Defendants’ Allegation of Fraud is one Reason to Deny Motion to Stay Pending Reexamination

| December 27, 2010

As we reported earlier this month, trial judges almost uniformly use the same three-factor test to determine whether to stay a suit for patent infringement pending completion by the PTO of a reexamination of the patent-in-suit.  Yet judges differ greatly in how they apply that standard, often emphasizing completely different considerations.  In Protective Industries, Inc. v. Ratermann Manufacturing et al., 2010 U.S. Dist. LEXIS 135757 (M.D. Tenn.), the allegation by defendants that the patent had been procured from the PTO “by fraud” seemed to weigh heavily in Judge Aleta Trauger’s decision to deny defendants’ motion to stay pending completion of the reexamination of the patent. 

The patent issued in March and the patentee threatened suit in May.  Defendants requested inter partes reexamination in July; the PTO found a substantial new question of patentability and concurrently rejected the claims.  In November, the patentee sued, and three weeks later defendants moved to stay the case for the reexamination.  Defendants answered by alleging, inter alia, that the patent had been obtained by inequitable conduct of the patentee, the inventor and the prosecuting attorney.

Judge Trauger acknowledged that reexamination had been filed in the “early stages” of the case, but concluded that this factor only “facially favors the defendants,” in view of the two other factors.  First, Judge Trauger found that the patentee would be unduly prejudiced by a stay because the parties are direct competitors in the relevant market and because the average reexamination pendency of 37.6 months is too long.  This delay, the Judge said, was particularly unfair since defendants had been selling the products allegedly covered by the patent claims for three years already.  Moreover, the Judge found that “it is simply not fair for the plaintiff and associated individuals to be exposed to an allegation of fraud and not given an opportunity to respond for years.”  

Judge Trauger also determined that reexamination was unlikely to simplify the issues in dispute since only the defendant that had requested reexamination would be bound by the result.  “If reexamination will not be binding against all of the defendants, it offers insufficient benefit to justify staying the case for years on end.” 

After balancing the three factors of the stage of the litigation, the prejudice to the patentee, and possible simplification of the issues, Judge Trauger denied the motion to stay.  It is impossible to know whether the Judge’s decision would have been the same if defendants had not alleged inequitable conduct – still, that allegation may have contributed to the impression that defendants were acting too aggressively and that a stay might deny the patentee its day in court.

Category: Stays/District Courts

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