Microsoft’s Stay Request Denied: Reexam “May Actually Complicate” Case

Darrin Auito | May 13, 2010

In the Eastern District of Texas, Judge David Folsom denied Microsoft’s motion to stay the District Court proceedings in Parallel Networks, LLC v. Microsoft Corp., 2-09-cv-00172 (TXED May 10, 2010, Order), pending resolution of ex parte reexamination, in part, because the reexamination process may actually complicate the case.

Judge Folsom considered the following factors: (1) whether a stay will unduly prejudice or present a clear tactical disadvantage to the non-moving party (Parallel Networks, LLC), (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.

Factor 1 (against stay):  Microsoft argued that a stay will only last seven months because the PTO has already issued a Final Rejection of all claims of the patents-in-suit and seven months is the average time for the BPAI to decide an appeal.  Parallel responded that the proceedings might not be completed for another three to five years.  Judge Folsom, declining to conduct an independent investigation into the timeline-issue, remarked: “[B]ecause the reexamination process and a subsequent appeal to the Court of Appeals for the Fed Circuit would likely endure for a year or more from now, a stay pending reexamination would prejudice Parallel and put Parallel at a tactical disadvantage in later obtaining discovery and preparing its case.”

Factor 2 (against stay):  Microsoft argued that a stay will simplify the issues by eliminating some or all of the claims of the patents-in-suit, because the PTO issued a final rejection of all claims. Judge Folsom remarked that such simplification is somewhat speculative and must be analyzed on a case-by-case basis.  Judge Folsom went on to explain (emphasis added) that “unless all claims of the patents-in-suit are invalidated through reexamination, the reexamination process may actually complicate the above-captioned case by creating additional prosecution history estoppel and disavowal arguments that must likely be addressed, such as during claim construction.  To convince this Court that a stay will actually simplify a case, the requesting party must do more than merely proffer oft-cited reexamination statistics and generic judicial efficiency arguments. [Defendant] has not done so.

Factor 3 (slightly in favor of stay):  Microsoft argued that there has been no substantial investment of time or resources at this stage of litigation because the case has not had a scheduling order, initial disclosures, or even discovery.  Judge Folsom remarked that because the patents-in-suit have been asserted in several prior lawsuits in this Court, substantial time and resources related to the patents-in-suit have already been invested, which cuts against Microsoft’s argument.

Having considered these factors, Judge Folsom concluded that a stay was not warranted in Parallel Networks, LLC v. Microsoft Corp.

It appears that filing an inter partes reexamination request (which carries estoppel effect) may not be enough to persuade the Court to stay a case either.   On the same day, in the Eastern District of Virginia, Judge Robert Payne denied Homeland Houseware’s (Homeland) motion to stay the District Court proceedings in Sunbeam Products, Inc. v. Hamilton Beach Brands, Inc., et al., 3:09-cv-00791 (EDVA May 10, 2010) pending resolution of inter parte reexamination, in part, “because given the Patent Office’s recent examination of the subject (patent issued just over a year ago), it appears less likely than in other cases that a reexamination would significantly simplify the underlying issues.”

Judge Payne, applying the above factors, concluded that a stay was not warranted because (emphasis added): “(Factor No. 1) The Markman process has kicked off, with opening and response briefs already filed. Moreover, the inter partes reexamination procedure has not yet begun, and shows no likelihood of getting underway — assuming Homeland’s reexamination request is even granted — before claim construction is likely to occur.  (Factor No. 2)  And, it appears that reexamination would provide less benefit than in other cases because the Patent Office has considered the issues so recently.  (Factor No. 3)  Finally, staying the action for six years or more, until reexamination of the Patents-in-Suit is complete, would subject Sunbeam not only to profit loss during the pendency stay, but also the prospect of losing significant market share during the stay that would lead to profit loss into the indefinite future.”

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