Don't hold your breath for the court to issue a stay. Although the court in this case previously denied a stay, it did so on April 29 only because the USPTO had not acted on the reexamination requests. That has now happened (See the update to The World Kicks Back). Despite the fact that the USPTO has now ordered a reexamination of each of the patents, Courts are generally loath to wait on the USPTO reexamination process.

Reproduced below are the original arguments in favor of a stay advanced by the defendants and Interval's response:

*****************

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON

INTERVAL LICENSING LLC,
Plaintiff,
v.
AOL, INC., et al.,
Defendants.

No. 2:10-CV-01385-MJP

DEFENDANTS’ JOINT MOTION TO STAY PROCEEDINGS PENDING REEXAMINATIONS

Note on Motion Calendar:
April 1, 2011
ORAL ARGUMENT REQUESTED

Defendants AOL Inc. (“AOL”), Google Inc. (“Google”), YouTube, LLC (“YouTube”), Apple Inc. (“Apple”), eBay Inc. (“eBay”), Facebook, Inc. (“Facebook”), Yahoo! Inc. (“Yahoo!”), OfficeMax North America, Inc., incorrectly named as OfficeMax Inc., (“OfficeMax”), Netflix, Inc. (“Netflix”), Staples, Inc. (“Staples”) and Office Depot, Inc. (“Office Depot”) (collectively, “Defendants”) respectfully move this Court for an Order staying the proceedings in this matter pending resolution of petitions for reexamination (“Petitions for Reexam”) filed with the U.S. Patent and Trademark Office (“PTO”) concerning each of United States Patents No. 6,263,507 (“the ’507 patent”), No. 6,034,652 (“the ’652 patent”), No. 6,788,314 (“the ’314 patent”), and No. 6,757,682 (“the ’682 patent”) (the “Patents-in-Suit”).

I. INTRODUCTION

Defendants have filed requests for reexamination with respect to each of the Patents-in- Suit, which may substantially simplify or outright resolve the issues in this case. No matter the outcome of the reexaminations, substantial economies will be gained from a stay. If the reexamination results in the PTO rejecting and canceling some or all of the asserted claims, this litigation will end or at least be narrowed. If the claims are amended in reexamination, or if Interval makes arguments during the reexamination process to the PTO in an attempt to overcome rejections based on the prior art, the prosecution history of the Patents-in-Suit will have changed and, in the absence of a stay, the work of the Court and the Parties prior to the PTO’s final disposition will need to be redone.

II. THE THREE FACTORS COURTS CONSIDER IN DETERMINING WHETHER
TO STAY A PATENT INFRINGEMENT CASE ALL STRONGLY
FAVOR STAY

Plaintiff Interval Licensing LLC (“Interval”) filed suit against Defendants on August 27, 2010, asserting claims for infringement of the ’507 and ’682 patents against all defendants and claims for infringement of the ’314 and ’652 patents against Apple, Google, Yahoo!, and AOL. (See D.I. 1, 153; Walters Decl., Ex. A, the ’507 patent; Walters Decl., Ex. B, the ’682 patent; Walters Decl., Ex. C, the ’652 patent; Walters Decl., Ex. D, the ’314 patent.) The four patents together contain 182 claims, and it was not until Interval served its infringement contentions on December 28, 2010 that Defendants were on notice of the claims asserted (“Asserted Claims”).

Defendants have identified multiple prior art references that they contend invalidate the Asserted Claims. These prior art references cited in the Petitions include at least the following:

Patent-in-Suit	New Prior Art Cited in the Reexaminations or Art Presented in New Light1
6,263,507	“Network Plus”, Walter Bender et al., January 12-13, 1988 “Cluster-Based Text Categorization: A Comparison of Category Search Strategies”, Makoto Iwayama, July 9- 13, 1995 “The Fishwrap Personalized News System”, Pascal R. Chesnais et al., June 1995 “Classifying News Stories using Memory Based Reasoning”, Brij Masand, June 1992 “WebWatcher: Machine Learning and Hypertext”, Thorsten Joachims, et al., May 29, 1995 JP Publication No. H07-114572 to Yuasa “Wire Service Transmission Guidelines”, Number 84-2, June 14, 1984 “The Associated Press Stylebook and Libel Manual”, The Associated Press, 1994
6,757,682	U.S. Patent No. 7,082,407 to Bezos U.S. Patent No. 6,466,918 to Spiegel et al. U.S. Patent No. 6,195,657 to Rucker et al. U.S. Patent No. 6,049,777 to Sheena U.S. Patent No. 6,681,369 to Meunier
6,034,652	U.S. Patent No. 5,748,190 to Kjorsvik U.S. Patent No. 5,781,894 to Petrecca, et al U.S. Patent No. 5,913,040 to Rakavy, et al “Director Demystified”, Roberts, Jason, 1995 U.S. Patent No. 5,740,549 to Reilly, et al U.S. Patent No. 5,796,945 to Tarabella
6,788,314	U.S. Patent No. 5,748,190 to Kjorsvik “Buying a Real Computer Monitor,” Popular Electronics, October 1984. U.S. Patent No. 5,913,040 to Rakavy, et al.

[FN.1 - Only two of the references identified for these reexaminations are not new prior art. The references relating to the reexamination for the ’507 patent and ‘682 patent are all new prior art.]

