T-Rex Property AB v. Adaptive Micro Systems, LLC
Filing
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MEMORANDUM Opinion and Order signed by the Honorable Virginia M. Kendall on 1/26/2017. Adaptive's Motion to Stay 28 is granted. The parties are ordered to file a status report with the Court within 24 hours of receipt of each of the PTAB's institution decisions. Mailed notice(lk, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
T-REX PROPERTY AB,
Plaintiff,
v.
ADAPTIVE MICRO SYSTEMS, LLC,
Defendant.
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No. 16 C 5667
Judge Virginia M. Kendall
MEMORANDUM OPINION AND ORDER
Plaintiff T-Rex Property AB (“T-Rex”) sued Defendant Adaptive Micro Systems, LLC
(“Adaptive”) alleging infringement of three patents related to controlling and coordinating digital
information systems to multiple displays and devices. Following minimal discovery, Adaptive
filed the instant motion seeking a stay of this case pursuant to Section 18(b) of the America
Invents Act (“AIA”) pending United States Patent Trial and Appeal Board’s (“PTAB”) review of
the three patents. For the following reasons, Adaptive’s Motion to Stay [28] is granted. The
parties are ordered to file a status report with the Court within 24 hours of receipt of each of the
PTAB’s institution decisions.
BACKGROUND
T-Rex, a non-practicing entity, has filed at least 58 lawsuits, including this one, against
various defendants alleging infringement of U.S. Patent Nos. RE39,470 (the “’470 Patent”);
7,382,334 (the “’334 Patent”); and 6,430,603 (the “’603 Patent”) (collectively, the “Asserted
Patents”). (See Dkt. No. 30 at 1-2.) BroadSign International, LLC (“Broadsign”), a defendant in
a separate case, filed two petitions for inter partes review (“IPR”) and one petition for covered
business method review (“CBM”) before the PTAB challenging the validity of the Asserted
Patents. (See Dkt. No. 31-1 (IPR petition challenging ’470 Patent); Dkt. No. 31-2 (IPR petition
challenging ’334 Patent); Dkt. No. 31-3 (CBM petition challenging ’603 Patent).) The PTAB
has not yet issued decisions regarding any of the petitions, but the decisions are due as follows:
Petition
Date Filed
IPR for ’470 Patent
Sept. 24, 2016
Latest Date for
Institution Decision
March 24, 2017
IPR for ’334 Patent
Oct. 6, 2016
April 6, 2017
CBM for ’603 Patent
Oct. 28, 2016
April 28, 2017
Following a hearing on November 21, 2016, the Court stayed discovery pending its
ruling on the present motion. (See Dkt. No. 35.)
LEGAL STANDARD
Section 18 of the AIA provides for the establishment of transitional post-grant review
proceedings to reexamine the validity of covered business method patents.
Leahy-Smith
America Invents Act, Pub. L. No. 112-29, § 18, 125 Stat. 284 (Sept. 16, 2011). The AIA also
establishes protocol with respect to related patent infringement actions and authorizes the district
courts to stay such parallel litigation under certain circumstances. Specifically, Section 18(b)(1)
states:
If a party seeks a stay of a civil action alleging infringement of a
patent under section 281 of title 35, United States Code, relating to
a transitional proceeding for that patent, the court shall decide
whether to enter a stay based on-(A) whether a stay, or the denial thereof, will simplify the
issues in question and streamline the trial;
(B) whether discovery is complete and whether a trial date
has been set;
(C) whether a stay, or the denial thereof, would unduly
prejudice the nonmoving party or present a clear tactical
advantage for the moving party; and
(D) whether a stay, or the denial thereof, will reduce the
burden of litigation on the parties and on the court.
