Opinion
CIVIL NO. 13-2071 (ADM/JSM)
08-07-2014
INTELLECTUAL VENTURES II LLC, Plaintiff, v. U.S. BANCORP and U.S. BANK, Defendants.
ORDER
The above matter came on before the undersigned upon defendants' Motion for Stay Pending Inter Partes Review of the Asserted Patents [Docket No. 63] and plaintiff's Motion to Strike Defendants' Reply in Support of Their Motion to Stay Pending Inter Partes Review of the Asserted Patents [Docket No. 72]. Ian N. Feinberg, Esq. and Edwin E. Voigt, II., Esq. appeared on behalf of plaintiff. Devan V. Padmanabhan, Esq., Michelle E. Dawson, Esq., and Kenneth R. Adamo, Esq. appeared on behalf of defendants.
The Court, being duly advised in the premises, upon all of the files, records, and proceedings herein, and for the reasons stated on the record at the hearing and those described in the Memorandum below, now makes and enters the following Order.
IT IS HEREBY ORDERED:
1. Defendants' Motion for Stay Pending Inter Partes Review of the Asserted Patents [Docket No. 63] is GRANTED, as follows:
a. All discovery and all other proceedings in this case are immediately STAYED pending inter partes review ("IPR") of United States Patent Nos. 6,715,084 ("'084 Patent"), 6,314,409 ("'409 Patent"), 5,745,574 ("'574 Patent"), 6,826,694 ("'694 Patent"), and 7,634,666 ("'666 Patent") (collectively, the "Asserted Patents" or "Patents-in-Suit") at the Patent Trial and Appeal Board ("PTAB") of the United States Patent and Trademark Office ("PTO").
b. Within 10 days of the PTAB's decision on the last of the currently requested IPRs, and the final decision on any appeals taken from these decisions, whichever is later, the stay of this case shall be lifted, and the parties shall submit a joint report outlining the status of the case, and the parties' joint proposal for a schedule governing all matters bearing on discovery, motions, proceedings, and trial (or separate schedule and proposals, if they cannot agree). In the interim, nothing shall preclude any party from moving to lift the stay as to the entire case or any portion of the case in the event that PTAB refuses to institute an IPR proceeding on the '084 Patent, the '409 Patent, the '574 Patent, or the '694 Patent.
2. Plaintiff's Motion to Strike Defendants' Reply in Support of Their Motion to Stay Pending Inter Partes Review of the Asserted Patents [Docket No. 72] is DENIED. Dated: August 7, 2014
s/ Janie S . Mayeron
JANIE S. MAYERON
United States Magistrate Judge
MEMORANDUM
I. FACTUAL BACKGROUND
A. Procedural Background
Plaintiff Intellectual Ventures II LLC ("IV") files for patents on its own inventions and purchases patents from individual inventors and institutions. Complaint [Docket No.1], ¶ 11; Transcript of Motion Hearing ("Tr.") [Docket No. 76], p. 31. To date, IV has acquired more than 70,000 intellectual property assets and is currently in the top ten patent owners in the Unites States in terms of new inventions. Compl., ¶ 11; Tr., p. 31. It aggregates these patents into a portfolio, which contains approximately 40,000 active patents. Tr., p. 31. It then licenses the patents to third parties, including technology companies. Compl., ¶ 11. Defendants U.S. Bancorp and U.S. Bank (collectively, "U.S. Bank") provide banking services to its customers and offer some banking services to some of its customers via electronic means. Answer [Docket No. 24], ¶ 6.
On July 31, 2013, IV filed its Complaint, alleging that in connection with certain online banking services and other systems and services, U.S. Bank infringes one or more claims of the Patents-in-Suit. The Patents-in-Suit relate to technology that is used for on-line transactions and communications, and more specifically, they involve the security U.S. Bank uses to protect confidential information of itself and its customers. Tr., pp. 12, 30.
On September 27, 2013, U.S. Bank filed its Answer and Counterclaims and on November 18, 2013, IV filed its Answer to Counterclaims. See Docket Nos. 24, 43. IV and U.S. Bank have exchanged initial disclosures and contentions and one set of discovery requests, and recently have begun document discovery. Declaration of Ian N. Feinberg in Support of Plaintiff's Opposition to Defendants' Motion to Stay Pending Inter Partes Review ("Feinberg Decl.") [Docket No. 69-2], ¶¶ 7-12, 14-19, 22. On March 14, 2014, the Court issued its Amended Pretrial Scheduling Order. Amended Pretrial Scheduling Order [Docket No. 47]. The parties later agreed to an extension for U.S. Bank to file supplemental prior art statements and an extension for IV to file its responses to U.S. Bank's supplemental prior art statements. Joint Stipulation [Docket No. 61]. On June 12, 2014, this Court issued a Second Amended Pretrial Scheduling Order. [Docket No. 62]. As of the filing of this motion, the parties had not taken any depositions, exchanged lists of contested claim terms for construction, begun claim construction briefing, or conducted any expert discovery. Defendants' Memorandum in Support of Their Motion to Stay Pending Inter Partes Review of the Asserted Patents ("Defs.' Mem.") [Docket No. 65], p. 3. There have been no dispositive motions filed by either party. A trial date has not yet been set.
