Some Courts Stay Infringement Actions even where Parties are Direct Competitors

Scott Daniels | August 16, 2012

All trial judges apply the customary three-part test when ruling on a defendant’s motion to stay a patent infringement action pending completion of a reexamination proceeding at the Patent Office, specifically a balance of factors: (1) the stage of the litigation, (2) the likelihood that reexamination would simplify the issues for trial, and (3) whether the patent owner would be unduly prejudiced by the requested stay.  Judges have been most inclined to deny a stay where the parties are direct competitors and delay of the infringement is likely to damage the patentee in a way that cannot be later cured by an award of damages, i.e., where there is prejudice to the patentee from potential loss of market share.

Lately, however, a number of trial judges have concluded that a stay is justified even though the parties directly compete.  In DuPont v. MacDermid, the patent owner opposed a stay motion, asserting, inter alia, that it and the accused infringer competed directly against one another in the market for the patented product and that it would lose market share during a stay, for which it could not later be adequately compensated.  2102 U.S. Dist. LEXIS 101678 (July 23, 2012).  Magistrate Judge Tonianne Bongiovanni acknowledged the patent owner’s concern regarding “eroding … market share and … substantial loss of profits and goodwill.”  But she determined that such loss could be compensated in the event that the patent owner ultimately prevailed on the merits.  Her determination on this point seems to have been strongly affected by the fact that the patent owner had not sought a preliminary injunction – if loss of market were truly irreparable, why hadn’t the patent owner tried to stop as soon as legally possible?

Judge Christine Arguello, followed a similar logic in Fusion Specialties v. China Network Leader, 2102 U.S. Dist. LEXIS 113712 (August 11, 2012).

During this period, Plaintiff asserts that Defendant will attempt to usurp Plaintiffs market share, resulting in difficult to measure losses. This argument is speculative at best. The Supreme Court has held that a plaintiff seeking a permanent  injunction under the Patent Act must satisfy a four-factor test before a court may grant such relief eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 391-92 (2006).

Judge Arguello then complained that the patent owner had “not made any showing that it would satisfy this four-factor test, and the Court is unaware of any categorical rule providing that a plaintiff always suffers prejudice by virtue of requesting injunctive relief in addition to monetary damages.”  The Judge then discounted the fact that the parties were direct competitors, because they had settled an earlier dispute over the same patent with a license agreement, suggesting that money damages was sufficient compensation for continued infringement.  She added, for good measure, that a statement by the accused infringer in the license agreement that the patent was valid and enforceable was not sufficiently “clear” to prevent it from challenging the validity of the patent by reexamination.

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