Stay of proceedings during patent and trademark litigation

[nickjames]

What is the name of your state?

I am a general practice attorney who filed a case alleging patent and trademark infringement as well as breach of contract. The Defendant has filed a patent reexamination and is about to ask for a stay in the proceedings until it is determined. First off, the Plaintiff and Defendant had previously entered into a patent settlement agreement BEFORE this litigation whereby the Defendant agreed to stop selling the infringing item. Well, the Defendant continued to infringe after this settlement agreement so we sued for breach of contract and patent infringement (as well as trademark infringment). The settlement agreement that Defendant signed stated that he agrees to never challenge the validity of the patent. Therefore, can he still pursue this reexamination? Second, my reading of the caselaw indicates that the stay in litigation proceedings applies to the causes of action pertaining to patent infringement. Can the court also put a stay on the trademark and breach of contract actions pending the patent reexamination?

 

[divgradcurl]

I didn't see this post before I responded to your post in the other forum.

A litigation stay during reexamination is at the discretion of the district court, and is reviewed on an abuse of discretion standard. See, e.g., Ethicon v. Quigg, 849 F.2d 1422 (Fed. Cir. 1988). That said, it is pretty common for a court to stay a proceeding if the USPTO agrees to reexamine a patent -- courts hate to waste their own time! However, see NTP v. Research in Motion for an example of a district not only not waiting for the USPTO, but not even waiting for the Supreme Court to rule before issuing an injunction.

First off, the Plaintiff and Defendant had previously entered into a patent settlement agreement BEFORE this litigation whereby the Defendant agreed to stop selling the infringing item.

That might be good evidence to help support an allegation of willful infringement.

The settlement agreement that Defendant signed stated that he agrees to never challenge the validity of the patent. Therefore, can he still pursue this reexamination?

I am not aware of any caselaw on this point, but I will guide you to a very recent decision, MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007), where licensees were allowed not only to challenge the validity of the patents that they licensed, they could do so via declaratory judgment. I don't know the answer to this question -- it may turn on contract law, but my guess is that such a contractual agreement would be found to be against public policy once an infringement lawsuit was initiated.

I have not really encountered this issue in my practice, so I don't have any caselaw to point you to, but you could look to the intersection of patent law and antitrust law as a start. See if you can get into a law library that has a copy of Chisum on Patents and Harmon's "Patents and the Federal Circuit."

Second, my reading of the caselaw indicates that the stay in litigation proceedings applies to the causes of action pertaining to patent infringement. Can the court also put a stay on the trademark and breach of contract actions pending the patent reexamination?

Again, this likely falls under the court's inherent authority to control their own docket. If a court is willing to stay a case while reexam is underway, and the trademark claims and contract claims have related facts and issues, then the other claims would likely be stayed as well. If the facts and issues are different, then severing out the patent claims and bifurcating the case may be an option -- but again, this all at the discretion of the district court.

 

[divgradcurl]

One more thing -- see if you can get your hands on Horowitz's treatise on patent litigation. That book is a lifesaver for pretrial stuff.

 

[nickjames]

Thank you so much for that helpful information. I agree with you that the agreement to not challenge the patent may not be enforceable. I am, however, hoping that it would at least be one factor in our favor in denying the stay in proceedings. One more question, about how long will the reexamination take? Opposing counsel is threatening that it could take a year and a half. If that is true and there is a stay in the entire litigation, this could be very detrimental to us. Since our trademark claim is just as strong as our patent claim, do you think we could just drop the patent infringement claim and then lift the stay?

 

[divgradcurl]

One more question, about how long will the reexamination take?

Has the USPTO granted the reexamination yet? Typically the USPTO will rule on whether or not to initiate reexam within 3 months of filing or thereabouts (I am assuming this is an ex parte reexamination -- I have no idea about inter partes reexamination). Once reexamination commences, it typically takes 18-24 months, but it will depend on all of the facts.

Since our trademark claim is just as strong as our patent claim, do you think we could just drop the patent infringement claim and then lift the stay?

Has a stay been granted yet, or even filed yet? Until the stay is granted, you probably shouldn't worry about it. Fight the stay as best you can.

Note that even if the patent survives reexamination, you are not out of the woods yet. If you have to amend any of the claims to survive reexamination, the other side may be entitled to "intervening rights." No need to worry about that yet, but something to think about. Basically, if the stay is granted, you are probably best served going forward with your other causes of action if possible, necause you may never be able to enforce the patent against this particular infringer even if the patent does get reissued.