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Id. The statutory test closely resembles the stay analysis courts have applied in assessing a
motion to stay pending inter partes or ex parte reexamination by the PTAB. See, e.g., Genzyme
Corp. v. Cobrek Pharm., Inc., No. 10 CV 00112, 2011 WL 686807, at *1 (N.D. Ill. Feb. 17,
2011) (applying three-factor stay test that considers “whether a stay will (1) unduly prejudice or
tactically disadvantage the non-moving party, (2) simplify the issues in questions and streamline
the trial, and (3) reduce the burden of litigation on the parties and on the court”); JAB Distribs.,
LLC v. London Luxury, LLC, No. 09 C 5831, 2010 WL 1882010, at *1 (N.D. Ill. May 11, 2010).
The fourth factor was included, in part, to favor the granting of stays. See, e.g., Segin
Sys., Inc. v. Stewart Title Guar. Co., 30 F. Supp. 3d 476, 480 (E.D. Va. 2014) (fourth factor
“designed to place a thumb on the scales in favor of a stay”); Market-Alerts Pty. Ltd. v.
Bloomberg Fin. L.P., 922 F. Supp. 2d 486, 489-90 (D. Del. 2013) (fourth factor included “to
ease the movant’s task of demonstrating the need for a stay”). Finally, as the movant, Adaptive
bears the burden of demonstrating that a stay is warranted. See, e.g., Segin, 30 F. Supp. 3d at
479.
DISCUSSION
Adaptive argues that a stay is appropriate because the PTAB’s review of the patents will
streamline the case and simplify the issues before the Court. T-Rex counters that Adaptive’s
motion is premature and that it will be prejudiced by a stay.
A.
Simplification of the Issues
Staying a patent infringement case pending administrative review of the asserted patents’
validity can simplify litigation in several ways:
1. All prior art presented to the Court will have been first
considered by an expert PTO examiner;
2. The reexamination may alleviate discovery problems relating to
the prior art;
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3. The suit will likely be dismissed if the reexamination results in
effective invalidity of the patent;
4. The outcome of the reexamination may encourage settlement;
5. The record of the reexamination would likely be entered at trial
and thus reduce the complexity and length of the litigation;
6. The reexamination will facilitate limitation of issues, defenses,
and evidence in pre-trial conferences;
7. Litigation costs to the parties and the Court will likely be
reduced.
Genzyme, 2011 WL 686807, at 3-4 (quoting Emhart Indus., Inc. v. Sankyo Seiki Mfg. Co., Ltd.,
No. 85 C 7565, 1987 WL 6314, at 2 (N.D. Ill. Feb. 2, 1987); see also, e.g., Tap Pharm. Prods.,
Inc. v. Atrix Labs., Inc., No. 03 C 7822, 2004 WL 422697, at *1 (N.D. Ill. Mar. 3, 2004) (stay
warranted because “[t]here is a significant chance that the PTO will either invalidate this patent
or drastically decrease its scope [due to reexamination] . . . [creating] a very real possibility that
the parties will waste their resources litigating over issues that will ultimately be rendered moot
by the PTO’s findings”).
Adaptive argues that a stay is appropriate pending the PTAB’s institution decisions as all
three Asserted Patents and every asserted claim may be under review by the end of April, just
over three months away. The fact that some, if not every, asserted claim may be under review in
such a short time period of time weighs in favor of granting a stay. See, e.g, Versata Software,
Inc. v. Dorado Software, Inc., No. 2:13-cv-00920-MCE-DAD, 2014 WL 1330652, at *3 n.2
(E.D. Cal. Mar. 27, 2014) (staying case where CBM review granted for only one of three
asserted patents); Destination Maternity Corp. v. Target Corp., 12 F. Supp. 3d 762, 769 (E.D.
Pa. 2014) (“courts have found significant potential for issue simplification even in cases where
some but not all of the asserted claims are subject to PTO review”); Genzyme, 2011 WL 686807,
at *3 (stay warranted even though “certain issues may remain in dispute even upon conclusion of
the reexamination proceedings”). Given the Court’s inherent ability to stay cases even before the
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PTAB acts, see Intellectual Ventures II LLC v. JPMorgan Chase & Co., 781 F.3d 1372, 1378-79
(Fed. Cir. 2015) (“our holding does not prevent a district court from choosing to decide a motion
before the PTAB acts on a CBMR petition.”), and the upcoming deadlines for determinations,
the first factor weighs in favor granting the stay.