In April 2014, U.S. Bank served three deposition notices. Feinberg Decl., ¶¶ 20, 21.
B. The Inter Partes Review Petitions Challenging the Asserted Patents
Between November 20, 2013 and May 22, 2014, various non-party entities—International Business Machines Corporation ("IBM"), First Nat'l Bank of Omaha, Commerce Bancshares, Inc., and BBVA Compass Bancshares, Inc. (collectively, "Bank Petitioners")—filed IPR petitions with the PTO requesting cancellation of all asserted claims of the Asserted Patents based on multiple prior art references. See Defendants' Notice of Regarding Inter Partes Review Proceedings for U.S. Patent No. 7,634,666 [Docket No. 45]; Defendants' Notice Regarding Inter Partes Review Proceedings for U.S. Patent Nos. 6,826,694; 5,745,574; 6,314,409; and 6,715,084 [Docket No. 50]. U.S. Bank has not filed any of the currently pending IPR petitions. Docket No. 45 ("U.S. Bank did not participate in, control, support, or pay for the preparation or filing of IBM's IPR."); Docket No. 50 ("U.S. Bank did not participate in, control, support, or pay for the preparation or filing of these petitions."), nor has U.S. Bank indicated any intent to file its own IPR petitions. The earliest petitions for an IPR on the four Asserted Patents not currently subject to IPR ('084 Patent, '409 Patent, '574 Patent, and '694 Patent) were filed by IBM between April 7 and April 23, 2014. [Docket No. 50]. On April 16, 2014, the PTAB issued an order instituting an IPR proceeding over the '666 Patent after finding that IBM had "established a reasonable likelihood that [it] would prevail" in demonstrating Claims 1-11 are invalid over the prior art. See Defendants' Notice of Institution of Inter Partes Review of Claims 1-11 of U.S. Patent No. 7,634,666 [Docket No. 48], p. 1.
A petition for IPR cannot be filed more than one year after a party has been served with a complaint alleging infringement of the patent at issue. 35 U.S.C. § 315(b). This lawsuit was filed over a year ago.
C. Motion to Stay
On June 18, 2014, U.S. Bank sought a stay of this entire suit pending the outcome of the IPRs for the Asserted Patents. Defs.' Mem. On June 25, 2014, IV opposed a stay. Plaintiff's Opposition to Defendants' Motion to Stay Pending Inter Partes Review of the Patents-In-Suit ("IV's Opp. Mem.") [Docket No. 69]. U.S. Bank filed its Reply Memorandum on June 30, 2014. Defendants' Reply in Support of Their Motion to Stay Pending Inter Partes Review of the Asserted Patents ("Defs.' Reply") [Docket No. 71].
D. Other District Court Actions Involving Asserted Patents
As of the date of the hearing on this motion, four of the seven cases in which IV asserted the same patents have been stayed pending IPR review. See Declaration of Nadeem W. Schwen ("Schwen Decl.") [Docket No. 66], Ex. A (Intellectual Ventures II LLC v. First Nat 'I Bank of Omaha, Order Granting Motion to Stay Pending Inter Partes Review of the Patents-in-Suit, 8:13-cv-00167 (D. Neb. May 6, 2014) (Docket No. 67) ("FNBO Order")); Ex. B (Intellectual Ventures II LLC v. BBVA Compass Bancshares, Inc., Order Granting Motion to Stay This Litigation Pending Inter Partes Review of the Patents-in-Suit, 2:13-cv-01106 (N.D. Ala. June 4, 2014) (Docket No. 66) ("BBVA Compass Order")); Ex. C (Intellectual Ventures II LLC v. Commerce Bancshares, Inc., 2:13-CV-04160-NKL, 2014 WL 2511308 (W.D. Mo. June 4, 2014) ("Commerce Order") ("Commerce Order")); Ex. D (Intellectual Ventures II LLC v. Huntington Bancshares Inc., 2:13-CV-00785, 2014 WL 2589420 (S.D. Ohio June 10, 2014) ("Huntington Order")). The defendants in a fifth suit involving the same patents, SunTrust Banks, Inc. and SunTrust Bank, also have moved to stay that litigation pending the PTAB's review of the Asserted Patents, but the district court has not yet ruled on that motion. See Intellectual Ventures II LLC v. SunTrust Banks, Inc., No. 13-cv-2454, (N.D. Ga. June 6, 2014) (Docket No. 151). Likewise, in a sixth case involving the Asserted Patents, the judge has not issued an order on the defendant's motion to stay. See Intellectual Ventures II LLC v. JP Morgan Chase & Co., No. 13-CV-3777 (AKH) (S.D.N.Y. June 27, 2014) (Docket No. 129). II. ANALYSIS
The Schwen Decl. cited to the respective dockets for all four of these orders. For purposes of this Memorandum, this Court refers to the Westlaw citations where available, which includes the Commerce Order and the Huntington Order.