(hereafter “the Cited References”). (See Walters Decl., Ex. E, Request for Ex Parte Reexamination and Detailed Statement in Support as to ’507 patent (without exhibits); Walters Decl., Ex. F, Request for Inter Partes Reexamination and Detailed Statement in Support as to ’682 patent (without exhibits); Walters Decl., Ex. G, Request for Ex Parte Reexamination and Detailed Statement in Support as to ’652 patent (without exhibits); Walters Decl., Ex. H, Request for Inter Partes Reexamination and Detailed Statement in Support as to ’314 patent (without exhibits).) As described in detail in the Petitions for Reexamination, the Patent Examiner either did not have, or did not rely upon, the majority of the Cited References during the prosecution of the Patents-in-Suit. (Id.)

III. PETITIONS FOR REEXAMINATION

Any person at any time may file a request for reexamination with the PTO, identifying prior art patents or publications that may affect the validity of an issued patent. 35 U.S.C. §§ 301, 302. If, in response to the reexamination requests, the PTO determines that the cited prior art raises “a substantial new question of patentability affecting any claim of the patent,” the PTO will grant the request and order reexamination of the patent. Id. at § 304. Once initiated, all reexamination proceedings must “be conducted with special dispatch.” Id. at §§ 305, 314; 37 C.F.R. § 1.550(a). Moreover, ex parte reexaminations of patents “involved in litigation . . . will have priority over all other cases.” MANUAL OF PATENT EXAMINING PROCEDURE §§ 2261, 2661 (8th ed., rev. 8, July 2010). At the conclusion of the reexamination proceeding, the PTO may cancel or confirm existing claims, or it may allow amended or completely new claims to issue. 35 U.S.C. § 307(a).

92% of all ex parte petitions for reexamination and 96% of all inter partes petitions for reexamination are granted. (See Walters Decl., Ex. I, Ex Parte Reexamination Filing Data— Dec. 31, 2010; Walters Decl., Ex. J, Inter Partes Reexamination Filing Data—Dec. 31, 2010.) Of those cases in which a petition for reexamination is granted, 77% of all ex parte reexaminations and 90% of all inter partes reexaminations result in the claims being amended or cancelled. (See id.); see also Pacific Biosci. Labs., Inc. v. Pretika Corp., __ F. Supp. 2d __, No. C10-0231JLR, 2011 WL 65950, at *2-3 (W.D. Wash. Jan. 10, 2011) (granting stay because, among other things, “statistics published by the PTO. . .demonstrate that in over 75% of cases in which reexamination requests are granted, claims are either changed or cancelled”). Thus, in only 23% of ex parte reexaminations and in only 10% of inter partes reexaminations are all claims of a patent confirmed. (See Ex. I.)

Interval, of course, would be precluded from litigating any Asserted Claims that are cancelled as a result of reexamination; likewise, Defendants would have intervening rights as to any amended claims at least for the period prior to issuance of any reexamination certificates. See 35 U.S.C. § 307(b). As such, if no stay is granted there exists a strong likelihood that some or all of the anticipated work to be conducted by the Parties and the Court prior to final disposition by the PTO would be for naught.

IV. ARGUMENT AND AUTHORITY

A. This Court Has Broad Discretion To Stay This Case

“Courts have inherent power to manage their dockets and stay proceedings, including the authority to order a stay pending conclusion of a PTO reexamination.” Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426–27 (Fed. Cir. 1988) (internal citations omitted). In passing the legislation establishing the reexamination proceeding, Congress stated its approval “to provide an inexpensive, expedient means of determining patent validity which, if available and practical, should be deferred to by the courts.” ASCII Corp. v. STD Entm’t USA, Inc., 844 F. Supp. 1378, 1380 (N.D. Cal. 1994) (citing Digital Magnetic Sys., Inc. v. Ansley, 213 U.S.P.Q. 290 (W.D. Okla. 1982)). Given the congressional intent that district courts use the PTO’s “specialized expertise to reduce costly and time-consuming litigation[,]” courts can exercise their discretion to stay proceedings pending the conclusion of a reexamination. Atlantic Constr. Fabrics, Inc. v. Metrochem, Inc., No. 03-5645, 2007 WL 2963823, at *1 (W.D. Wash. Oct. 9, 2007) (internal quotations omitted); see also ASCII Corp., 844 F. Supp. at 1380 (noting that, in granting stay, courts have inherent power to stay a proceeding to prevent “costly pre-trial maneuvering which attempts to circumvent the reexamination procedure”).

In deciding whether to stay a patent case pending the outcome of a reexamination proceeding, courts typically consider three factors: (1) whether a stay will clarify or simplify the issues in question and trial of a case; (2) the stage of the litigation; and (3) whether a stay will unduly prejudice or present a clear tactical disadvantage to the non-moving party. Wre- Hol, LLC v. Pharos Sci. & Applications, No. C09-1642 MJP, 2010 WL 2985685, at *2 (W.D. Wash. July 23, 2010); F5 Networks, Inc. v. A10 Networks, Inc., No. C10-654MJP, 2010 WL 5138375, at *1-2 (W.D. Wash. Dec. 10, 2010); Donnelly Corp. v. Guardian Indus. Corp., No. 05-74444, 2007 WL 3104794, at *4 (E.D. Mich. Oct. 22, 2007); Card Tech. Corp. v. DataCard Corp., No. 05-2546, 2007 WL 2156320, at *3 (D. Minn. July 23, 2007).

