Opinion
No. CV-01-544-HU
September 14, 2001
Jeffrey S. Love, Klarquist Sparkman Campbell Leigh Whinston, LLP, One World Trade Center, Suite 1600, 121 S.W. Salmon Street, Portland, Oregon 97204, Dennis L. Thomte, Shane M. Niebergall, Zarley, Mckee, Thomte, Viirgees Sease, 111 Commercial Federal Tower, 2120 So. 72nd Street, Omaha, Nebraska 68124, Attorneys for Plaintiff.
David Axelrod, Regina Hauser, Schwabe, Williamson Wyatt, P.C., Pacwest Center, Suites 1600-1900, 1211 S.W. Fifth Avenue, Portland, OR 97204-3795, Attorneys for Defendants.
OPINION ORDER
Plaintiff, Versa Corporation, brings this action against Ag-Bag International Limited, alleging infringement of three patents held by plaintiff. Defendant moves to stay proceedings, filing of its answer, and discovery pending the disposition of an appeal filed in the United States Court of Appeals for the Federal Circuit. For the reasons stated below, defendant's motion to stay is denied.
BACKGROUND
Defendant brought an interference action against plaintiff in 1995 or 1997 in the United States Patent and Trademark Office (PTO) before the Patent Appeals and Interferences Board, seeking priority in plaintiff's patents 5,345,744 ('744) and 5,426,910 ('910). In November 2000, the Board held that defendant was not entitled to priority in those patents. In January 2001, the Board affirmed its decision on reconsideration. Defendant filed its appeal with the United States Court of Appeals for the Federal Circuit on March 29, 2001. Plaintiff filed this patent infringement action on April 18, 2001. The patent infringement claims before this court include the same two patents involved in the pending appeal at the Federal Circuit and an additional patent, 5,452,562 ('562).
Defendant cites in its Memorandum in Support of its Motion to Stay Proceedings, Filing of Answer and Discovery, that the interference proceedings commenced on two contradictory dates. First it states that the interference action in the PTO was brought against plaintiff in 1995. Def.'s Mem. at p. 3. Then defendant indicates that the PTO action commenced in 1997. Id. at 4. Although it is unclear exactly when the PTO interference action began, the discrepancy is immaterial to the present motion.
In this action, plaintiff requests that all three patents be declared valid and enforceable. It also requests treble damages as provided by 35 U.S.C. § 284, together with prejudgment interest from the commencement of this infringement action, a permanent injunction preventing defendant from further infringement, and attorney's fees, if the case is determined exceptional. Defendant filed an unopposed motion for extension of time to file its first appearance on May 11, 2001, and then filed its motion to stay proceedings, filing of answer, and discovery on May 21, 2001.
STANDARDS
"The 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 for itself, for counsel, and for litigants." Landis v. American Water Works Elec. Co., 299 U.S. 248, 254 (1936). The use of this power requires exercise of sound discretion. Id. It is necessary to weigh competing interests of those that will be affected by the stay. Id. at 254-255. See CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962) ("Where it is proposed that a pending proceeding be stayed, the competing interests which will be affected by the granting or refusal to grant a stay must be weighed"); see also Filtrol Corp. v. Kelleher, 467 F.2d 242, 244 (9th Cir. 1972) (quoting CMAX). These competing interests include:
possible damage which may result from the granting of a stay, the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay.
CMAX, 300 F.2d at 268. Petitioner for a stay "must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to someone else." Landis, 299 U.S. at 255. These considerations are "counsels of moderation rather than limitations on power." Id. In order to stay proceedings in one suit to abide the proceedings in another, the parties and issues of the two cases need not be identical. Id. at 254.
DISCUSSION
I. Damage Which May Result from Granting the Stay
Plaintiff states it will incur damage if the action is stayed. It speculates that the appeal process pending at the Federal Circuit "will take well over a year." Pl.'s Opp'n to Def.'s Mot. to Stay at 4. Plaintiff is concerned with the profits defendant will make during this period as well as any reputation enhancement it might enjoy during that time. It notes that it has no power to prohibit defendant's use of its patent.