IV's counsel averred that at the May 8, 2014 Status Conference in the JP Morgan Chase & Co. case, Judge Hellerstein stated that his "predisposition is not to grant a stay" in that matter. Feinberg Decl., ¶ 24. In response to an inquiry from this Court regarding the status of the motion, on July 1, 2014, Judge Hellerstein communicated that he previously denied an orally-made motion for a stay and now that he has the written motion seeking a stay, he will consider the motion "afresh." Tr., pp. 46-47.
This motion was decided at the hearing. Minute Entry [Docket No. 74]. This memorandum addresses the reasoning behind this Court's ruling as promised during the hearing on the motion.
A. Motion to Strike
On July 1, 2014, IV moved to strike U.S. Bank's Reply, arguing that it violated Local Rule 7.1(b)(3). IV's Motion to Strike Reply [Docket No. 72]. In response, U.S. Bank noted that in its pretrial order this Court expressly allowed reply briefs to be submitted for non-dispositive motions. Defendants['] Response to Plaintiff's Motion to Strike Their Reply [Docket No 73]. U.S. Bank is correct. See Second Amended Pretrial Order [Docket No. 62], p. 10, ¶ 6 (permitting a reply memorandum for non-dispositive motions). Thus, as noted at the hearing, IV's Motion to Strike Reply [Docket No. 72] was denied.
B. Motion to Stay
A motion to stay the proceedings is not found in the Federal Rules of Civil Procedure. However, "[a]s a Federal District Court, we have the inherent power to stay the proceedings of an action, so as to control our docket, to conserve judicial resources, and to provide for the just determination of cases which pend before us." Kemp v. Tyson Seafood Group, Inc., 19 F. Supp. 2d 961, 964 (D. Minn. 1998) (string citation omitted); see also Landis v. N. Am. Co., 299 U.S. 248, 254 (1936) ("[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort. . . ."); Schwendimann v. Arkwright Advanced Coating, Inc., No. 11-820 (ADM/JSM), 2012 WL 5389674, at *5 (D. Minn. Nov. 2, 2012). This inherent power includes "the authority to order a stay of litigation pending the reexamination of a patent by the PTO." Polaris Indus., Inc. v. BRP US Inc., No. 12-01405 (ADM/SER), 2012 WL 5331227, at *1 (D. Minn. Oct. 29, 2012) (citing Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426-27 (Fed. Cir. 1988) (citations omitted)).
The America Invents Act ("AIA") amended the inter partes reexamination process, renaming it "inter partes review" and updating its procedures in an effort to make the PTO more effective and efficient at hearing patent challenges. Dane Technologies, Inc. v. Gatekeeper Sys., Inc., No. 12-2730 (ADM/AJB), 2013 WL 4483355, at *1 n. 2 (D. Minn. Aug. 20, 2013) (citing 35 U.S.C. §§ 311-319, Pub.L. No. 112-29, § 6(c), 125 Stat. 304-05 (Sept. 16, 2011)). The IPR process was designed to produce "a more efficient and streamlined patent system that will improve patent quality and limit unnecessary and counterproductive litigation costs." Changes to Implement Inter Partes Review Proceedings, 77 Fed.Reg. 48680-01 (Aug. 14, 2012) (codified at 37 C.F.R. §§ 42.100 et seq.). Courts continue to analyze the same three factors in determining whether to grant a stay. See, e.g., Dane Technologies, Inc., 2013 WL 4483355, at *1-3.
