Malibu Boats, LLC v. MasterCraft Boat Company LLC (TV1)

Filing 84

MEMORANDUM AND ORDER denying 48 Motion to Stay. Signed by Magistrate Judge H Bruce Guyton on 9/13/16. (JBR)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
MALIBU BOATS, LLC,
Plaintiff,
v.
MASTERCRAFT BOAT COMPANY, LLC,
Defendant.

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No. 3:15-cv-276-TAV-HBG

MEMORANDUM AND ORDER
This case is before the undersigned pursuant to 28 U.S.C. § 636, the Rules of this Court,
and referral Order of the District Judge [Doc. 71].
Now before the Court is Mastercraft’s Motion to Stay Case Pending Inter Partes Review
[Doc. 48]. The Plaintiff filed a Response [Doc. 56] objecting to the requested relief, and the
Defendant replied [Doc. 59]. The Plaintiff also filed a Sur-Reply [Doc. 63], which this Court has
also considered. The Motion has been fully briefed and is ready for disposition. For the reasons
more fully explained below, the Court finds the Motion to Stay not well-taken, and it is
DENIED.
I.

BACKGROUND
On June 29, 2015, the Plaintiff filed a Complaint alleging that the Defendant infringed

Plaintiff’s United States Patent No. 8,578,873 (hereinafter, “‘873 Patent”). The Plaintiff avers
that Defendant’s Gen 2 Surf System and/or NXT Surf System infringes upon the ‘873 Patent.
On December 12, 2015, the Court issued a Scheduling Order setting the trial for May 1,
2017. [Doc. 40]. Subsequently, on March 1, 2016, the Court granted the parties’ request to
amend the Scheduling Order to include additional deadlines consistent with the Northern District

of California’s Patent Local Rules. [Doc. 47]. Later, on August 8, 2016, the Court extended the
deadlines contained in Doc. 47. [Doc. 77]. On August 18, 2016, the Court granted another
extension. [Doc. 81].
With respect to the instant matter, the Defendant asserts that on May 17, 2016, it filed
two petitions for inter partes review (“IPR Petitions”) with the U.S. Patent and Trademark Office
(“PTO”). Defendant’s IPR Petitions challenge every claim of the ‘873 Patent that the Plaintiff
has asserted against Defendant. The Defendant requests that the Court stay the litigation pending
disposition of its IPR Petitions by the PTO.
II.

POSITIONS OF THE PARTIES
In support of its Motion, the Defendant argues [Doc. 49] that inter partes review (“IPR”)

is highly likely and that a stay now would save the parties and the Court time, effort, and expense
over the next few months. In addition, the Defendant asserts that staying the case would not
cause the Plaintiff undue prejudice or tactical disadvantage. Furthermore, the Defendant avers
that a stay would simplify the issues in this case, if not dispose of the case entirely. Finally, the
Defendant argues that the early stage of litigation supports staying the case.
The Plaintiff responds [Doc. 56] that the Motion should be denied as premature because
the PTO has not instituted IPR. In addition, the Plaintiff asserts that the factors the Court should
consider weigh against staying this case. The Plaintiff argues that the case has substantially
progressed and that the Defendant cannot show that a stay would simplify the issues. The
Plaintiff also argues that a stay will cause it undue prejudice and tactical disadvantage.
The Defendant filed a Reply [Doc. 59] asserting that its Motion is not premature. In
addition, the Defendant asserts that in order to ensure simplification of the issues, it will “agree
not to challenge validity in this case based on any of the unpatentability grounds set forth in the

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petitions if the Court grants a pre-institution stay, no matter what the outcome of the petitions.”
[Doc. 59]. Furthermore, the Defendant repeats that the case is in its early stages and that a stay
would not cause the Plaintiff undue prejudice or tactical disadvantage.
The Plaintiff filed a Sur-Reply [Doc. 63] arguing that there is a significant chance that the
PTO will decline to institute IPR review on all claims of the ‘873 Patent. The Plaintiff argues
that the Defendant’s offer to forgo challenging validity in this case based on the unpatentability
grounds set forth in the IPR Petitions will not streamline the litigation because the Defendant
would still retain dozens of other invalidity arguments and other defenses.
III.