Considering these factors, district courts in the Western District of Washington and elsewhere in the Ninth Circuit routinely have stayed patent infringement cases based on a request for reexamination. See, e.g., Wre-Hol, LLC, 2010 WL 2985685, at *2; Pactool Int’l Ltd. v. Dewalt Indus. Tool Co., No. C06-5367BHS, 2008 WL 312677, at *1 (W.D. Wash. Feb. 1, 2008); see also ASCII Corp., 844 F. Supp. at 1381; Akeena Solar Inc. v. Zep Solar Inc., No. C 09-05040 JSW, 2010 WL 1526388, at *4 (N.D. Cal. Apr. 14, 2010); Ho Keung Tse v. Apple Inc., No. C 06-06573 SBA, 2007 WL 2904279, at *5 (N.D. Cal. Oct. 4, 2007).2

[FN.2 - District courts have recognized the efficiency of granting stays, like the one requested here, prior to the PTO’s decision on whether to grant the reexamination request. See, e.g., Akeena Solar, Inc. v. Zep Solar Inc., No. 09-05040 JSW, 2010 WL 1526388, at *2 (N.D. Cal. April 14, 2010) (granting stay based on pending request, noting that “there is no ‘general prohibition against staying’ an action simply because the PTO has not yet decided whether to order the inter partes reexamination”); see also ASCII Corp., 844 F. Supp. at 1381 (staying case before reexamination request was even filed but ordering that request be filed within 30 days).]

B. This Court Should Stay This Case

All three factors considered by courts in deciding whether to stay litigation pending reexamination weigh heavily in favor of staying these proceedings.

1. A Stay Is Likely to Simplify or Eliminate Issues in Question, Thereby Promoting Judicial Economy

The first factor—whether a stay may simplify the issues in question—strongly favors a stay of this action. The Federal Circuit recognizes that reexamination proceedings resulting in cancellation, clarification, or limitation of claims simplify litigation. See Ethicon, 849 F.2d at 1428. Indeed, “[o]ne purpose of the reexamination procedure is to eliminate trial on claims that are cancelled.” Gould v. Control Laser Corp., 705 F.2d 1340, 1342 (Fed. Cir. 1983). Where the claim survives reexamination, trial of the issues can be facilitated “by providing the district court with the expert view of the PTO.” Id.

In the instant case, if this Court grants the Defendants’ request to stay the litigation, the PTO will have time to review the requests for reexamination and the newly-presented prior art that will likely form the basis for cancellation or amendment of the claims. See Bausch & Lomb Inc. v. Alcon Labs, Inc., 914 F. Supp. 951, 953 (W.D.N.Y. 1996) (recognizing the PTO’s “expertise in deciding issues of patentability” as a compelling reason to stay litigation). As explained above, the PTO liberally grants ex parte (92%) and inter parties (96%) reexamination requests, and the reexaminations will likely result in the cancellation or amendment of the great majority (77% for ex parte and 90% for inter partes) of claims reviewed during the proceedings.

Because the reexaminations will likely result in the cancellation or amendment of the Asserted Claims, judicial efficiency strongly favors staying this litigation until the reexamination proceedings have concluded in order to avoid wasteful discovery and litigation efforts. See Implicit Networks, Inc. v. Advanced Micro Devices, Inc., No. C08-184JLR, 2009 WL 357902, at *2 (W.D. Wash. Feb. 9, 2009) (granting stay because, among other things, reexamination proceedings “could substantially limit or narrow the issues.”). As one court noted, because “92% of patents being reexamined change in some way,” the “Court cannot ignore this possibility” that it will “enabl[e] futile litigation that may have to be repeated if the patent changes.” Aten Int’l Co. v. Emine Tech. Co., No. SACV 09-0843 AG(MLGx), 2010 WL 1462110, at *7 (C.D. Cal. April 22, 2010). Further, for the Patents-in-Suit, the reexaminations will be the first time that the novelty and/or nonobviousness of the Asserted Claims will be examined with a more thorough understanding of the existing prior art. It is, therefore, probable that the intrinsic record for claim construction, including the prosecution history of the Patents-in-Suit during the reexamination process, will be vastly expanded by the reexamination of the Asserted Claims. For example, if the claims are amended in reexamination, or Interval makes arguments to the PTO in an attempt to overcome rejections based on the prior art, these actions will expand the intrinsic record the Court must consider for claim construction. See, e.g., CVI/Beta Ventures, Inc. v. Tura LP, 112 F.3d 1146, 1158 (Fed. Cir. 1997) (during reexamination, patentee may “commit to a particular meaning for a patent term, which meaning is then binding in litigation”); In re Cygnus Telecomms. Tech., LLC, Patent Litig., 385 F. Supp. 2d 1022, 1024 (N.D. Cal. 2005) (noting that reexamination can provide court “a richer prosecution history” for claim construction). Failing to stay these proceedings will likely require the Court to revisit claim construction multiple times to account for ongoing developments in the parallel reexamination proceedings.

Further, Section 307(b) of the patent statute provides that a third party has the absolute right to make, use, and sell any product that existed prior to the issuance of any amended or new claims that emerge from reexamination to the extent they are not covered by an original claim that survives reexamination unaltered. 35 U.S.C. § 307(b). Thus, Interval cannot retroactively assert any new or amended claims against the Defendants should any new or amended claims emerge from the reexamination process. In any event, with the large number of diverse Defendants and accused products/services, the litigation will most likely be drastically changed as a result of reexamination.

This factor militates heavily in favor of the Court entering a stay.

2. A Stay Is Appropriate Because Substantial Discovery, Claim Construction, Motion Practice, Pre-Trial, and Trial Work Remain

The second factor also favors entry of a stay. Similar to the circumstances presented in Wre-Hol, LLC, this case is in its infancy. 2010 WL 2985685, at *2. This Court just recently entered the Scheduling Order in the case, setting a Markman hearing for July 2011 and the initial trial for June 2012. (D.I. 178.) Under the Scheduling Order, the Defendants just recently (on February 28, 2011) served Invalidity and Non-Infringement Contentions, and although discovery has commenced, it is in its early stages and is not scheduled to conclude until November 2011, leaving the balance of the substantive work in the case uncompleted.