When evaluating a request to stay litigation pending a patent reexamination, district courts generally consider three factors:
(1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (2) whether a stay will simplify the issues in the litigation and facilitate the trial of that case; and (3) whether discovery is complete and a trial date is set.Regalo Intern., LLC v. DEX Products, Inc., No. 08-4206 (ADM/AJB), 2009 WL 2951107, at *1 (D. Minn. Sept. 09, 2009) (citations omitted); see also 3M Innovative Properties Co. v. Dupont Dow Elastomers LLC, No. 03-3364 (MJD/AJB), 2005 WL 2216317, at *1 (D. Minn. Sept. 8, 2005) (same factors) (citation omitted); TimeBase Pty Ltd. v. The Thomson Corp., NO. 07-1687 (JNE/JJG), 2008 WL 1959061, at *1 (D. Minn. May 06, 2008) (same factors) (citation omitted).
Based on these factors, this Court concluded that a stay of the litigation was warranted.
1. Prejudice or Tactical Disadvantage to IV
In evaluating whether a plaintiff will be unduly prejudiced, a court may deny a request for a stay where the movant inexplicably or unjustifiably delayed seeking reexamination, or where the stay will merely delay the proceedings. Ecolab, Inc. v. FMC Corp., No. 05-831 (JMR/FLN), 2007 WL 1582677, at *1 (D. Minn. May 30, 2007) (citations omitted). Courts may also refuse to order a stay where the plaintiff cannot be fully compensated by money damages for the alleged infringement. Polaris Indus., Inc., 2012 WL 5331227, at *2 (citing Hansen Mfg. Corp. v. Enduro Sys., Inc., No. 11-4030, 2012 WL 381238, at *5 (D.S.D. Feb. 6, 2012)).
IV argued that U.S. Bank unduly delayed in filing its motion to stay and that it would be unduly prejudiced if the case were stayed pending IPR of the Asserted Patents, which may not be decided until April 2016 or later (plus additional time for any potential appeal to the Federal Circuit). IV's Opp. Mem., pp. 5, 9-10; Tr., pp. 21-23.
The PTO must decide whether to institute IPR within six months after the petition is filed, 35 U.S.C. § 314(b); 37 C.F.R. § 42.107. If the PTO institutes an IPR, the proceeding is conducted before a panel of three technically-trained Administrative Patent Judges of the PTAB. 35 U.S.C. §§ 6(a)-(c). The final decision must be made within one year of the decision to commence IPR, with the possibility that the proceeding may be extended for an additional six months for good cause. 35 U.S.C. § 316(a)(11).
After receiving a final determination from the PTAB, the parties have the option to appeal to the United States Court of Appeals for the Federal Circuit. 35 U.S.C. §§ 141(c), 319. At the hearing, U.S. Bank clarified that it was seeking a stay of this litigation pending the IPR proceedings and any decision by the Federal Circuit, if in fact, there was an appeal. Tr., p. 22. IV's counsel agreed that if a stay were granted, it would not make sense to proceed with this litigation while the Federal Circuit was reviewing the PTO's decision. Id., p. 23.
The Court found that U.S. Bank had not inexplicably or unjustifiably delayed in filing its motion. First, the earliest petitions for IPR on the four Asserted Patents not currently subject to IPR were filed by IBM between April 7 and April 23, 2014, and the Bank Petitioners filed their petitions between May 1 and on May 22, 2014. [Docket No. 50]. On April 16, 2014, the PTAB issued an order instituting an IPR proceeding over the '666 Patent. [Docket No. 48], p. 1. On June 18, 2014, U.S. Bank filed its motion to stay. Thus, within very short order, U.S. Bank filed its motion to stay. There is no evidence of dilatory tactics or bad faith on the part of U.S. Bank.
Second, IV's speculation regarding the length of time it will take for the IPR proceedings and the Federal Appeal process to run their course is insufficient for this Court to find that there will be unnecessary delay or prejudice to IV. While it is true that any stay pending IPR of the Asserted Patents will delay this lawsuit, that alone does not establish undue prejudice, especially considering the benefits to be gained from waiting for the PTO to exercise its expertise on the issues of priority in this matter. See Polaris Indus., Inc., 2012 WL 5331227, at *2 (noting that "the actual effect of the Act on the PTO's reexamination process remains to be seen" and rejecting plaintiff's argument that the recent influx of requests for reexamination at the PTO will cause extraordinary delay); Card Tech. Corp. v. DataCard Corp., No. 05- 2546 (MJD/SRN), 2007 WL 2156320, at *6 (D. Minn. July 23, 2007) ("Although a stay by definition involves delay, not all delay is necessarily unduly prejudicial and here any cost of the delay is likely offset by the gains to be achieved by obtaining the PTO's expert guidance on these matters."); see also Neste Oil OYJ, No. 12-1744, 2013 WL 3353984, at *2 (D. Del. July 2, 2013) ("The mere potential for delay, however, is insufficient to establish undue prejudice.") (emphasis in original) (citations omitted).
