Declaratory Judgment Plaintiff and Stays Pending Reexamination

In Interwoven, Inc. v. Vertical Computer Systems, Inc. (Case No. C 10-04645 RS, Northern District of California), Judge Richard Seeborg was less than persuaded by Interwoven’s attempt to obtain a stay after filing an ex parte reexamination of the patents in suit.

BACKGROUND

Vertical owns U.S. Pat. Nos. 6,826,744 and 7,716,629 relating to Internet technologies.  Vertical sued Microsoft in the Eastern District of Texas and settled in 2009.  Later, Vertical informed Interwoven that its products infringed the patents as well.   Interwoven filed a declaratory judgment action in the Northern District of California and Vertical countered with a counterclaim for patent infringement.

After a Markman hearing the court issued a claim construction that construed the terms according to their plain and ordinary meanings, and according to the decision, these constructions largely rejected the constructions proffered by Interwoven.

Interwoven subsequently filed a request for ex parte reexamination of both patents in suit.  At the time of the decision (March 8, 2012), the PTO granted reexamination of the ‘744 patent, but had not yet decided on the request for reexamination of the ‘629 patent (it is control no. 90/009,983).  [editor’s note:  according to PAIR data, on February 26, the ‘629 reexamination request was deemed incomplete by the PTO for failing to point out each substantial new question of patentability and a detailed explanation of the application of the patents and printed publications to every claim in the request for reexamination.   The Requester has 30 days to file a corrected request.]

We have touched on the factors a court uses to decide whether to stay a litigation pending reexamination in earlier posts.  They are (1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the nonmoving party; (2) whether a stay will simplify issues in question and trial of the case; and (3) whether discovery is complete and whether a trial date has been set.  When it comes to stays pending reexamination, the courts look to see whether the outcome will reduce issues for trial, thereby eliminating waste and cost for the parties and the system as a whole.

Vertical told the court that the stay request was merely a dilatory tactic by Interwoven, reminding the court that Interwoven only requested reexamination after its arguments did not prevail in the Markman proceeding.

Interwoven argued that it waited until after claim construction in order to avoid filing multiple reexaminations.  The court rejected this argument because the PTO is required to perform reexamination using a broadest reasonable construction approach “regardless of the judicially imposed construction.”

The court also considered the fact that the parties were direct competitors, and inferred a tactical motive because of Interwoven’s delay in seeking reexamination until after claim construction.  The court was also concerned that a stay would strategically disadvantage Vertical based on possible loss of evidence, witness availability, and memory of events over time.

The court was not persuaded by Interwoven’s arguments that the reexamination would result in a simplification of issues.  The court noted that 66% of the time a reexamination will result in amendment and that between 11-12% of the time all claims are cancelled.  However, the court noted that Interwoven filed ex parte reexamination requests, and not inter partes reexamination requests:

Unlike inter partes reexaminations which “are guaranteed to finally resolve at least some issues of validity because the requesting party is barred from seeking district court review on any grounds that it could have raised in reexamination,” no such estoppel arises from ex parte reexaminations. . . . Consequently, the only way Interwoven’s requested reexaminations will resolve invalidity issues is if the PTO cancels the claims in their entirety, of which there is only a 12% chance.

The court found the case to be procedurally advanced because discovery is “well underway and the parties are working towards an agreeable protective order.”  The parties exchanged documents, served interrogatories and document requests, and have responded to same.  The parties fully briefed the issue of claim construction and received an order on claim construction following a Markman hearing.   The resources and time expended to date make a stay “untenable at this point.”

QUESTIONS

There are other cases where stays were justified late in the proceedings (e.g., eve of Markman).  So one has to wonder what would have happened if the outcome of the Markman hearing had been more mixed?  Or if the reexamination requests were filed sooner, or were in fact inter partes reexamination requests?   Would the outcome have changed if the prior art for the reexaminations was recently discovered?  One can only speculate and note that the district courts continue to make very detailed and sophisticated considerations of requests for stay pending reexamination.

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