Courts have stayed cases in similar stages to avoid potentially needless litigation efforts and expenses. Pacific Biosci. Labs., Inc., 2011 WL 65950, at *4 (noting “the relatively early stage of the litigation also weighs in favor of granting the stay”); Pacific Biosci. Labs. v. Nutra Luxe MD, LLC, No. C10-0230JLR, 2011 WL 65947, at *4 (W.D. Wash. Jan. 10, 2011) (“Nutra Luxe” case) (same); Pactool Int’l Ltd., 2008 WL 312677, at *1 (same). Stays also have been ordered in cases that were much further along than this case, including, for example:

• Discovery and claim construction were complete, and the case was four months from trial. 3M Innovative Props. Co. v. DuPont Dow Elastomers LLC, No. 03- 3364, 2005 WL 2216317, at *3 (D. Minn. Sept. 8, 2005).
• The case was eight years old and two months from trial. Middleton, Middleton, Inc. v. Minnesota Mining & Mfg. Co., No. 4:03-CV-40493, 2004 WL 1968669, at *8–9 (S.D. Iowa Aug. 24, 2004).
• The parties had conducted substantial discovery, filed summary judgment motions, and begun Markman claim construction briefing. Softview Computer Prods. Corp. v. Haworth, Inc., No. 97-CV-8815, 2000 WL 1134471, at *3, 56 U.S.P.Q.2d 1633, 1635 (S.D.N.Y. Aug. 9, 2000).
• The parties had completed substantial discovery, had conducted a pre-trial conference, and were scheduled to go to trial. Loffland Bros. Co. v. Mid- Western Energy Corp., No. CIV-83-2255-E, 1985 WL 1483, 225 U.S.P.Q. 886, 887 (W.D. Okla. Jan. 3, 1985).
• The parties had completed substantial discovery, the pre-trial order was signed, and other than a handful of depositions, only trial remained. Grayling Indus., Inc. v. GPAC, Inc., No. 1:89-CV-451-ODE, 1991 WL 236196, 19 U.S.P.Q.2d 1872, 1873–74 (N.D. Ga. March 25, 1991).
• The case had been on file for more than two years. Lentek Int’l, Inc. v. Sharper Image Corp., 169 F. Supp. 2d 1360, 1363 (M.D. Fla. 2001).

Given that stays may be granted at any time, a stay in this case, which is still in the beginning stage, will not result in lost effort by the parties or by this Court, and, on balance, likely will result in substantial savings. Factor two militates in favor of a stay.

3. Interval Will Not Be Unfairly Prejudiced By a Stay

The final factor—whether a stay will unfairly prejudice Interval or present a clear tactical advantage to Defendants—also weighs in favor of granting a stay. A stay will not prejudice Interval, but the failure to stay the case may work substantial prejudice on the Defendants should they be forced to expend substantial sums on litigation on Asserted Claims that may be substantially amended or outright canceled in the reexamination. First, Interval is a holding company and does not compete with the Defendants, so no “intangible” interests are at stake. (See D.I. 153.) Thus, there is no danger of Interval losing market share or customers or otherwise having its equitable rights affected should a stay be granted. Indeed, courts have routinely granted stays when, as here, the case is “a suit for money damages and plaintiff has never sought preliminary injunctive relief from the Court.” Emhart Indus., Inc., 1987 WL 6314, at *2; see also Implicit Networks, Inc., 2009 WL 357902, at *3 (“[c]ourts have consistently found that a patent licensor cannot be prejudiced by a stay because monetary damages provide adequate redress for infringement”); Middleton, Inc., 2004 WL 1968669, at *8–9 (patentee never sold product and had no intention of doing so); SP Technologies, LLC v. HTC Corp., No. 08 C 3760, 2009 WL 1285933, at *3 (N.D. Ill. May 6, 2009) (ordering stay in patent case brought by non-practicing patent-holding company; noting that plaintiff “has not pointed to any separate business interests that might be jeopardized by a delay pending reexamination” and because plaintiff “can always move to recover damages for such sales at the end of the litigation if [it] is successful on its claims”). Further, Interval’s delay in filing an infringement case based on patents that issued between six and ten years ago further confirms that Interval cannot reasonably assert that it would suffer any competitive harm as a result of a stay.

Second, Interval can be fully compensated should it ultimately prevail after a stay. See Softview Computer Prods. Corp., 56 U.S.P.Q.2d at 1635 (patentee not prejudiced by stay pending reexamination because patentee would be entitled to damages if he ultimately prevailed); Implicit Networks, Inc., 2009 WL 357902, at *3 (same). Thus, a stay will not monetarily harm Interval.

Third, as noted above, Interval delayed many years before filing this suit and is accusing systems that it knew or should have known of years ago. It is in no position to argue that staying this suit pending reexamination will cause it irreparable harm. In any event, numerous courts have found that that mere delay completing a suit does not demonstrate undue prejudice. See, e.g., id., citing Sorensen v. Black & Decker Corp., No. 06cv1572BTM, 2007 WL 2696590, at *4 (S.D. Cal. Sep. 10, 2007) (“[t]he general prejudice of having to wait for resolution is not a persuasive reason to deny the motion for stay”);

In contrast, if a stay is not entered, the potential for wasting of resources, both by the Court and the parties, is enormous. This potential is starkly illustrated by two related decisions by the Federal Circuit: In re Translogic Tech., Inc., 504 F.3d 1249 (Fed. Cir. 2007) and Translogic Tech., Inc. v. Hitachi, Ltd., 250 Fed. Appx. 988 (Fed. Cir. 2007), which concerned Translogic’s suit for infringement of a patent that was simultaneously involved in reexamination.