IV's counsel stated, "there are a huge number of IPR proceedings pending in the United States right now. And counsel and I have I think informed but different views on how lucky we are to meet the 12-month deadline." Tr., p. 21. He estimated that the Federal Circuit will take "another 12 to 18 months at the current rate of speed in the Federal Circuit, assuming they don't slow down, which is pretty optimistic, so we're looking at a minimum of two-and-a-half and possibly three-and-a-half years." Id., p. 22.
In fact, presumably now the delay will be even shorter than under the prior system. See PersonalWeb Techs., LLC v. Facebook, Inc., No. 5:13-CV-01356 (EJD), 2014 WL 116340, at *2 (N.D. Cal. Jan. 13, 2014) (citing 77 Fed.Reg. 48680-01 at 48721). (finding that one advantage of IPR is that it provides "a more accelerated timeline than the previous inter partes reexamination procedure: . . . IPR, if instituted, will typically conclude within 18 months of the filing date. In contrast, the average time from filing to conclusion of the previous inter partes reexamination procedure ranged from 28.9 to 41.7 months.")
Third, in the related suits involving the same Asserted Patents, the courts addressing this issue have determined that IV would not be unfairly prejudiced by a stay because it does not sell products and does not compete with any of the defendants in those lawsuits. See Huntington Bancshares Inc., 2014 WL 2589420, at *5 ("Plaintiff cannot show that it will suffer any prejudice or tactical disadvantage if the stay is granted ... [T]he parties are not competitors such that a delay would place Plaintiff at a tactical disadvantage."); Commerce Bancshares, Inc., 2014 WL 2511308, at *3 ("None of the factors that might result in undue prejudice from a delay in this litigation, for instance where the parties are direct competitors such that a delay might result in loss of market share and an erosion of goodwill, are present in this case."); Schwen Decl., Ex. A (FNBO Order), p. 2 ("Plaintiff will not be unduly prejudiced by a stay. Plaintiff and Defendant are not competitors and there is no indication that a stay would place Plaintiff at a tactical disadvantage.").
Likewise, here, IV does not make or sell any products that compete with U.S. Bank; thus IV will not be prejudiced by a stay. Indeed, the availability of monetary damages can ameliorate potential undue prejudice, especially where the non-moving party has not explained why money damages are not an adequate remedy. Vdata, LLC v. Aetna, Inc., No. 06-1701, 2006 WL 3392889, at *5 (D. Minn. Nov. 21, 2006). IV has not advanced any argument why money damages would not suffice to compensate it for any harm it has suffered. In fact, at the hearing, IV's counsel conceded that this is not an injunction case; rather IV is "just seeking a reasonable royalty." Tr., p. 32.
Accordingly, the first factor weighs in favor of granting a stay.
2. Simplification of the Issues in this Litigation
Courts have noted numerous benefits to staying patent litigation during reexamination, including:
(1) all prior art presented to the Court will have been first considered by the PTO, with its particular expertise;Card Tech. Corp, , 2007 WL 551615, at *3 (citations omitted) ("common sense counsels that it is usually prudent for a court to await the PTO's reassessment of the patents at issue before resuming litigation over the validity."); see also 3M Innovative Properties Co., 2005 WL 2216317, at *2 ("Granting a stay will promote judicial economy by 'maximiz[ing] the likelihood that neither the court nor the parties expend their assets addressing invalid claims.'") (quoting Softview Computer Prods. Corp. v. Haworth, Inc., 56 U.S.P.Q.2d 1633, 1636 (S.D.N.Y. 2000)).
(2) many discovery problems related to the prior art can be alleviated by the PTO examination;
(3) in those cases resulting in effective invalidity of the patent, the suit will likely be dismissed;
(4) the outcome of the re-examination may encourage a settlement without the further use of the Court;
(5) the record of re-examination would likely be entered at trial, thereby reducing the complexity and length of the litigation;
(6) issues, defenses and evidence will be more easily limited in pre-trial conferences after a reexamination;
(7) the cost will likely be reduced both for the parties and the Court.
U.S. Bank argued that staying the litigation as to all the patents will simplify the issues in this case because the Court will receive the benefit of the PTO's expert analysis regarding the claims at issue, including the prior art, regardless of whether the claims are ultimately changed or cancelled. See Defs.' Mem., pp. 9-10; Defs.' Reply, p. 4. U.S. Bank also asserted that without a stay there is the risk that the parties and the Court will waste significant time and resources litigating claims that are likely to be cancelled or amended during the IPR. See Defs.' Mem., pp. 10-11. IV, on the other hand, contended that because IPR proceedings are limited to invalidity claims under 35 U.S.C. Sections 102 (anticipation) and 103 (obviousness), and even then only based on prior art patents and printed publications, there is "only a limited chance of significantly simplifying the issues in this case." IV's Opp. Mem., pp. 1, 8.