EDIT: Also, if reexam is initiated by the USPTO, your client will need to hire prosecution counsel to prosecute the reexam before the USPTO. Reexam is a specialized process, so you may want to counsel your client to seek out a practitioner with current reexamination experience.

 

[nickjames]

Nothing has been filed yet. The other side is threatening to initiate this reexamination if we don't settle on their ridiculous terms. So I'm assuming that a Judge will consider a stay only after the USPTO grants the reexamination, correct? Or could the judge grant the stay even during that initial three month period? That could make a big difference because if we have that three month grace period we can evaluate the patent claims in depth to decide if we wish to proceed on them.

 

[divgradcurl]

Well, the judge can do whatever he or she wants with respect to a stay. The judge isn't going to grant a stay sua sponte, the other side will have to file a motion, you'll get to oppose it, so it's not a done deal either way.

You need to consider also that they might be bluffing. Reexamination is like a bullet in a gun -- as long as nobody pulls the trigger, its a danger, but negotiations can continue. Once the trigger is pulled -- or the reexam is filed -- it's too late to change your mind. Nobody can stop a reexam once filed -- it's in the hands of the USPTO at that point. Point is, they may be pushing for settlement now, and threatening reexam, but if they know anything about reexam, they know that your client will be much less likely to settle if they pull the trigger and try and invalidate the patent.

Doesn't mean they won't do it -- but this is all tactics. Maybe they will just go ahead and fire away, who knows -- the ball is in their court -- but they probably realize that the un-filed reexam is probably a stronger negotiating lever than a filed reexam. Once the reexam is filed, your client really has nothing to lose.

 

[nickjames]

There are two defendants in Federal Court now. The manufacturer of the infringing product and the seller. The seller was sued for patent infringement but the manufacturer was not (many reasons for this, the main one being that the manufacturer had contractually promised to stop making this infringing product a few years ago, therefore making an easy breach of contract case). The seller was the one that removed to Fed. Ct. I am thinking of remanding the manufacturer to state court for the breach of contract case while keeping the seller in Fed. Ct. I am afraid that if a patent reexam is granted it will put a stay on the proceedings in Fed. Ct. I would be ok with that if we at least had the manufacturer in state court and we could move forward on that claim. If I don't remand there is a chance that the breach of contract action against the manufacturer would be delayed as well. My two questions to you, since you seem very knowledgable about Federal Court, are the following: (1) Would it be beneficial for our patent claim against the seller to keep the manufacturer in fed. ct. as well? To me it seems that it is not necessary and the case against the seller can be made without the other defendant. (2) If we can in fact remand the one defendant to state court and later change our minds to add a patent claim against them as well, do you see any problems in removing them (again) to Federal Court? I don't see why not, but then again, I hear that federal judges are very strict in these types of cases and I don't know how they would react to a removal/remand/removal scenario. Thanks again for all your help. Your insight has been extremely valuable. (BTW, I recognize that if this thing moves forward we will need to associate with competent patent counsel. For now, I just want to evaluate the possible ramifications of having two defendants in two different courts)

 

[divgradcurl]

(1) Would it be beneficial for our patent claim against the seller to keep the manufacturer in fed. ct. as well? To me it seems that it is not necessary and the case against the seller can be made without the other defendant.

Hard to say without really knowing all of the details of your particular case.

(2) If we can in fact remand the one defendant to state court and later change our minds to add a patent claim against them as well, do you see any problems in removing them (again) to Federal Court? I don't see why not, but then again, I hear that federal judges are very strict in these types of cases and I don't know how they would react to a removal/remand/removal scenario.

Well, in such a case, you would need to file a notice of related claims, and it is likely that the court would join the two cases if the patent claims were added to the second case. Plus, the second case would also be subject to a stay, just like the first one, if reexamination is filed.

Your best bet might be to dismiss the case against the manufacturer and refile in state court -- but if the manufacturer has some independent basis for federal jurisdiction -- such as diversity, or if there are any other federal claims or counterclaims that they could bring -- you might end up right back in federal court. You need to review the facts and the civil procedure here very carefully -- you don't want to end up spending a lot of time and money to end up where you are now anyway, or worse, end up not being able to sue one or the other parties.

 

[nickjames]

Sure enough, the patent reexamination was filed by the Defendants and a motion to stay was also filed. If we decide to drop the patent claims (since we have a strong trademark infringement case we can fall back on) logic would dictate that the stay of proceedings can also be lifted, even though the reexamination will go forward anyways. Given your experience in these types of cases, would that be correct?