The Translogic district court litigation proceeded in parallel with the PTO reexamination, but both proceedings produced dramatically different results. After several years of protracted litigation, the district court case resulted in a jury verdict and judgment of infringement and validity, and a damages award in the plaintiff’s favor. But while all of that was going on in the district court, the PTO rejected the asserted claims of the same patent in reexamination. See In re Translogic, 504 F.3d at 1250. Appeals were taken of both the district court judgment and the PTO reexamination decision, and both were assigned to the same appellate panel at the Federal Circuit. Id. On appeal, the Federal Circuit affirmed the PTO’s rejection of the asserted claims and found that the reexamination results trumped the district court judgment, vacating the district court judgment and directing the district court to dismiss the infringement case. See Translogic (Hitachi), 250 Fed. Appx. at 988. The end result was that six years of district court litigation, with two jury trials and at least one summary judgment ruling, were all for naught, at untold cost to the parties and time lost by the district court.

Defendants face substantial potential prejudice if the stay is not granted (above and beyond being forced to litigate claims that are likely to be changed or cancelled). For example, despite the lack of merit in Interval’s allegations, there exists a possibility that a judgment could be entered in Interval’s favor that requires some or all of the Defendants to pay damages to Interval. As numerous courts have recognized, there may be no practical way for these Defendants to recover those damages from Interval should the PTO later determine that Asserted Claims are invalid. See, e.g., Everything for Love.com, Inc. v. Tender Loving Things, Inc., No. CIV 02-2605-PHX-EHC, 2006 WL 2091706, at *3–4 (D. Ariz. July 21, 2006); Broadcast Innovation, L.L.C., 2006 WL 1897165, at *10–11; Bausch & Lomb, Inc., 914 F. Supp. at 952–53. Thus, Defendants could be required to pay a judgment on an invalid patent, without the ability to recover the monies paid. As these courts have noted, “[s]uch an outcome is unacceptable.” Everything for Love.com, Inc., 2006 WL 2091706, at *4 (quoting Bausch & Lomb, Inc., 914 F. Supp. at 953); Broadcast Innovation, L.L.C., 2006 WL 1897165, at *7.

IV. CONCLUSION

By granting a stay now, with a majority of the substantive work in the case yet to be begun, the Court can avoid the need for the parties and the Court to expend significant time, effort and resources that likely will be rendered moot by the PTO’s reexamination of the Patents-in-Suit. Moreover, a stay will not prejudice Interval, but could spare the Defendants from substantial prejudice. For these reasons, and those stated above, Defendants respectfully request that the Court enter a stay of the litigation pending the completion of the reexaminations of the Patents-in-Suit.

DATED: March 17, 2011

Respectfully Submitted,
By: s/ Mark P. Walters
Mark P. Walters (WSBA #30819)
Dario A. Machleidt (WSBA #41860)
FROMMER LAWRENCE & HAUG LLP
1191 Second Avenue Suite 2000
Seattle, WA 98101
Tel: 206-336-5684
Fax: 212-588-0500
E-mail: MWalters@flhlaw.com

The Interval response:

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

INTERVAL LICENSING LLC,
Plaintiff,
v.
AOL, INC.; APPLE, INC.; eBAY, INC.;
FACEBOOK, INC.; GOOGLE INC.;
NETFLIX, INC.; OFFICE DEPOT, INC.;
OFFICEMAX INC.; STAPLES, INC.;
YAHOO! INC.; AND YOUTUBE, LLC,
Defendants.

Case No. 2:10-cv-01385-MJP

INTERVAL LICENSING LLC
OPPOSITION TO DEFENDANTS’
MOTION TO STAY
JURY DEMAND
ORAL ARGUMENT REQUESTED

Plaintiff Interval Licensing LLC (“Interval”) responds to the motion to stay filed jointly by all defendants.

INTRODUCTION

Having waited over six months to file a request for reexam, the defendants now seek to force Interval and the Court to abandon the substantial work that has already been performed in this litigation and put this case on hold for an uncertain period that could very well be six years or more. The defendants understate the delay inevitably caused by a reexam stay and they overstate the probability that the asserted claims will all be materially modified. They seek this relief before the PTO has even granted the reexam requests, a step that itself will likely take sixty to ninety days. Courts have increasingly begun to recognize the reexam/litigation stay motion for what it is: a delay tactic employed by patent infringement defendants who hope to put off their day of reckoning. Moreover, Defendants have heightened their tactical games by having different defendants file different requests for reexamination. Absent a stay, all issues will be resolved 16 months from now, which is less than half the time that it will likely take the PTO to complete the reexamination process, and likely six years or more before all reexamination appeals are resolved. This Court should not allow the defendants to derail this litigation, but should instead continue to assert its Article III jurisdiction to provide a just and expeditious resolution of these patent infringement claims.

ARGUMENT

1. Staying Litigation Is Discretionary

This Court has broad discretion to decide to stay this litigation or to allow it to proceed. See, e.g., Amado v. Microsoft Corp., 517 F.3d 1353, 1358 (Fed. Cir. 2008). Motions to stay are driven by the facts and circumstances of the individual case and a stay pending reexam is anything but automatic. Indeed, other districts in this Circuit with patentheavy dockets recognize that a stay can often be counter-productive:

[T]here appears to be a growing concern among at least some judges in this district that, on balance, staying a case even in its early stages pending reexamination has not led to the just, speedy, and efficient management of the litigation, but instead has tended to prolong it without achieving sufficient benefits in simplification to justify the delay. This concern stems in part from the unpredictable but often lengthy duration of the stay due to the length of PTO reexamination proceedings . . .in contrast to the salutary effect of firm deadlines on efficient case management.