ANALYSIS
It is well-established that the court may exercise its “inherent [power] to control the

disposition of the cases on its docket.” Proctor & Gamble Co. v. Team Techs., Inc., No. 1:12-cv552, 2013 WL 4830950, at *1 (S.D. Ohio Sept. 10, 2013) (quoting Landis v. North American
Co., 299 U.S. 248, 254 (1936)) (brackets in Proctor & Gamble). “[T]his authority extends to
patent cases in which a review by the PTO has been requested.” Id. (citing Ethicon, Inc., v.
Quigg, 849 F.2d 1422, 1426-27 (Fed. Cir. 1988). Courts are not required to stay proceedings
pending reexamination. Id. Moreover, the Sixth Circuit has stated “that a court must tread
carefully in granting a stay of proceedings, since a party has a right to a determination of its
rights and liabilities without undue delay.” Id. (quoting Ohio Environmental Council v. United
States District Court, 565 F.2d 393, 396 (6th Cir. 1977)). “[A] stay is justified when the outcome
of the reexamination would be likely to assist the court in determining patent validity and, if the
claims were canceled in the reexamination, would eliminate the need to try the infringement
issue.” Id. (quoting Lincoln Elec. Co. v. Miller Elec. Mfg. Co., No. 1:06-CV-02981, 2007 WL
2670039, at *1 (N.D. Ohio Sept.7, 2007) (internal quotation omitted) (brackets added).

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Courts generally weigh three factors when analyzing whether to stay a patent action
pending PTO reexamination proceedings: (1) whether a stay would unduly prejudice or present a
clear tactical disadvantage to the non-moving party; (2) whether a stay will simplify the issues in
question and trial of the case; and (3) whether discovery is complete and whether a trial date has
been set. Id. at *2. The above-factors are not controlling, and the “decision should be based
upon the totality of the circumstances.” Id.
With the above analysis in mind, the Court will analyze the three factors along with the
totality of the circumstances in this case.
A.

Prejudice to the Nonmoving Party

The Defendant argues that staying the case will not prejudice the Plaintiff. The Defendant
admits that it “absolutely” competes with the Plaintiff, but it asserts that the parties have been
competing for over two-and-a-half years and that the Plaintiff “is doing fine.” Moreover, the
Defendant submits that the Plaintiff waited over eighteen months to file this lawsuit, and the
Plaintiff did not seek a preliminary injunction. Furthermore, the Defendant asserts that everyone
has a surf system and that the Plaintiff has licensed at least two other entities. Finally, the
Defendant argues that a stay would not present a tactical disadvantage to the Plaintiff because the
Defendant filed its IPR Petitions as quickly as possible.
The Plaintiff responds that the Defendant’s continued unauthorized use of the Plaintiff’s
intellectual property during a lengthy stay would cause it undue prejudice and tactical
disadvantage. The Plaintiff asserts that the IPR Petitions, if they proceed, will not be resolved
until after the trial in this case. Moreover, the Plaintiff argues that Defendant’s contention that
there are multiple competitors in the marketplace is an insufficient ground for staying the case.
The Plaintiff also asserts that although the Defendant filed its IPR Petitions within the deadline,

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merely complying with a statutory deadline does not equate to the absence of undue prejudice
and tactical disadvantage. With respect to its failure to request a preliminary injunction, the
Plaintiff asserts that it is not required to bring such a motion to demonstrate prejudice. Finally,
the Plaintiff argues that its timing in filing this lawsuit does not suggest it would not be unduly
prejudice by a stay.
In Malibu v. Nautique Boat Company, Inc., the court analyzed a motion to stay in a
similar context. No. 3:13-cv-656, 2014 WL 3866155 (E.D. Tenn. Aug. 6, 2014). In Nautique,
the court noted that “[c]ourts routinely deny request for stay during the pendency of PTO
proceedings where the parties are direct competitors.” Id. *2 (quoting Everlight Elec. Co., Ltd v.
Nichia Corp., No. 12-cv-11758, 2013 1821512, *8 (E.D. Mich. Apr. 30, 2013)). The court
ultimately concluded that “there is a risk of undue prejudice to plaintiff in this case that weighs
against the issuance of a stay.” Id.
Likewise, in the instant matter, the Court finds that there is a risk of undue prejudice to
the Plaintiff that weighs against the issuance of a stay. See id. The Defendant asserts that the
parties have been competing for years and that the Plaintiff “is doing just fine,” but this
statement is insufficient to show that the Plaintiff will not be prejudiced by a stay. The Defendant
also argues that the Plaintiff has licensed two entities under the ‘873 Patent, but the Court notes
that with licensing, the Plaintiff is at least collecting royalties from such use. The Defendant
argues that the Plaintiff did not file a motion for preliminary injunction, but as noted in Nautique,
a plaintiff is not required to bring a motion to demonstrate undue prejudice. Id. Finally, the
Defendant argues that the Plaintiff delayed in filing this lawsuit, but the Court finds the
Plaintiff’s timing does not warrant a stay. Accordingly, the Defendant’s arguments are not welltaken.

