Whether to Stay NPE Litigation Not Affected By Infringement Defendant's Reexam Choice

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By Tony Dutra

Sept. 4--A patent licensing firm cannot be prejudiced by a stay in court pending a patent reexamination because monetary damages would “provide adequate redress for infringement,” the U.S. District Court for the Northern District of California ruled Aug. 28 (Internet Patents Corp. v. eBags, Inc., N.D. Cal., No. 4:12-cv-03385-SBA, 8/28/13).

The court further rejected the argument that the defendants had dilatory motives in seeking ex parte reexamination rather than selecting the “quicker and more efficient” inter partes review proceeding enabled by the America Invents Act. With no data on which to base that characterization and the possibility of a 24-month wait between filing an IPR request and getting a decision, the court could not conclude that IPR was clearly the better choice.

Website Sold, Nonpracticing Entity Keeps Patents

InsWeb Corp. began operating a website in 1999 that allowed Internet users to shop for auto, life, home, health and other insurance. In December 2011, InsWeb sold the business to Bankrate Inc., but it retained a portfolio of e-commerce and online insurance distribution patents under a new company name, Internet Patents Corp.

One IPC patent (U.S. Patent No. 6,898,597) was issued in 2005 and is directed to an “event logging system that monitors for the occurrence of predefined web site usage events having some business significance, records the occurrence of those events, and also records the events' associated context information.”

TellApart Inc. licenses software that allows website owners to collect and make decisions based on data about user activity. TellApart licenses its technology to eBags Inc., on online retailer of handbags, luggage, computer cases and accessories.

IPC sued TellApart and eBags in June 2012. The defendants submitted a request to the Patent and Trademark Office for ex parte reexamination of the '597 patent in April and then filed a motion to stay pending reexamination.

Amado Factors Favor a Stay

Judge Saundra Brown Armstrong analyzed the motion under the three-factor test described in Amado v. Microsoft Corp., 517 F.3d 1353, 1358, 86 U.S.P.Q.2d 1090 (Fed. Cir. 2008) (42 PTD, 3/4/08).

The litigation was at an early stage, with no dispositive motions and no claim construction briefs filed. Therefore, the first factor favored a stay, the court said. The second factor--“whether a stay will simplify the issues in question and trial of the case”--also pointed to a stay, the court reasoned, because the reexamination is likely to “aid the court or otherwise streamline the litigation.” The court spent more time on the third factor--“whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party.”

First, the court said, there is no “undue prejudice based solely on delay caused by the reexamination process,” and the Patent Act framework does not identify any preference for IPC's rights compared to the defendants' right to call for a reexamination.

IPC further hurt its own case as to claims of dilatory motives or tactics, since IPC did not serve the complaint on the defendants until October 2012 and then did not file preliminary infringement contentions until March. The defendants' request for ex parte reexamination less than two months later did not show evidence of a dilatory tactic, therefore, the court said.

No Evidence of IPR Speed; IPC Is an NPE

The court next reviewed the differences between ex parte reexamination and inter partes review to address IPC's claim that the choice of the former demonstrated a dilatory motive.

The time from filing to decision in an ex parte reexamination is currently 25.4 months on average with a 19.6 months median, the court noted. In contrast, the patent owner in an inter partes review has three months to file a preliminary response; the Patent Trial and Appeal Board has three months from then to decide whether to institute a trial; and the statute gives the PTAB 12 months, extendable by six more months, to make a decision.

Given that inter partes review first became available on Sept. 16, 2012, and no case has yet proceeded to a final decision on the merits, the court simply said, “there is no evidence before the Court demonstrating that the newinter partes review process is actually 'quicker' than the ex parte reexamination process.”

Finally, the court rejected the idea of prejudice to a party for time and expense already invested in the case, as IPC argued. And looking forward, the court discounted the prejudice of a stay to “a non-practicing entity whose business consists 'solely of licensing and otherwise enforcing its patent portfolio,'” quoting TellApart's counsel.

The court cited a prior decision in the Northern District of California for support for the view that “a patent licensor cannot be prejudiced by a stay because monetary damages provide adequate redress for infringement.” Pragmatus AV, LLC v. Facebook, Inc., No. 11-CV-02168-EJD (N.D. Cal. May 6, 2011).

Accordingly, the court granted the motion to stay.

Justin T. Beck of Beck Ross Bismonte & Finley LLP, San Jose, Calif., represented IPC. Matthew Scott Kenefick of Jeffer Mangels Butler & Mitchell LLP , San Francisco, represented eBags. Thomas F. Fitzpatrick of Goodwin Procter LLP, Menlo Park, Calif., represented TellApart.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: nsritharan@bna.com

Text is available at http://www.bloomberglaw.com/public/document/Internet_Patents_Corp_v_eBags_Inc_No_Case_No_C_1203385_SBA_Docket.

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