Network Appliance Inc. v. Sun Microsystems Inc., 2008 WL 2168917 (N.D. Cal. 2008).1
[FN.1 - Although the Network Appliance Court granted the request for the stay with respect to one of the patents being litigated, that decision was based in large part on the fact that the PTO had already issued an office action rejecting all sixty-three claims in that patent. Network Appliance, 2008 WL 2168917 at *1. Here, by contrast, the PTO has not even accepted the reexam request, much less issued an office action invalidating any claims.]

Judge LaPorte’s assessment in Network Appliance of the Northern District of California’s growing concern over litigation stays appears to have been accurate: orders denying stay requests have become commonplace in that Court during the past two years. See, e.g., Affinity Labs of Texas, Inc. v. Apple, Inc., 2010 WL 1753206 at *2 (N.D. Cal. April 29, 2010); Ultra Products Inc. v. Antec, Inc., 2010 WL 1688538 at *4 (N.D. Cal. April 26, 2010); Wordtech Sys. Inc., v. Microboards Manufacturing, LLC, 2010 WL 1641510 at *2 (N.D. Cal. April 22, 2010); Esco Corp. v. Berkeley Forge & Tool, Inc., 2009 WL 3078463 at *4 (N.D. Cal. Sept. 28, 2009); Sorensen v. Ampro Tools Corp., 2009 WL 605831 *4 (N.D. Cal. March 9, 2009). An oft repeated theme of these cases is that a policy of granting stays that is too liberal invites defendants to “unilaterally derail” litigation. Esco Corp. 2009 WL 3078463 at *2 (quoting Soverain Software LLC v. Amazon.Com, Inc., 356 F.Supp.2d 660, 662 (E.D. Tex. 2005)). The same concern has been recognized in the legal press. See, e.g,, Exhibits 1 and 2 to Declaration of Edgar Sargent, March 28, 2011 (“Sargent Decl.”).

When deciding a motion to stay pending reexam, courts consider three factors: (1) the likelihood that issues will be simplified or clarified by the reexam process; (2) the stage of the litigation; (3) prejudice to the non-moving party. F5 Networks, Inc. v. A10 Networks, Inc., 2010 WL 5138375 at *1-2 (W.D. Wash. 2010). None of these factors supports a stay in this case.

2. There Is No Basis For Concluding That A Reexam Will Simplify This Litigation.

The defendants make no attempt to explain how or why the asserted claims of the patents in suit will be clarified or simplified as a result of the reexam. Rather than identifying alleged ambiguities in the claims or explaining their assertion that certain claims were anticipated by the prior art, the defendants rely on statistics and assumptions to argue that modification of the claims in these patents is “likely.” This is secondary evidence at best and is not sufficient to carry the defendants’ burden to justify a multi-year delay in resolution of this suit.

The defendants’ statistics problem begins at the very beginning. Because their reexam request has not yet even been granted by the PTO, the defendants ask the Court to issue a stay based only on the probability that the PTO will grant the request. (D. Br. at 4.) But the defendants’ probability argument is misleading. There are four patents in suit here, yet the statistics cited by the defendants describe the chances that a reexam request for a single patent will be granted. The odds that all four reexam requests will be granted are substantially worse than the odds for a single patent. And, in this case, those odds are further reduced by the fact that two of the reexam requests are ex parte, which the PTO grants less frequently than inter partes requests.

Even if the Court were to overlook the fact that the PTO has not yet granted reexam requests for any of these patents, the argument that any eventual reexam will simplify issues in this litigation is unsupported by any explanation tied to these patents, these claims, or this prior art. Instead, again, the defendants simply cite statistics. The defendants have made no attempt to demonstrate that any particular claims are likely to be invalidated or modified based on the asserted prior art. See F5 Networks, Inc. v. A10 Networks, Inc., 2010 WL 5138375 at *2 (W.D. Wash. 2010) (denying a motion for stay because “it is not possible to predict whether a successful reexamination request will simplify the issues in the case if the Court does not know what they are.”).

The statistics on canceled and modified claims cited by the defendants in lieu of case-specific evidence are even more misleading than their statistics concerning the granting of reexam requests. The defendants lump together reexams that result in canceled claims with those that result only in amendments, claiming that 77% of ex parte and 90% of inter partes reexams result in one or the other. (D Br. at 4.) There is no indication in these bare statistics of how significant the amendments are, or what the “odds” would be that an amended or canceled claim would also be one of the claims asserted in this litigation. Without more detailed information, the defendants’ data is almost meaningless.

The chances that amendments would impact every claim being litigated are simply too small to justify a stay of up to six years. Again relying solely on the statistics cited by the defendants, the chances are approximately 63% that at least one of the patents will have no claims amended or cancelled.2
[FN.2 - According to the defendants statistics, the chances that a patent undergoing ex parte reexam will emerge with all claims unchanged is 23% and the chances that a patent undergoing inter partes reexam will emerge unchanged is 10%. (D. Br. at 4.) The defendants have sought ex parte reexam of two patents and inter partes reexam of the other two. Thus the chances that at least one of the four patents will emerge with all claims unchanged is 1 –(.77*.77*.9*.9) or just over 51%. Taking into account the possibility that reexam will not even be granted for at least one of the patents increases the chances that at least one patent will not be changed to nearly 63% [1 – (.77*.77*.9.*.9*.92*.92*.96*.96)].]
This is, in fact, the relevant metric for evaluating the potential benefit from the reexam because a judgment of patent infringement does not require finding infringement on all claims in all of the asserted patents, but only on one claim from one patent. If, as the defendants’ statistics suggest, the chances are nearly 63% that at least one of the patents will emerge unchanged, then infringement of any claim in this patent will be no different after the reexam than it would have been before.

