Evolutionary Intelligence, LLC v. Millennial Media, Inc.

Filing 126

ORDER granting 113 Motion to Stay signed by Judge Edward J. Davila on June 11, 2014. (ejdlc4S, COURT STAFF) (Filed on 6/11/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
For the Northern District of California

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EVOLUTIONARY INTELLIGENCE, LLC,
Plaintiff,

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v.
MILLENIAL MEDIA, INC.,

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Defendant.

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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO
STAY PENDING INTER PARTES
REVIEW
[Re: Docket No. 113]

Defendant Millenial Media, Inc. (“Millenial”) brings this motion to stay pending inter

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partes review (“IPR”) of U.S. Patent Nos. 7,010,536 (“the ’536 Patent”) and 7,702,682 (“the ’682

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patent”) (collectively, the “asserted patents”). Dkt. No. 113. Plaintiff Evolutionary Intelligence,

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LLC (“Evolutionary”) opposes the motion. Dkt. No. 115. Pursuant to Local Rule 7-1(b), the court

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found this matter suitable for resolution without oral argument and previously vacated the hearing.

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Having considered the parties’ briefing and for the reasons set forth below, the court GRANTS the

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motion to stay.

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I.

Background
a. Procedural Background
In October 2012, Evolutionary filed complaints in the Eastern District of Texas alleging

infringement of the asserted patents against nine unrelated defendants: Millenial Media, Inc.,
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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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Apple, Inc., Twitter, Inc., Facebook, Inc., Groupon, Inc., LivingSocial, Inc., FourSquare Labs, Inc.,

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Yelp, Inc., and Sprint Nextel Corp. In its complaint against Millenial, Evolutionary specifically

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alleges infringement of claims 1-16 of the ’536 patent and claims 1, 3-7, 10, 11, and 14-22 of the

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’682 patent. Dkt. No. 1. Millenial filed its answer on December 17, 2012 and a few days later

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moved to transfer venue to this District under 35 U.S.C. § 1404(a). Dkt. Nos. 9, 13. The parties

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engaged in limited discovery relating to venue. The Texas court ordered the case be transferred to

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this court on August 27, 2013. Dkt. No. 88. Between July and September 2013, the other eight

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actions were also transferred to this district. On October 8, 2013, Evolutionary’s motion to relate

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the nine actions was denied. Dkt. No. 100.

United States District Court
For the Northern District of California

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On October 22 and 23, 2013, four defendants from the co-pending cases—Apple, Inc.,

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Twitter, Inc., Yelp, Inc., and Facebook, Inc. (the “petitioners”)—filed petitions for IPR at the

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United States Patent and Trademark Office (“PTO”) seeking review of the asserted patents.

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Together, the IPR petitions seek review of all claims that Evolutionary asserts against Millenial.

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Millenial did not request an IPR for any claims of either asserted patent nor does it intend to. Decl.

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of Nathan K. Cummings ¶ 2, Dkt. No. 117-1. All defendants in the Evolutionary cases have

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requested a stay on the basis of these petitions for IPR and the other eight actions have been stayed

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pending resolution of the IPR proceedings. 1 On April 25, 2014, after Millenial filed the instant

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motion, the PTO granted Apple’s Petition 2014-00086 in part, taking claims 2-12, 14, and 16 of the

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’536 patent under review. The PTO denied the remaining petitions, including all petitions directed

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to the ’682 patent.

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b. IPR Background

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Pursuant to the Leahy-Smith America Invents Act (“AIA”), the IPR proceeding replaces the

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PTO’s previous inter partes reexamination. 35 U.S.C. §§ 311-319. Congress, in enacting the IPR

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Evolutionary Intelligence LLC v. Twitter, Inc., No. 13-CV-04207 (N.D. Cal. Feb. 25, 2014), Dkt. No. 111;
Evolutionary Intelligence LLC v. Facebook, Inc., No. 13-CV-04202 (N.D. Cal. Jan. 23, 2014), Dkt. No. 148;
Evolutionary Intelligence LLC v. Groupon, Inc., No. 13-CV-04204 (N.D. Cal. Jan. 23, 2014), Dkt. No. 104;
Evolutionary Intelligence LLC v. LivingSocial, Inc., No. 13-CV-04205 (N.D. Cal. Jan. 17, 2014), Dkt. No. 96;
Evolutionary Intelligence LLC v. Foursquare Labs, Inc., No. 13-CV-04203 (N.D. Cal. Jan. 10, 2014), Dkt. No. 99;;
Evolutionary Intelligence LLC v. Yelp, Inc., No. 13-CV-03587 (N.D. Cal. Dec. 18, 2013), Dkt. No. 108; Evolutionary
Intelligence LLC v. Sprint Nextel Corp., No. 13-CV-04513 (N.D. Cal. Feb. 28, 2014), Dkt. No. 123; Evolutionary
Intelligence LLC v. Apple, Inc., No. 13-CV-04201 (N.D. Cal. Jan. 9, 2014); Dkt. No. 123 (partially stayed pending
PTAB’s decision to institute Apple’s IPR petitions).