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B.

Simplifying the Issues

The Defendant argues that its IPR Petitions challenge all the ‘873 Patent claims that the
Plaintiff has alleged Defendant of infringing on the basis of prior art that the PTO did not have
before it when it issued the ‘873 Patent. The Defendant states that should it prevail, this lawsuit
will be over. The Defendant asserts that if the IPR is instituted and some claims survive, there is
a good chance that at least some claims will be cancelled or amended. In its Reply Brief, the
Defendant states that it will “agree not to challenge validity in this case based on any of the
unpatentability grounds set forth in the petitions if the Court grants a pre-institution stay, no
matter what the outcome of the petitions.” The Defendant asserts that in final written decisions,
the PTO cancels all instituted claims 72% of the time.
The Plaintiff responds that any claim that the IPR Petitions would render the case moot or
simplify the issues is speculative considering the PTO may decline to institute IPR. In addition,
the Plaintiff asserts that even if IPR proceedings are initiated, a final IPR written decision is
unlikely to invalidate every asserted claim of the ‘873 Patent. With respect to the Defendant’s
offer to forgo challenging validity based on unpatentability grounds, the Plaintiff argues that
Defendant’s offer would still leave a large number of invalidity arguments to be litigated.
In the instant matter, the IPR Petitions have not been granted and that any benefit from a
stay is contingent upon the IPR Petitions being granted by the PTO. Nautique, 2014 WL
3866155, at *3. Until the IPR Petitions are granted, “the inter partes review process has some
potential to clarify some of the issues in this case, but that potential is speculative at best . . .” Id.
The Defendant argues that if IPR proceedings are instituted and some claims survive, there is a
good chance that some claims will be cancelled or amended. Again, Defendant’s argument is
speculative. Moreover, as noted by Largan Prevision Co., LTD v. Fujifilm Corp., “If regardless

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of the result of the reexamination, there are still claims or counterclaims that need to be resolved
by the Court, then reexamination clearly fails to provide final resolution.” No. C-10-1318, 201
WL 7494983, at *3 (N.D. Cal. Mar. 1, 2011). Finally, the Court notes that on September 2, 2016,
the parties filed a Joint Stipulation [Doc. 82] reducing the number of asserted claims and asserted
prior art references. The parties have already streamlined the issues in this case rendering a stay
unnecessary.
In its Reply Brief, the Defendant offers to forgo challenging validity based on any of the
unpatentability grounds set forth in the Petitions, if the Court grants the pre-institution stay. The
Plaintiff responds that this offer would not streamline the litigation because the Defendant would
retain a number of other invalidity arguments and other defenses. The Court finds Defendant’s
offer does not warrant staying the entire case.
C.

Stage of the Litigation

The Defendant argues that discovery is in its early stages, with the parties having
exchanged written discovery, initial infringement and invalidity contentions. The Defendant
asserts that no depositions or third party discovery have taken place. The Defendant argues that
under these circumstances, other courts have granted motions to stay. The Plaintiff responds that
the parties have engaged in extensive litigation activity and have advanced this case substantially
toward trial.
The Court notes that the Complaint in this case was filed on June 29, 2015. Since that
time, the parties have briefed a Motion for Summary Judgment, the District Court has denied the
Motion for Summary Judgment without prejudice, the Court has issued a Scheduling Order
setting this case for trial on May 1, 2017, the undersigned has issued an addendum to the
Scheduling Order, and upon Defendant’s requests, the undersigned has extended several

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deadlines. As noted by the Plaintiff, discovery is proceeding. The parties have exchanged written
discovery and the parties have attempted to schedule depositions.1 The Court finds that discovery
in this case is proceeding and that a delay will not be an effective use of judicial resources.
IV.

CONCLUSION
For the reasons stated above, and based on the totality of the circumstances in this case,

the Court finds the Motion to Stay Case Pending Inter Partes Review [Doc. 48] to be not welltaken, and it is DENIED.
IT IS SO ORDERED.
ENTER:

United States Magistrate Judge

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Moreover, it appears from recent filings [Doc. 79] that depositions are proceeding.

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