The defendants’ response to the likelihood that the litigation will ultimately have to resume based on at least some unmodified claims is to argue that the court will benefit from representations made by Interval to the PTO during the reexam. This justification is specious. At this point, the defendants are free to submit the same prior art in this litigation as they are to the PTO and any claim construction positions or other representations that Interval takes in response to any claimed prior art would be the same in the litigation as it would be before the PTO. Any benefit that the Court or the parties would receive from having these positions hashed out in advance in another proceeding is more than offset by the years of delay required.

Moreover, although this motion was signed by all defendants, none of the reexam requests were joined by all of the defendants who are accused of infringing the patent in question. The defendants have provided no explanation for this tactic but it suggests that some defendants will argue that they are not bound by the results of reexams in which they did not participate (an argument that should not be sustained). This potential multi-party evidentiary tangle would further complicate, rather than simplify, issues of claim construction and validity. This Article III Court is fully capable of resolving this issues based on the evidence presented in this case and there is no practical justification for ceding jurisdiction over these issues to a parallel proceeding before the PTO, only to revisit many of the same issues in the subsequent litigation.

3. The Parties And The Court Have Expended Significant Resources In This Litigation.

This case has advanced significantly in this Court and a stay pending reexam would inevitably cause much of the benefit of that work to be lost. Both the parties and the Court have invested substantial resources in resolving preliminary issues, framing the infringement case and defenses, establishing a court calendar, and making progress in discovery. Given that the case has advanced this far, the “stage of litigation” factor does not support a stay. See, e.g., Output Technology Corp. v. Dataproducts Corp., 1991 U.S. Dist. LEXIS 20168 at *7 (W.D. Wash. 1991) (denying a stay pending reexam when “discovery is well underway” based on service of interrogatories and requests for production and defendant “has not made out a case of hardship in going forward.”)

The defendants emphasize the work that remains to be done in the litigation, including the Markman hearing and the trial, and argue that the harm from a stay is minimal because these proceedings have not yet occurred. (D. Br. at 8.) This argument has things backwards; the “stage of litigation” factor is intended to address harm from a stay caused by losing the benefit of the effort that has already been expended if the parties and the Court must wait several years to proceed. From that perspective, a stay in this case would be demonstrably wasteful.

The defendants waited seven months from the time they were served with the Complaint before filing their petitions for reexam. During those seven months much progress has been made in the litigation:

• Several motions to dismiss have been briefed and resolved and a renewed motion to dismiss or sever is pending;
• Preliminary infringement contentions have been prepared and served;
• Preliminary non-infringement contentions have been prepared and served;
• Defendants have served interrogatories and over 450 document requests, and Interval has already served responses to over 280 of them;
• Interval has served document requests and interrogatories, to which defendants have served responses and supplement responses;
• All parties have produced documents;
• Lists of terms for claim construction have been exchanged and Interval’s experts are working on an expert report, which is due on April 4.

In addition to the time, fees, and expenses incurred by the parties, the Court has held a status conference to address the best approach to this case and, after receiving briefing, issued a detailed scheduling order setting out an approach to coordinated discovery and a two-track plan for trial on the merits. All of this work by the parties and the Court would need to be revisited, and much of it entirely re-done, if the progress of this litigation is interrupted for several years.

The defendants cite several cases where stays were issued at even later points in the progress of the litigation than is at issue here. (D. Br. at 9). Of course these are discretionary decisions for the individual court and none of these decisions are binding here. A number of these cases are over ten years old and pre-date the current reexam workload of the PTO (which has been brought on in large part by defendants’ use of the reexam stay as a litigation tactic). And, most importantly, these cases involved other factors making the stay less prejudicial but found that the “stage of litigation” factor disfavored a stay.3
[FN.3 - See, 3M innovative Props. Co. v. DuPont Dow Elastomers LLC, 2005 WL 2216317 at *3 (D. Minn. 2008) (finding that the stage of litigation “weighs against granting a stay” but issuing a stay nevertheless because reexam had been underway for over six months and the party opposing the stay was also the party that had filed the reexam request); Middleton, Inc. v. Minnesota Mining & Mfg. Co., 2004 WL 1968669 at *5, 8 (S.D. Iowa 2004) (finding that the status of the litigation weighed against a stay but granting the stay “under all of the unique circumstances of this case” as a result of substantial amounts of foreign and domestic prior art that had been uncovered in discovery and that had been submitted to the PTO with the reexam request); Softview Computer Prods. Corp. v. Haworth, Inc., 2000 WL 1134471 *1 (S.D.N.Y. 2000) (entering no finding on the “status of litigation” factor but staying litigation involving a single patent when the PTO had already granted reexam request and begun the reexam process); Loffland Bros. Co. v. Mid-Western Energy, Corp., 1985 WL 1483 *2 (granting a stay when the party opposing was simultaneously asking for an extension of the pre-trial schedule); Grayling Industries, Inc. v. GPAC, Inc., 1991 WL 236196 at *2-3 (granting a stay despite finding that “the interests underlying the reexam procedure doubtless would have been served better by an earlier filing of the petition” based in part on the understanding that the reexam action had already been proceding and might conclude within two months); Lentek Int’l Inc. v. Sharper Image Corp., 169 F. Supp. 1360, 1363 (M.D. Fla. 2001) (granting stay when party opposing it was the party who filed the reexam petition).]