T-Rex, however, argues that Adaptive’s motion is (1) premature and speculative because
none of the reviews have actually been instituted and (2) inappropriate because “[t]he only
circumstance in which the issues…will be substantially simplified is if the PTAB initiates review
of all of the asserted claims and then invalidates all of the asserted claims of the” Asserted
Patents. (Dkt. No. 36 at 9.) While it is certainly true that merely filing a petition for CBM or
IPR review does not ensure that a review will in fact follow (or that even if a review were to
follow, the patent would be found invalid), it is equally the case that the burden on the Court and
the parties would be significantly lessened if any (or all) of these petitions led to IPR or CBM
institutions.1 Versata, 2014 WL 1330652, at *2. The fact that the PTAB has not yet rendered
institution decisions does not eliminate the benefits of a stay. For example, if the PTAB
institutes review proceedings, staying the case avoids duplicitous litigation on potentially moot
claims and issues. See VirtualAgility, 759 F.3d at 1314 (disposing of the entire litigation is “the
ultimate simplification of issues”); see also, e.g., Old Reliable Wholesale, Inc. v. Cornell Corp.,
635 F.3d 539, 548 (Fed. Cir. 2011) (“PTO has acknowledged expertise in evaluating prior art
and assessing patent validity”); SenoRx, Inc. v. Hologic, Inc., No. 12-173-LPS-CJB, 2013 WL
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T-Rex also argues that the PTAB is unlikely to institute a review of the ‘603 Patent because Broadsign’s petition
for review cited to the PTAB decision that Federal Circuit overturned in Unwired Planet L.L.C. v. Google, Inc., No.
2015-1966, 2016 WL 6832982 (Fed. Cir. Nov. 21, 2016). (See Dkt. No. 36 at 4.) Even if T-Rex’s argument is
correct – Adaptive noticeably does not dispute the substance of T-Rex’s position in its Reply – a stay is nevertheless
appropriate because the PTAB may still institute reviews of the other two Asserted Patents. See, e.g., Trading
Techs. Int'l, Inc. v. BCG Partners, Inc., 186 F. Supp. 3d 870 (N.D. Ill. 2016), aff'd sub nom. Trading Techs. Int'l,
Inc. v. Rosenthal Collins Grp., LLC, No. 2016-2223, 2016 WL 5899197 (Fed. Cir. Oct. 11, 2016) (collecting cases
supporting proposition that a stay is appropriate where only some claims or patents are under review).
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144255, at *4 (D. Del. Jan. 11, 2013) (courts benefit from the PTO’s analysis of prior art that is
later presented in litigation regardless of the outcome of the review).
T-Rex’s reliance on Trover Grp., Inc. v. Dedicated Micros USA, No. 2:13-CV-1047WCB, 2015 WL 1069179, at *7 (E.D. Tex. Mar. 11, 2015) is misplaced. Although that court
held that a stay prior to PTAB action was inappropriate, it noted, through analyzing Landmark
Technology, LLC v. iRobot Corp., No. 6:13–cv–411, 2014 WL 486836 (E.D.Tex. Jan. 24, 2014),
that a stay could be appropriate where (1) “the PTAB was due to decide whether to grant the
CBM review petition within four months” of the court ruling on the stay motion, (2) discovery
had just began, and (3) the claim construction hearing was not scheduled to occur until four
months after the PTAB’s decision was due. See, e.g., Trover, 2015 WL 1069179, at *6. Those
considerations mirror the situation here as the PTAB’s decisions are due in less than four months
from the time of this Order, discovery has only just begun (only one set of initial disclosures and
initial contentions have been exchanged, see Dkt. No. 39 at 12:12-15), and a claim construction
hearing date has not been set (the parties’ claim construction briefing does not even begin until
May 25, 2017, see Dkt. No. 26). As such, despite T-Rex’s contentions to the contrary, the
Trover court’s analysis supports the granting of a stay.