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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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procedure, sought “to establish a more efficient and streamlined patent system that will improve

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patent quality and limit unnecessary and counterproductive litigation costs” and “to create a timely,

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cost-effective alternative to litigation.” Changes to Implement Inter Partes Review Proceedings,

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Post-Grant Review Proceedings, and Transitional Program for Covered Business Method Patents,

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77 Fed. Reg. 48680-01 (August 12, 2012) (codified at 37 C.F.R. §§ 42.100 et seq.). Under the new

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procedure, any party other than the patent owner may request to cancel one or more claims of a

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patent; in doing so, the petitioner is limited to grounds that could be raised under 35 U.S.C. §§ 102

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and/or 103 and only based on prior art consisting of patents and printed publications. 35 U.S.C. §

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311(a)-(b). If a party has been served with a patent infringement complaint, the party must file for

United States District Court
For the Northern District of California

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IPR within one year of being served with the complaint. 35 U.S.C. § 315(b).
For the PTO to institute an IPR proceeding, the petitioner must show “that there is a

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reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims

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challenged in the petition,” a higher burden than in the predecessor reexamination proceedings

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where the requester was only required to show a “substantial new question of patentability.” 35

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U.S.C. §§ 304, 314(a) . Within three months of the filing of the petition, the patent owner may file

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a preliminary response setting forth arguments as to why the PTO should not institute IPR;

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alternatively the patent owner may waive the preliminary response to expedite the proceeding. 37

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C.F.R. § 42.107(a)-(b). The PTO must decide whether to institute the IPR within three months

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after the patent owner’s preliminary response or by the last date on which the response could have

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been filed if the patent owner did not file a response. 35 U.S.C. § 314(b).

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If the PTO institutes the IPR, the proceeding is conducted before three technically-trained

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Administrative Patent Judges of the Patent Trial and Appeal Board (“PTAB”). See 35 U.S.C. §§

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6(a)-(c), 311. This proceeding “converts inter partes reexamination from an examinational to an

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adjudicative proceeding.” H.R. Rep. No. 112-98, 46 (2011), reprinted in 2011 U.S.C.C.A.N. 67,

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77. Where parties previously conducted amendment-and-response before a PTO examiner, the

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parties are now permitted to take limited discovery, respond to each other’s arguments, and are

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entitled to an oral hearing before the PTAB. 35 U.S.C. § 316(a)(5), (8), (10), (13).

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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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The PTO must issue its final IPR determination within one year, extendable for good cause

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for not more than six months. 35 U.S.C. § 316(a)(11). Final determinations are appealable to the

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Federal Circuit. 35 U.S.C. §§ 141(c), 319. To streamline later litigation and reduce the likelihood

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of inconsistent judgment, the petitioner is estopped from later asserting that a “claim is invalid on

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any ground that the petitioner raised or reasonably could have raised during that inter partes

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review.” 35 U.S.C. § 315(e)(2).

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II.

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Legal Standard
Courts have inherent power to manage their dockets, including the discretion to decide

whether to grant a stay pending a concurrent proceeding before the PTO. Ethicon, Inc. v. Quigg,

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United States District Court
For the Northern District of California

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849 F.2d 1422, 1426-27 (Fed. Cir. 1988). A stay is particularly justified where the outcome of a

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PTO proceeding is likely to assist the court in determining patent validity or eliminate the need to

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try infringement issues. In re Cygnus Telecomm. Tech., LLC, Patent Litig., 385 F. Supp. 2d 1022,

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1023 (N.D. Cal. 2005) (citing Gould v. Control Laser Corp., 705 F.2d 1340, 1342 (Fed. Cir.

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1983)). “While the case law states several general considerations that are helpful in determining

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whether to order a stay, ultimately the court must decide stay requests on a case-by-case basis.”

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TPK Touch Solutions, Inc. v. Wintek Electro-Optics Corp., No. 13-CV-02218, 2013 WL 6021324,

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at *1 (N.D. Cal. Nov. 13, 2013).