This Court concluded that a stay was likely to simplify the issues in this lawsuit. The PTO has already instituted IPR proceedings on the '666 Patent and thus, has already found that there is a "reasonable likelihood" that the asserted claims of the '666 Patent are invalid based on prior art. [Docket No. 48]. Because review was granted on April 16, 2014, by mid-2015 this Court will know whether the '666 Patent is valid or not and why, which will greatly assist this Court in its determination.
As to the four remaining Asserted Patents, if the PTO grants the requests for review, its PTO's decisions will likely streamline the parties' arguments in this matter. If the PTAB cancels all of the asserted claims, this would likely eliminate the need for the parties to litigate them. See Honeywell Int'l., Inc. v. Furuno Elec. Co., No. 09-3601 (MJD/AJB), 2010 WL 3023529, at *3 (D. Minn. July 30, 2010) (quoting 3M Innovative Properties Co., 2005 WL 2216317, at *2) (explaining that one benefit of a stay is that when PTO review "result[s] in effective invalidity of the patent, the suit will likely be dismissed."). If the IPR proceedings only dispose of only some of the claims, it will still narrow the scope of this case. Even if the Asserted Patents all survive the IPR proceedings entirely intact, this Court will still have the benefit of the PTO's guidance on the issues of invalidity. See Card Technology Corp, 2007 WL 551615, at *3 (quoting Gould v. Control Laser Corp., 705 F.2d 1340, 1342 (Fed. Cir. 1983)) ("Even if the [PTO] confirms the validity of the claims in the Asserted Patents, reexamination 'provide[es] the district court with the expert view of the PTO [as to a specific issue] [ ] when a claim survives the reexamination proceedings.'"). And of course, if the PTO denies the requests for an IPR on any or all of the remaining four Asserted Patents, IV can return to this Court and request that the stay be lifted as to those patents.
On the other hand, not granting a stay could result in the parties and Court wasting significant time and resources. For example, if the case proceeds and the PTAB ultimately cancels the any or all of the challenged claims, the time and resources devoted to the litigation of those claims will have been wasted. Likewise, if the case proceeds, and the claims are amended, the litigation proceedings will have to be repeated on the amended claims. Moreover, if IV makes narrowing arguments to the PTAB to attempt to distinguish the prior art, the litigation proceedings (and in particular the claim construction proceedings) may have to be repeated so that such narrowing arguments can be properly considered. Thus, a stay is warranted. See, e.g., Honeywell Int'l., Inc., 2010 WL 3023529, at *3 ("Without a stay, discovery may be far broader in scope than necessary, and the Court might spend time issuing Markman interpretations of and examining the validity of claims that may be modified or eliminated through the reexamination process."); id., at *4 ("Granting a stay now will save months of potentially wasted discovery and judicial resources."); Polaris Indus., Inc., 2012 WL 5331227, at *3 ("Should the reexaminations reduce or eliminate issues for trial, the amount of necessary discovery in the litigation will decrease, and the scope of all subsequent proceedings, including the claim construction hearing, will also narrow."); VData, 2006 WL 3392889, at *7 ("Not only does a stay have the potential to narrow or dispatch claims altogether, it also may minimize the attendant financial costs of litigation to the parties and the courts.").
IV is correct that the IPRs cannot resolve the issue of invalidity under Sections 101 and 112 or issues of infringement and damages, (IV's Opp. Mem., pp. 1, 8), nevertheless, it does not follow that this factor does not weigh in favor of a stay here. As the court in Commerce Bancshares, Inc., explained "[t]he relevant inquiry here, however, is not whether the IPR would completely resolve this case, but rather whether it could make this litigation simpler and more efficient." 2014 WL 2511308, at *2 (citing Black & Decker Inc. v. Positec USA, Inc., No. 13 C 3075, 2013 WL 5718460, at *2 (N.D. Ill. Oct. 1, 2013); Neste Oil OYJ, 2013 WL 3353984, at *5). Certainly invalidation, if not just analysis of the validity of the Asserted Patents under §§ 102 and 103, of some or all of the claims would simplify this lawsuit.
Section 101 states, "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." 35 U.S.C. § 101. A challenge under Section 101 must rely on one or more of the three categories of subject matter that are patent ineligible under Section 101, namely, laws of nature, natural phenomena, and abstract ideas. Hitkansut LLC v. United States, 115 Fed. Cl. 719, 723-24 (Fed. Cl. 2014) (citing Diamond v. Diehr, 450 U.S. 175, 185 (1981)).