B.
Stage of the Litigation
“Staying a case at an early juncture can be said to advance judicial efficiency and
maximize the likelihood that neither the Court nor the parties expend their assets addressing
invalid claims.” See, e.g., Trading Techs. Int'l, 2015 WL 1396632, at *4 (citations omitted). As
detailed in Adaptive’s Motion, no depositions have been taken or noticed, initial disclosures
were recently issued, final contentions are not due for four more months, and no trial date has
been set. (See Dkt. No. 30 at 7); VirtualAgility, 759 F.3d at 1317 (the stage of litigation factor
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favored stay where no trial date had been set, fact discovery had yet to be completed, and claim
construction statements had yet to be filed); Versata, 2014 WL 1330652, at *3 (factor supported
stay in part because neither a Markman claim construction nor a trial date had been set). T-Rex
does not dispute this factor. (See Dkt. No. 36; Dkt. No. 38 at 2.) Accordingly, the early stage of
the litigation favors a stay.
C.
Undue Prejudice or Tactical Advantage
“When assessing the third factor in determining whether to grant a stay pending CBM
review, courts consider a variety of factors to determine the prejudice to the non-movant,
including the timing of the stay request, the status of review proceedings, and the relationship
between the parties.” Trading Techs., 2015 WL 1396632, at *5. Although the potential for
delay “does not, by itself, establish undue prejudice,” the Court recognizes “that waiting for the
administrative process to run its course risks prolonging the final resolution of the dispute and
thus may result in some inherent prejudice to the plaintiff.” See, e.g., Mkt.-Alerts, 922 F. Supp.
2d at 494 (emphasis in original). A review of the above factors shows that a stay is appropriate
in this case as (1) Adaptive filed the Motion two weeks after Broadsign filed the last of its
petitions, (2) decisions regarding the petitions are due in only three months, and (3) the parties
are not competitors such that a delay will unduly prejudice T-Rex. Cf. VirtualAgility, 759 F.3d at
1318 (“competition between parties can weigh in favor of finding undue prejudice”); see also
CANVS Corp. v. United States, 118 Fed. Cl. 587, 596 (2014) (“Weighing in favor of stay here is
the fact that the parties are not direct competitors.”).
T-Rex argues both that it will be unduly prejudiced by a stay and that Adaptive is seeking
the stay to gain a tactical advantage. T-Rex first contends that it will be unduly prejudiced
because a stay will delay its ability to timely enforce its patent rights. Specifically, T-Rex argues
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that because the ‘470 and ‘334 Patents are expired, it will only be permitted to recover for any
infringement for a period of six years under 35 U.S.C. § 286. Based on that limited time period,
T-Rex argues that any delay in this case will not only curtail its ability to recover damages here,
but also will cause it to lose damages from “yet-to-be served defendants” because it will not have
the capital to initiate lawsuits against those other defendants if this case is stayed. (See Dkt. No.