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Courts typically consider three factors to determine the appropriateness of a stay: “(1)

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

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

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or present a clear tactical disadvantage to the non-moving party.” Telemac Corp. v. Teledigital,

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Inc., 450 F. Supp. 2d 1107, 1111 (N.D. Cal. 2006) (citation omitted). The party seeking the stay

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bears the burden of persuading the court that a stay is appropriate. Nken v. Holder, 556 U.S. 418,

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433-34 (2009).

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III.

Discussion
a. Stage and History of Litigation
The first factor requires the court to consider the stage and history of litigation, including

whether discovery is complete or whether a trial date has been set. Telemac, 450 F. Supp. 2d at
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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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1111. Here, Millenial contends this case is “in its very early stage” considering there is no case

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schedule; minimal discovery has been completed; Evolutionary’s infringement contentions must be

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updated; Evolutionary has not requested to review Millenial’s source code; no claim construction

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process has begun; there has been no expert discovery; and no trial date has been set. Def.’s Reply

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Br. at 1-2, Dkt. No. 117. Evolutionary counters that despite the fact that a trial date has not been

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set, Evolutionary has invested significant time in preparing its lengthy infringement contentions,

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producing 4,000 pages of documents, and serving several interrogatories on Millenial. Pl.’s Opp’n

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Br. at 25, Dkt. No. 115.

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Considering the substantial amount of work that lies ahead of both parties, the court agrees

United States District Court
For the Northern District of California

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with Millenial that the early stage in this case favors granting a stay. This district strongly favors

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granting a stay where there has been no material progress in litigation. ASCII Corp. v. STD Entm’t

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USA, Inc., 844 F. Supp. 1378, 1381 (N.D. Cal. 1994); see also Pragmatus AV, LLC v. Facebook,

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Inc., No. 11-CV-02168, 2011 WL 48502958, at *2-3 (N.D. Cal. Oct. 21, 2011) (granting stay

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where no material progress in litigation was made despite plaintiff’s serving infringement

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contentions, interrogatories, requests for admission, and document requests). This policy

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underlying reexamination proceedings has extended with the same force to IPR proceedings. See,

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e.g., Pi-Net Int’l, Inc. v. Focus Bus. Bank, No. 12-CV-04958, 2013 WL 4475940, at *3 (N.D. Cal.

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Aug. 16, 2013) (granting stay where a trial date was scheduled but significant discovery remained);

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see also Internet Patents Corp. v. eBags, Inc., No. 12-CV-03385, 2013 WL 4609533, at *2 (N.D.

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Cal. Aug. 28, 2013) (granting stay where no trial date had been set and no dispositive motions or

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claim construction briefs had been filed). Notably, the courts in each of the co-pending

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Evolutionary cases have similarly held that the early stage of litigation weighs in favor of a stay.

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Here, Evolutionary has engaged in limited discovery relating to venue, served infringement

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contentions, and served common interrogatories to Millenial as well as all defendants in the co-

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pending cases. The court recognizes that Evolutionary may have spent some time and resources at

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this stage, but the bulk of the time and expenses lie ahead. Further, Evolutionary does not present

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any additional evidence to indicate why this case against Millenial is more advanced than the other

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Evolutionary cases, all of which recognized that discovery is far from complete. Millenial seeks a
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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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stay at this early stage of litigation and before any substantive proceedings have occurred.

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Accordingly, the first factor weighs in favor of stay.

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b. Simplification of Issues and Trial
The second factor considers whether granting a stay will simplify the litigation. Telemac,

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450 F. Supp. 2d at 1111. Evolutionary argues that because patents often survive PTO proceedings

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with at least some patent claims in their original form, there is no evidence that the IPR proceeding

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will eliminate the need for litigation or simplify the issues in this case. Pl.’s Opp’n at 10-11, Dkt.