Defendant contends that potential damages resulting from granting the stay are minimal. It especially notes that if the stay is not granted, plaintiff will incur expenses of prosecuting and defending in two actions, and thus the damages incurred are substantially lessened by negating some of these costs.
While defendant has been making profits and building its reputation for a number of years, and another year or two may not seem detrimental to plaintiff, I find that plaintiff will be harmed by a stay. Plaintiff noted at oral argument that as long as defendant continues to infringe upon its patents, plaintiff is incurring damage that will not be redressed if a stay is granted.
These damages are in the nature of replacement parts and future service provided to products sold by defendant. Even though plaintiff acknowledges that, if it is successful in this action, it will recover damages for any units defendant sells while litigation is pending, plaintiff asserts that it will not be able to recover substantial losses in future sales of parts and service for those units defendant sells. Thus, plaintiff has shown the potential for harm if the stay is granted.
II. Hardship and Inequity if Action is Not Stayed
Defendant asserts that it will suffer hardship and inequity if it is forced to defend against the infringement claims before a decision is rendered in the pending Federal Circuit appeal. Defendant explains that it is a "small company." Def.'s Mem. Supp. Of Mot. to Stay at 5. It further states that it has already expended significant resources since the proceedings between these parties began, at least four years ago. It asserts that it would be inequitable to require it to defend this suit when the issue involved may be rendered moot by another court — that the dual litigation will cause it "tremendous financial strain." Id.
Plaintiff contends that defendant will not suffer irreparable harm if the action is not stayed. First, it notes that even if defendant wins the interference action on appeal, that action does not involve the '562 patent and thus, plaintiff will still be required to litigate that issue. Second, defendant initiated the interference action against plaintiff and thus it was aware of the time and resources that would be expended in its action.
Defendant states that it is possible litigation here may be avoided if defendant is successful in its appeal of interference claims. Defendant argues that even though the appeal before the federal circuit expressly concerns only the '744 and '910 patents, the claim regarding the '562 patent will be moot if defendant prevails there because the '562 patent involves the same invention as the '744 and '910 patents. However, plaintiff has attested that it will not drop the infringement claim for the '562 patent.
At this point in the case, I must accept plaintiff's representation. Litigation in this court is inevitable. Thus, I find there is no hardship to defendant in denying its motion to stay.
III. Orderly Course of Justice
Defendant cites a 1967 Fifth Circuit case to assert that a party's "right to his patent should be decided prior to deciding if there has been an infringement of the claims in his patent." ACF Indus., Inc. v. Guinn, 384 F.2d 15, 19 n. 12 (5th Cir. 1967). That same case declared that "a stay pending the outcome of litigation between the same parties involving the same or controlling issues is an acceptable means of avoiding unnecessary duplication of judicial machinery." Id. (citing Landis v. American Water Works Electric Co., 299 U.S. 248, 254 (1936)).
Defendant states that staying the action will allow conservation of judicial and private resources regardless of the Federal Circuit's determination in the priority proceedings. The issues will either be declared moot, or at minimum, will be significantly narrowed by the Federal Circuit court's conclusion. In response, plaintiff contends that a delay is unjust to plaintiff, and further argues that inevitable litigation regarding patent '562 defeats the purpose of staying the action.
Plaintiff relies on a 1985 case, in which, during a patent infringement action in the District of Massachusetts, the PTO granted the defendant's petition for an interference proceeding. Amersham Int'l. v. Corning Glass Works, 228 U.S.P.Q. 782 (D.Mass. 1985). Similar to the case at hand, the defendant argued that the interference action would declare who had priority to the patents, and possibly render the pending action moot. Thus the infringement action would be "duplicitous, expensive and an unnecessary waste of judicial resources." Id. at 783. The district court denied the motion to stay, and found the plaintiff was in clear danger of being damaged by the delay. Id.
