First published in LES Insights
Patent-litigation defendants who utilize one of the America Invents Act's patent-review provisions will often also seek a stay of the litigation, pending the outcome of the Patent Office's review. In determining whether to stay the litigation, one factor considered by courts is whether there will be undue prejudice to the nonmoving party. In examining this factor, courts have typically been more willing to find undue prejudice where the parties are direct competitors, as opposed to where a patent owner licenses but does not practice the patent. In a recent decision denying a motion to stay, a court found undue prejudice to the patent owner, though the patent owner does not practice the patent or compete with the defendant. The court considered the patents' impending expiration dates and reasoned that the licensing value was negatively affected by ongoing, allegedly infringing activity, causing prejudice to the patent owner's ability to license.
Since the passing of the America Invents Act ("AIA") in 2011, defendants in patent litigations are increasingly using the AIA's patent-review provisions—inter partes review, covered business method patent review ("CBM"), and postgrant review—to challenge the validity of asserted patents. If a defendant files a petition with the Patent Office for postissuance review and later moves to stay the litigation pending the Patent Office's review, a court generally considers four factors in deciding whether to grant the stay: (1) whether a stay will simplify the issues, (2) whether discovery is complete and a trial date is set, (3) whether there will be undue prejudice to the nonmoving party, and (4) whether a stay will reduce the burden on the court and the parties. Factor (3)—undue prejudice—often hinges on the relationship between the parties and on whether the patent owner practices, licenses, or merely owns the asserted patent. Courts have found undue prejudice to the patent owner more likely when the parties are direct competitors, and especially when they are the only two competitors in the relevant market. On the other hand, courts have often found that monetary damages are sufficient, and undue prejudice is less likely, when the patent owner does not practice the asserted patent.
In Walker Digital, LLC v. Google, Inc.,1 the District Court for the District of Delaware denied Google's motion to stay pending CBM review of the asserted patents even though the plaintiff, Walker Digital, did not practice the patents or compete against Google. Noting the patents' impending expiration dates in 2016 and reasoning that ongoing, allegedly infringing activity devalues the patents as licensing assets, the court found that a delay resulting from the stay would unduly prejudice Walker Digital's ability to license the patents.
On April 11, 2011, Walker Digital filed a complaint against Google and several other defendants asserting infringement of U.S. Patent Nos. 5,884,270 and 5,884,272. Walker Digital entered into licensing agreements with all defendants except Google. On October 4, 2013, Google filed a petition with the Patent Office for CBM review of the asserted patents and, on April 1, 2014, the Patent Office instituted CBM review. Google then moved to stay the litigation pending the Patent Office's review.
The Walker-Digital Decision
The court addressed Google's motion to stay through the lens of the four-factor test described above. First, the court found that simplification of the issues could result from the cancellation of the asserted claims or, if the claims were not cancelled, from the AIA's estoppel provision that prevents Google from rearguing in the litigation the same arguments rejected by the Patent Office during the CBM review process. The court, however, observed that the estoppel provision offered limited value because the Patent Office had already rejected several of Google's grounds for instituting CBM review. Thus, unless the Patent Office invalidates all of the asserted claims, the court would likely still have to address at least some of Google's invalidity defenses. The court therefore found that the first factor only slightly favored a stay.
Second, the court determined that the stage of the proceedings strongly disfavored a stay because the litigation had been pending for three years, with claim-construction rulings, discovery, and summary judgment briefing completed. On the other hand, the CBM review was in its infancy and could continue for two years before a final decision issued.
Next, the court considered undue prejudice to the nonmoving party, Walker Digital. The court determined that, even though Walker Digital did not practice its patents or compete with Google, the patents' value as licensing assets would continue to decrease so long as Google engaged in allegedly infringing activity. The court further considered the patents' imminent expiration dates in 2016, meaning that any delay in the court's validity determination would adversely affect Walker Digital's ability to license the patents. Taken together, the court concluded that the delay caused by a stay would unduly prejudice Walker Digital.
Finally, because the parties and the court had already invested substantial resources in the litigation, which would soon be ready for trial, the court found that a stay would not significantly reduce the burden on the parties or the court.
Accordingly, the court found that three of the four factors disfavored a stay and denied Google's motion, allowing the litigation to continue concurrently with the Patent Office's CBM review of the asserted patents.
Strategy and Conclusion
This case illustrates how a court may find that undue prejudice results from a stay even if the patent owner does not practice the asserted patents or does not compete with the defendant. Walker Digital supports a finding that licensing entities may suffer undue prejudice from a stay of litigation in at least two instances: (1) when allowing the alleged infringer's activities to continue may lessen the licensing value of the patents and (2) when the ability to license the patents would be affected by a stay because, for example, the patents may expire before the stay will be lifted.