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No. 115. Millenial counters that the simplification of the issues in an IPR proceeding does not

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require that the IPR resolve all or most of the issues, merely that some issues for litigation are

United States District Court
For the Northern District of California

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simplified. Def.’s Reply at 10, Dkt. No. 117.
The court agrees with Millenial that a stay is not contingent upon IPR resolving every issue

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in this action. Instead, the court considers whether the IPR proceedings will streamline the

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litigation. Internet Patents Corp., 2013 WL 4609533, at *3 (“[a] stay is not contingent upon the

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reexamination proceeding resolving every claim and issue in this action.”); see also Ho Keung Tse

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v. Apple, Inc., No. 06-CV-06573, 2007 WL 2904279, at *8 (N.D. Cal. Oct. 4, 2007) (“[I]f the

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reexamination proceeding should narrow any of the asserted claims. . . the scope of this litigation

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may be significantly simplified.”); see also AT&T Intellectual Prop. I v. Tivo, Inc., 774 F. Supp. 2d

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1049, 1053 (N.D. Cal. 2011) (rejecting the argument that a stay is inappropriate where the

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reexamination is unlikely to resolve all the claims at issue). Here, the PTO has granted IPR as to

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the majority of the ’536 patent claims asserted against Millenial. If the PTO modifies or cancels

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some or all of the claims subject to review, both the court and parties benefit because the scope of

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this case may be narrowed and further proceedings will be streamlined. See 35 U.S.C. § 317.

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Even if the IPR proceeding does not result in any cancelled or modified claims, this court

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will receive the benefit of the PTO’s expertise and guidance on these claims. See In re Cygnus,

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385 F. Supp. 2d at 1024 (“For those claims that survive the reexamination, this court may have a

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richer prosecution history upon which to base necessary claim construction determinations or

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reconsiderations”). This expectation is particularly relevant at this juncture, where the court has not

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yet invested significant resources into familiarizing itself with the technology. See Internet Patents
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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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Corp., 2013 WL 4609533, at *3 (stating that the court is unfamiliar with the technology at this

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early stage of litigation so the court’s “interest in simplifying the proceedings by waiting for the

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PTO to re-examine the asserted claims weighs in favor of granting a stay”). Further, by employing

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the specialized expertise of the PTO, the court and the parties avoid duplicative costs and efforts.

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See Microsoft Corp. v. Tivo Inc., No. 10-CV-00240, 2011 WL 1748428, at *4 (N.D. Cal. May 6,

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2011) (noting that there is significant concern with wasting resources by proceeding forward when

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the court and PTO reach inconsistent conclusions). Evolutionary simply does not proffer any

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persuasive argument why staying this proceeding pending resolution of the IPR proceedings will

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not foster efficiency or simplify issues for trial.

United States District Court
For the Northern District of California

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Evolutionary does, however, present a compelling argument as to the inefficiency of a stay

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absent an estoppel requirement. Typically, the benefit of a stay pending IPR is contingent in part

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upon the IPR proceeding’s estoppel effect, i.e., the prohibition that the petitioner is precluded from

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relitigating the same issues that were raised or reasonably could have been raised during the IPR

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proceeding. The posture of the parties in this case calls that benefit into question. The plain

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language of Section 315(e)(2) imposes a full statutory estoppel on IPR petitioners; however,

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because Millenial is not a party to the relevant IPR proceeding, Millenial is not necessarily bound

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by this statutory provision. Considering the position of the parties, the strategic options available to

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patent infringement defendants, and the relief Millenial requests through this motion, as well as to

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fully appreciate the benefits of a more streamlined litigation, the court will condition a stay on

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Millenial’s agreement to be bound as if it itself had filed the relevant IPR petition. With this

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estoppel in place, the court finds that the second factor weighs in favor of a stay.

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c. Prejudicial and Tactical Concerns
The third factor looks to whether a stay will unduly prejudice or present a clear tactical

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disadvantage to the non-moving party. See In re Cygnus, 385 F. Supp. 2d at 1023. Evolutionary

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makes two arguments as to why it will suffer undue prejudice as a result of the stay: (1) Millenial’s

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motion to stay is a dilatory tactic and (2) a stay would cause the spoliation of critical evidence. The

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court is not persuaded that either of these alleged harms constitutes undue prejudice.

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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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Evolutionary argues Millenial unduly delayed in filing this motion because the petitioners

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to the IPR proceedings waited an entire year after being served with a complaint to file IPR

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petitions and Millenial, which did not join as a petitioner, waited an additional three months to file

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the instant motion to stay. Pl.’s Opp’n at 9, Dkt. No. 115. The petitioners’ delay in filing for IPR

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could potentially suggest that they were acting in a strategically dilatory fashion, however, IPR

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petitioners are permitted one year after receiving a patent infringement complaint to file an IPR

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petition with the PTO. Many courts have recognized that undue prejudice does not automatically

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flow from a party’s choosing to exercise its statutory rights. See Software Rights Archive LLC v.