36 at 7-8.) There are numerous issues with this position. First, as noted above, delay within
itself does not establish undue prejudice, particularly where the delay is for a short period of
time. See, e.g., Mkt.-Alerts, 922 F. Supp. 2d at 494; Black & Decker Inc. v. Positec USA, Inc.,
No. 13 C 3075, 2013 WL 5718460, at *2 (N.D. Ill. Oct. 1, 2013) (“And should the PTO deny
review, the delay in waiting for that decision will be fairly short. Delay in itself, moreover, does
not constitute undue prejudice.”) (citation omitted). Second, T-Rex does not dispute that it is a
non-practicing entity and that it only seeks monetary remedy. See, e.g., Cascades Computer
Innovation, LLC v. SK hynix Inc., No. 11 C 4356, 2012 WL 2086469, at *1 (N.D. Ill. May 25,
2012) (granting stay in part because defendant, as a non-practicing entity seeking only monetary
damages, would be able to “collect damages that accumulate during the stay, including interest,
ameliorating the delay caused by the stay” if the defendant ultimately prevailed.) Third, T-Rex’s
contention that it will lose prospective damages against other, unnamed defendants in future
cases is both speculative and wholly unsupported. T-Rex fails to set forth any case law or other
authority, and the Court has found none, supporting its contention that a stay in this case should
be denied so that it will be able to pursue other, future cases against unnamed third party
defendants. Indeed, if the Court were to credit such an argument, it is difficult to imagine any
circumstance in which a stay in any case could be warranted. Even if the Court were to consider
T-Rex’s position tenable from a legal or policy perspective, from a factual standpoint, T-Rex
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fails to provide any documentation showing that it is incapable of financing other lawsuits in the
event that this case is stayed, particularly given that it has already filed some 58 other lawsuits.
(See Dkt. No. 36 at 9 (T-Rex itself indicating that it has filed “over 50 lawsuits.”). Finally, TRex’s failure to seek a preliminary injunction severely undermines its claim of undue prejudice.
See, e.g., Trading Techs., 186 F. Supp. 3d 870, at *7 (collecting cases indicating that claims of
undue prejudice are belied by a plaintiff’s failure to seek a preliminary injunction).
T-Rex’s argument that a stay would tactically advantage Adaptive is similarly flawed.
The crux of T-Rex’s position, laid out in one short paragraph at the very beginning of its
Response, is that because Adaptive did not “agree to be estopped from presenting invalidity
arguments that Broadsign raised or could have raised in the event the IPRs and CBM do not
reach a final determination,” Adaptive could unfairly get to “two chances to argue the same
invalidity positions.” (Dkt. No. 36 at 1.) Yet again, T-Rex fails to cite to any authority
indicating that Adaptive should be barred from raising the same issues raised in the petitions in
the situation where the petitions do not reach a final determination. If this Court institutes a stay
and Broadsign subsequently withdraws its petitions prior to a final determination by the PTAB,
Adaptive would then raise those invalidity positions before this Court for the first time. On the
other hand, if the petitions do reach a final determination and the patents are found to survive the
PTAB’s review, Adaptive will be barred from relitigating those determinations here. Adaptive
acknowledged as much during the parties’ hearing on November 21, 2016, when its counsel
twice represented that “[w]e’re going to live and die with Broadsign.” (Dkt. No. 39 at 16:12-15.)
D.
Burden of Litigation
The fourth factor is “designed to place a thumb on the scales in favor of a stay…[and]
will usually weigh to some degree in favor of stay.” See, e.g., Segin Sys., 30 F. Supp. 3d at 480.
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Much of the analysis conducted under the first factor is relevant here as the burden of litigation
will be significantly lessened if the PTAB institutes and invalidates any or all of the Asserted
Patents. The parties briefing regarding which will suffer a more significant burden if the case is
stayed does not affect the requisite analysis in any substantial way. For example, T-Rex requests
that the Court allow “minimal fact discovery” to go forward without explaining why that
discovery is necessary immediately rather than four months from now if the PTAB declines to
review the Asserted Patents. (See Dkt. No. 36 at 12.) On the other hand, Adaptive argues that
the burden of the litigation is substantial for it because it is a small company, but does not
provide any factual basis for that claim. (Dkt. No. 38 at 4.) As such, this factor similarly weighs
in support of granting a stay.
CONCLUSION
For the reasons stated herein, Adaptive’s Motion to Stay [28] is granted. The parties are
ordered to file a status report with the Court within 24 hours of receipt of each of the PTAB’s
institution decisions.
________________________________________
Virginia M. Kendall
United States District Court Judge
Northern District of Illinois
Date: 1/26/2017
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