Under Section 112, a patent can be challenged based on the patent's failure to meet the written description requirement. See 35 U.S.C. § 112.
In the cases in which IV has asserted the same patents against other banks, the courts addressing the issue thus far have already found that it is worth issuing a stay pending the PTO's review. See, e.g., Huntington Bancshares, Inc., 2014 WL 2589420, at *3 ("[T]he PTAB's decisions could streamline the parties' arguments in this case with respect to the validity of the four remaining patents-in-suit."); Commerce Bancshares, Inc., 2014 WL 2511308, at *2 ("The IPR would resolve some or all of the issues in this case if claims are invalidated and, even if all of the claims survive, may 'facilitate trial by providing the court with expert opinion of the [ ]PTO and clarifying the scope of the claims.'") (citation omitted); Schwen Decl., Ex. A (FNBO Order), p. 2 ("[S]taying this case has the potential to simplify the issues in question as the outcome of IPR proceedings could, at the very least, 'facilitate trial by providing the court with expert opinion of the USPTO and clarifying the scope of the claims.'" (citation omitted)). In view of the high likelihood of simplifying the case, this factor heavily weighs in favor of granting a stay.
3. Status of the Case
IV argued that the stay should be denied because U.S. Bank waited for more than 10 months after the case was commenced, after "substantial written discovery has been served and responded to, and after depositions have been noticed." IV's Opp. Mem., p. 9. However, "[c]ourts which have denied stays pending reexamination proceedings have generally done so where the request for reexamination came late in the litigation, after extensive discovery or trial preparation." Vdata, LLC., 2006 WL 3392889, at *8. Here, the case was first filed on July 31, 2013. Discovery is in its early stages, no depositions have been taken, no experts have been disclosed, no claim construction has occurred, and no trial date has been set. Staying a case at this juncture "advance[s] judicial efficiency and maximize[s] the likelihood that neither the Court nor the parties expend their assets addressing invalid claims." Market-Alerts Pty., Ltd. v. Bloomberg Fin. L.P., 922 F. Supp. 2d 486, 494 (D. Del. 2013).
In the related cases involving the Asserted Patents, each of the courts that have analyzed this factor have found that it favors a stay even though those cases are at similar, if not later stages. See Huntington Bancshares, Inc., 2014 WL 2589420, at *3 ("Although some discovery has been conducted, fact discovery is not scheduled to close until December 31, 2014. The Court has not yet held a claim construction hearing, and the trial date is over a year away. A stay at this point in the litigation therefore has the potential to conserve judicial resources and the resources of each party."); Commerce Bancshares, Inc., 2014 WL 2511308, at *4 (granting a stay because, among other things, "[d]iscovery does not close for another six months, it is nearly a year before trial, there have been no depositions, the claim construction hearing has not occurred, and significant work, including substantive expert discovery and summary judgment motions, remains to be completed after the claim construction hearing . . . Thus, substantial time and resources may be conserved by staying this case pending the resolution of the IPR proceedings."); Schwen Decl., Ex. A (FNBO Order), p. 2 ("Although the parties have engaged in some discovery, a trial date has not been set and a Markman hearing, although scheduled and briefed, has yet to occur" and thus "staying this litigation has the potential to conserve the resources of each party, in addition to the resources of the Court."). Likewise, this factor weighs in favor of a stay.
4. Other Factors
a. Prematurity of Motion to Stay
IV suggested that U.S. Bank's motion should be denied because it was premature as the PTAB has until at least October 2014 to determine whether to even grant IPR on the four remaining Asserted Patents. IV's Opp. Mem., pp. 6-8. Therefore, IV urged this Court to deny U.S. Bank's motion without prejudice until the PTAB decides whether to do so. Id. This Court rejected that approach.
Of course, as U.S. Bank observed, IV's position that the motion is premature, yet delayed, it inherently contradictory. Defs.' Reply, p. 1.
For starters, it is statistically unlikely that the PTAB will decline to initiate IPR review on any of the four. The PTO has disclosed that for FY 2013 and 2014, 87% and 79%, respectively, of IPR Petitions have resulted in an IPR proceeding being instituted. Schwen Decl., Ex. F (AlA Progress statistics, May 29, 2014), p. 4; see Brixham Solutions, Ltd. v. Juniper Networks, Inc., No. 13-cv-00616, 2014 WL 1677991, at *1 (N.D. Cal. Apr. 28, 2014) (stating that "it is likely that a stay will simplify the issues. . . because the vast majority of requests for inter partes review are accepted and in virtually all of the cases in which final written decisions have been issued, the PTO has cancelled some or all of the challenged claims"). In fact, the PTO already granted IPR review on the '666 Patent (and IV is not arguing that the motion to stay the '666 Patent is premature). If the PTAB does decline to initiate IPR on any of the remaining Asserted Patents, the delay in waiting will be relatively short (until October 2014), and IV can revisit this issue by moving to lift the stay at that time. Thus, this Court concludes that U.S. Bank's motion is not premature. See Honeywell, 2010 WL 3023529, at *3 (determining that defendant's motion to stay was not premature even though the PTO had not yet decided whether to grant IPR on four patents at issue and reasoning that since a fifth patent was already under review, and because the PTO would be making decisions on the others within two months, a stay was appropriate).