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Facebook, Inc., No. 12-CV-03970, 2013 WL 5225522, at *6 (N.D. Cal. Sept. 17, 2013) (“Although

United States District Court
For the Northern District of California

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defendants did wait nearly a year to file the IPR petitions, they properly filed the petitions within

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the statutory time frame, and the delay was not unreasonable.”); see also Convergence Tech.

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(USA), LLC v. Microloops Corp., No. 5:10-CV-02051, 2012 WL 1232187, at *3 (N.D. Cal. Apr.

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12, 2012) (“parties having protection under the patent statutory framework may not complain of

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the rights afforded to others by that same statutory framework”); but cf. Universal Elecs., Inc. v.

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Universal Remote Control, Inc., No. 12-CV-00329, 2013 WL 1876459, at *2 (C.D. Cal. May 2,

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2013) (denying stay where the defendant filed for petition nearly a year later because written

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discovery had been exchanged, a Markman hearing had been held, a claim construction order had

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been entered, and a trial date had been set). Here, petitioners did not act in a dilatory fashion by

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waiting until significant discovery commenced before filing their IPR petitions. Instead, the

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petitioners properly filed IPR petitions in accordance within the statutorily mandated deadline

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before the infringement actions made any significant progress.

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As to Millenial’s actions, Millenial filed the instant motion within five months after

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Evolutionary first served its infringement contentions, a reasonable time period recognized by

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many courts. See Ho Keung Tse, 2007 WL 2904279, at *4 (finding no dilatory motive where

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defendants filed the request for reexamination three months after serving their invalidity

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contentions); see also Semiconductor Energy Lab Co., Ltd. v. Chimei Innolux Corp., No-12-CV-

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00021, 2012 WL 7170593, at *3 (C.D. Cal. Dec. 19, 2012) (filing IPR petitions ten months after

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complaint and three to four months after receiving the infringement contentions was not an
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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW

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unreasonable delay); see also Fresenius Medical Care Holdings, Inc. v. Baxter Int’l, Inc., No. 03-

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CV-01431, 2007 WL 1655625, at *4 (N.D. Cal. June 7, 2007) (noting that parties may not abuse

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the reexamination process by applying for reexamination after significant discovery has

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commenced). Although Millenial filed this motion fifteen months after the initial complaint was

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filed, it is reasonable that Millenial concentrated its efforts thus far in its motion to transfer this

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action and discovery related to venue. Additionally, discovery is in its early stage and Millenial

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has not yet provided its invalidity contentions or its source code. Accordingly, Evolutionary fails

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to offer any evidence that demonstrates Millenial’s timing of this motion was intended to

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disadvantage Evolutionary.

United States District Court
For the Northern District of California

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Evolutionary’s second contention, that a stay is prejudicial because it would result in the

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loss of critical evidence, amounts to nothing more than speculation. According to Evolutionary,

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the accused product in this case is comprised of source code that is modified on a daily basis. Pl.’s

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Opp’n at 17-18, Dkt. No. 115. Evolutionary opines that as time passes, the source code will be

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altered and the software developers responsible for the source code may leave the company or their

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memories will fade. Id. Millenial disagrees and argues that Evolutionary offers no evidence to

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demonstrate that the relevant documents and source code would be unavailable. Def.’s Reply at

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11, Dkt. No. 117. Speculation that evidence will be lost, without more, is insufficient to

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demonstrate undue prejudice. See, e.g., Software Rights Archive, 2013 WL 5225522, at *5

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(“[Plaintiff] has not identified a particular expert witness who is likely to be lost, nor is the court

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convinced that the relevant technology or evidence thereof would become “unavailable” for the

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purposes of a patent infringement analysis.”); Internet Patents Corp., 2013 WL 4609533, at *4

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(noting that the potential for loss of evidence, such as witness memory, applies to any case where

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IPR is sought and alone does not demonstrate undue prejudice). Moreover, Evolutionary has made

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the same arguments in parallel cases, and all were similarly rejected. See, e.g., Evolutionary

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Intelligence LLC v. Apple, Inc., No. 13-CV-04201, 2014 WL 93954, at *3 (N.D. Cal. Jan. 9,

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2014); Evolutionary Intelligence LLC v. Sprint Nextel Corp., No. 13-CV-04513, 2014 WL 819277,

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at *7 (N.D. Cal. Feb. 28, 2014). This court is not persuaded that a stay will result in the spoliation

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of critical evidence. Thus, the third factor weighs in favor of stay.
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Case No.: 5:13-CV-04206-EJD
ORDER GRANTING MOTION TO STAY PENDING INTER PARTES REVIEW