS, 2003 WL 21105073, at *1-2 (D. Del. May 14, 2003) (noting the benefits of granting

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a stay pending reexamination include potentially narrowing the issues, reducing the complexity and

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length of trial, alleviating discovery problems relating to prior art, and encouraging settlement or

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even dismissal if the patent is declared invalid). In light of the PTO’s rejection and reexamination of

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all claims of all three patents,1 the court finds that this factor weighs in favor of a stay, which will

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simplify the issues and streamline the trial, thereby reducing the burden on, and preserving the

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resources of both the parties and the court.

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At the hearing, Pragmatus argued that the reexamination of the ‘813 patent was unraveling
because the PTO had not adopted YouTube’s proposed rejection that claims 1-7, 9-17, and 19-20
were anticipated under 35 U.S.C. § 102. In response, counsel for Facebook claimed that YouTube
had not proposed a rejection based on § 102. On October 4, 2011, Pragmatus filed a motion for
leave to file a supplemental brief demonstrating that YouTube, in fact, had proposed such a
rejection. In light of the PTO’s rejection of these same claims for obviousness, Pragmatus’s
argument regarding the unadopted § 102 rejection and its supplemental brief clarifying that
YouTube had proposed a § 102 rejection do not change the court’s analysis. Thus, the motion for
leave to file the supplemental brief is DENIED.

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C. UNDUE PREJUDICE OR CLEAR TACTICAL DISADVANTAGE

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In determining whether to grant a stay, courts also consider any resulting undue prejudice on

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the nonmoving party. See In re Cygnus Telecomm., 385 F. Supp. 2d at 1023; Affinity Labs of Texas

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v. Apple, Inc., 2010 WL 1753206, at *2 (N.D. Cal. Apr. 29, 2010). The delay inherent to the

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reexamination process does not generally, by itself, constitute undue prejudice. Telemac Corp. v.

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Teledigital, Inc., 450 F. Supp. 2d 1107, 1111 (N.D. Cal. 2006) (“[T]he likely length of

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reexamination is not, in itself, evidence of undue prejudice . . . .”).

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Pragmatus argues that YouTube unduly delayed in seeking reexamination by waiting seven

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months to file its requests. Given that YouTube filed its requests for reexamination and this motion
to stay approximately two months after Pragmatus filed its amended complaint and infringement

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For the Northern District of California

United States District Court

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contentions, which set forth details about the scope of Pragmatus’s claims, this court is persuaded

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that any potential delay in filing was at least partially justified.

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Pragmatus also argues that, if the case is stayed, it will be unable to move for injunctive

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relief before the patents expire in 2013. Pragmatus, however, has not yet moved for injunctive relief

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nor is it clear that Pragmatus will ever move for an injunction. Furthermore, “[c]ourts have

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consistently found that a patent licensor cannot be prejudiced by a stay because monetary damages

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provide adequate redress for infringement.” Implicit Networks Inc., v. Advanced Micro Devices,

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Inc., No. C 08-184 JLR, 2009 WL 357902, at *3 (W.D. Wash. Feb. 9, 2009). “Pragmatus does not

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contest [D]efendants’ description of it as a ‘non-practicing entity,’ meaning that it does not research

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and develop new technology but rather acquires patents, licenses the technology, and sues alleged

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infringers.” (Mem. Op. at 6, ECF No. 59). Thus, as a patent licensor, Pragmatus has not shown it

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has a plausible claim to an injunction.

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Finally, Pragmatus argues that it will be prejudiced because of the delay caused by the

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reexamination process in that evidence may degrade. Pragmatus, however, has not demonstrated that

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the risk of evidence loss is greater here than in any other case.

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Accordingly, the court finds that this factor also weighs in favor of a stay.
IV. CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants’ motion for a stay of this case.
This action is STAYED in its entirety pending final exhaustion of all three pending reexamination

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proceedings, including any appeals.2

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The Clerk shall ADMINISTRATIVELY CLOSE this matter.

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The parties shall submit a joint status report apprising the court of the status of the

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reexamination proceedings on March 1, 2012 and every sixth months thereafter.
The parties shall provide notice to the court within one week of final exhaustion of all

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pending ree

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amination proceedings, including appeals. In their notice, parties shall request that this matter be

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reopened, and that a case management conference be scheduled.

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IT IS SO ORDERED.

11 Dated: October 5, 2011
For the Northern District of California

United States District Court

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EDWARD J. DAVILA
United States District Judge

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This does not preclude any party from moving to reopen this action