Even if the defendants were correct and this case were in an early stage for purposes of this inquiry, this fact would not weigh heavily in favor of a stay. “Although the advanced nature of a case approaching trial may weigh heavily against granting a stay, the opposite inference—that a suit in the early stages should weigh heavily in favor of a stay—is not true.” Sighting System Instruments, LLC. v. Prestige Law Enforcement, Inc., 2006 WL 2642184 (N.D. Tex. 2006). The focus of the inquiry is on the efforts that would be lost if a stay were granted, there is no countervailing policy favoring a stay if the Court concludes that such waste would be minimal. Id.

4. Interval Would Suffer Significant Prejudice From The Delay Caused By A Stay.

The defendants understate the length of the delay that is likely to result from a stay. Once again, they have ignored the fact that they seek reexam of four patents, not one, and the stay will presumably be in force until all four have emerged from reexam. Two of the reexam requests are inter partes and the current statistics from the PTO indicate that the average length of an inter partes reexam is over three years. Ex. I to Decl. of M. Walters (Doc. No. 199-14) at #6. Given that this is a mean, the odds are high that at least one of the reexams will take longer than three years to emerge from the PTO. This delay appears likely to increase given the ever increasing volume of reexam requests filed with the PTO each year. Id. at #3. The statutory mandate that the PTO complete reexams of patents in litigation “with special dispatch” provides no true benefit given that 70% or more of the patents in reexam are also involved in litigation. Id. at #4. In addition, the stay should factor in the possibility of an appeal from the reexam results, which typically adds three years to the time needed to complete a reexam. Thus, it is possible that at least one of the patents in suit would be in reexam for more than six years.

By contrast, this Court has established a very efficient schedule for the completion of this litigation, including the first of two trials scheduled to begin approximately one year from now. There can be no doubt that the litigation in this Court would likely be concluded years before the completion of any reexam. The ever increasing length of the delay caused by the backlog of reexam requests at the PTO has been a substantial factor in leading courts in this Circuit to deny motions for a stay pending reexam. See, e.g., Affinity Labs of Texas, Inc. v. Apple, Inc., 2010 WL 1753206 at *2 (N.D. Cal. 2010) (denying a motion to stay pending reexam in part because the three year time frame for reexams is “likely to increase given the steady rise in the number of reexam requests in recent years” and finding that delay of such length to be unduly prejudicial to the plaintiff). Here, as in the Affinity Labs litigation, the prejudice caused by the delay has been compounded by the defendants’ (including Apple, represented by the same counsel it had in Affinity Labs) having waited for months to serve their reexam requests. Id. (noting the additional prejudice imposed as a result of Apple’s seven-month delay in filing the reexam request).

The prejudice to which Interval would be subjected by having to wait six years to pursue this litigation is undeniable. A delay of this length cannot be considered even roughly equivalent to the one or two year delays contemplated in some of the older cases cited by the defendants. See e.g. Donnelly Corp. v. Guardian Industries Corp. 2007 WL 3104794 at *8 (one and one-half years or less); Grayling Industries, Inc. v. GPAC, Inc., 1991 WL 236196 at *3 (delay of two months). Six years of delay raises serious concerns about loss of evidence as witnesses become unavailable or their memories fade and records in the hands of third-parties are destroyed. See, e.g., Affinity Labs, 2010 WL 1753206 at *2.

Moreover, the parties to a PTO proceeding do not have subpoena power. Though the PTO’s patent expertise is often cited as benefit to the courts and a justification for staying litigation, perhaps just as frequent, though less frequently mentioned, is the benefit that the PTO receives by having access to evidence obtained through discovery in patent litigation. Documents obtained from third-parties and deposition transcripts of inventors of alleged prior art are regularly submitted as part of the reexam process, but such evidence would be unavailable here if a stay is granted.

The defendants argue that Interval waited for years before filing suit and thus cannot be prejudiced by additional delay. The implication that Interval simply sat on its rights without making any effort to protect them is false. As explained more fully in the Declaration of Davina Inslee filed in conjunction with this opposition, the small staff employed by Interval spent years reviewing the patents and other intellectual property in an effort to determine the value of the portfolio and its various components. Declaration of Davina Inslee, March 28, 2011, at ¶ 12-16. Moreover, even if true, whether Interval waited to bring suit is irrelevant to the question at hand – whether a stay of up to 6 years would materially benefit this litigation due solely to the fact that defendants have filed requests for reexamination.

CONCLUSION

Congress has not indicated that reexaminations are the exclusive mechanism for enforcing a patent. Just the opposite. The right given to a patent holder is a right to exclude – a right that must be enforced through litigation if infringers do not take a license. Delaying enforcement of that right for an indeterminate period of years and years on the mere filing of a request for reexamination or even a granting of a request for reexamination would substantially weaken patent rights. For good reason, more and more courts across the country have rejected stays pending reexamination and have viewed these requests for what they really are – litigation ploys designed to indefinitely delay litigation and final resolution of the parties’ rights.

Belying claims that the delay would be harmless, the consequences of the relief sought by the defendants would be an uncertain delay that could very well last six years or more, the results of which are more likely than not to return at least one of the patents in suit entirely unchanged. The prejudice is obvious and it is extreme. The request for a stay should be denied and this Court should proceed with this litigation according to the schedule that has now been in place for over two months, and that will resolve all issues within 16 months.

Dated: March 28, 2011

/s/ Edgar Sargent
Justin A. Nelson
WA Bar No. 31864
E-Mail: jnelson@susmangodfrey.com
Matthew R. Berry
WA Bar No. 37364
E-Mail: mberry@susmangodfrey.com
Edgar Sargent
WA Bar No. 28283
E-Mail: esargent@susmangodfrey.com
SUSMAN GODFREY L.L.P.
1201 Third Ave, Suite 3800
Seattle, WA 98101
Telephone: (206) 516-3880
Facsimile: (206) 516-3883