b. Estoppel
IV asserted that "there is less of a likelihood" that a stay will simplify the issues in this case because U.S. Bank can raise the same arguments from the IPR proceedings in this case. IV's Opp. Mem., p. 8 (citing 35 U.S.C. § 315(e) (stating that only a petitioner is estopped from raising in civil cases "any ground that the petitioner raised or reasonably could have raised during that inter partes review")). Accordingly, IV argued that U.S. Bank's motion should be denied until if, and when, U.S. Bank files an IPR petition (which would estop U.S. Bank); alternatively, if a stay is granted, any such stay "should be conditioned on U.S. Bank agreeing to be estopped." Id., pp. 8-9. IV advocated for "U.S. Bank being subject to the same estoppels as apply to the IPR petitioners on whose IPR petitions U.S. Bank relied in its stay motion" (i.e. full estoppel), "or at least conditioned on U.S. Bank being estopped from raising grounds actually raised by the IPR petitions on which U.S. Bank relies in seeking a stay" (which IV's counsel referred to at the motion hearing as "estoppel lite"). Id., pp. 9; Tr., 37-38, 47.
At oral argument, IV's counsel stated that IV had reason to believe that U.S. Bank had entered into a joint defense agreement among the banks with IBM. Tr., pp. 19-20. He noted that Kirkland & Ellis filed the petitions on behalf of IBM and is also co-counsel to U.S. Bank in this case. Tr., p. 20. As a result, IV's counsel submitted that it was not true that U.S. Bank is "divorced from what is going on" with the IPRs. Id., p. 19. U.S. Bank's counsel acknowledged the existence of a joint defense agreement, but represented that U.S. Bank has "absolutely no involvement...no involvement in any decision, anything about the IPRs." Id., p. 39; see also Docket Nos. 45, 48 and 50 (representing that U.S. Bank did not participate in, control, support, or pay for the preparation or filing of IBM's IPR or the IPR petitions for the other four Asserted Patents.). --------
In Huntington Bancshares, IV asserted that Huntington Bancshares should be subject to estoppel where, like U.S. Bank, Huntington Bancshares was seeking a stay based on third party IPR petitions rather than its own. The court rejected IV's arguments in that case, concluding:
[T]hose arguments are unavailing, for several reasons. First, those arguments are only relevant if the PTAB concludes that the petitioner(s) failed to establish invalidity of the disputed claims. In other words, should the PTAB conclude that the patents-in-suit are invalid based on the arguments and evidence advanced during the IPR proceedings, then estoppel becomes irrelevant.
Second, even if the PTAB concludes that the IPR petitioners failed to demonstrate invalidity, those decisions will become a part of the patent's file for review by this and other courts. The fact that Defendants are not statutorily estopped from raising the same arguments as the petitioners does not change the fact that the Court would have the benefit of the PTAB's expertise in rejecting those same arguments.
Third, although Plaintiff suggests it would be unfair for Defendants to obtain the benefit of IPR proceedings without being bound by the arguments raised therein, it would be more unfair to condition a stay on Defendants being bound by arguments raised in a proceeding over which they have no control. Defendants decided not to pursue IPR of the patents-in-suit on their own; they therefore run the risk that an unfavorable IPR decision-which they could have, but chose not to influence-will become part of the patent's file. They also ran the risk that IPR would not be sought in the first place. Now that multiple non-parties have sought IPR of the patents-in-suit, and that the PTAB likely will apply its expertise to
some or all of the arguments at issue in this case, it would defy common sense for this litigation to proceed alongside the IPR proceedings simply because Defendants are not statutorily prohibited from raising the same or similar arguments as the IPR petitioners.2014 WL 2589420, at *4. This Court finds this reasoning persuasive and equally applicable here.
III. CONCLUSION
All of the factors used to determine whether a stay is or is not appropriate weigh in favor of a stay. Accordingly, this Court granted U.S. Bank's motion to stay, pending IPR of the Asserted Patents. In the event that any or all of the petitions for IPRs are denied for the four Asserted Patents not yet accepted by the PTAB for review, IV may seek an order to lift the stay as any such patents.