Defendant maintains that plaintiff's reliance on Amersham is misplaced because the facts in that case differ from the case at hand. First, in Amersham, the plaintiff brought suit for infringement one month before the defendant possessed a patent. The defendant did not initiate the interference proceeding at the PTO until three months after the infringement action originated. Approximately three months later, the defendant moved to stay the infringement proceeding. At the time, the PTO had not yet agreed to hear the interference action, and the motion to stay was denied. Approximately five months thereafter, the PTO declared an interference proceeding and again, the defendant moved to stay the infringement action. The district court again denied the motion. Id.
The court observed that the interference proceeding was granted based on the defendant's ex parte petition, that it was first subject to the plaintiff's challenges, and that it could take a considerable amount of time to resolve. Id. The court explained that discovery had already commenced, including the exchange of documents and interrogatories, and that depositions were to begin in the near future. Id.
Defendant relies on Wireless Spectrum Technologies, Inc. v. Motorola Corp., 2001 WL 32852 (N.D.Ill. Jan. 12, 2001). In that case, the plaintiff filed an infringement claim against the defendant whose patent application was still pending. Also similar to Amersham, the defendant in Wireless did not file for interference until after the infringement action was filed. The Wireless court, however, granted the defendant's motion to stay, holding:
If the PTO with its unique expertise determines that all or some of the '453 Patent's claims are invalid, that determination will either dispose of this case entirely or at least aid the Court in adjudicating this case. See American Telephone Telegraph Co. v. Milgo Electronic Corp., 416 F. Supp. 951, 953 (S.D.N.Y. 1976) (staying infringement action because the PTO's adjudication of the priority issue "can only aid the court in its determination of this lawsuit"); Childers Foods, Inc. v. Rockingham Poultry Marketing Co-op, Inc., 203 F. Supp. 794, 797 (W.D.Va. 1962) (staying infringement pending interference because PTO's determination of priority of invention would be "most helpful" to court); Bayer v. Novartis Crop Protection Inc., 2000 U.S. Dist. LEXIS 18395, 55 U.S.P.Q.2d (BNA) 1509, 1511-12 (M.D.La. 2000) (staying infringement action pending interference because PTO's expertise would aid court in deciding case on the merits). Under these circumstances, there is no need for either party to spend time and money litigating both here and in front of the PTO at the same time. See Childers, 203 F. Supp. at 796 (noting that simultaneous proceedings in federal district court and the PTO are "wasteful and extravagant" where issues to be decided are very similar); Bayer, 55 U.S.P.Q.2d (BNA) at 1511-12 (holding that simultaneous litigation of patent issues "would create an economic hardship on the parties and also result in the effective administration of justice").
Id. at *2. The Wireless court noted that the case had not "progressed beyond the initial pleadings stage, and there is no indication that a stay would create any tactical advantage or undue hardship for the parties." Id. The Wireless court distinguished Amersham, because in Amersham, the case had proceeded significantly since filing and discovery was in progress before the defendants moved to stay. Id.
I conclude that it is in the orderly course of justice to deny defendant's motion to stay proceedings. While the Wireless case may factually resemble some pieces of the instant case, the PTO, "with its unique expertise," has already determined the issues against defendant, a decision affirmed on reconsideration. Cases cited by Wireless suggest the propriety of giving considerable deference to the PTO. Id. (citing American Tel. Tel. Co. v. Milgo Elec. Corp., 416 F. Supp. 951, 953 (S.D.N Y 1976); Childers Foods, Inc. v. Rockingham Poultry Marketing Co-op, Inc., 203 F. Supp. 794, 797 (W.D.Va. 1962)). Given that the PTO has concluded its process with a result adverse to defendant, and given that defendant's chances of prevailing on appeal are relatively small, it is inappropriate to stay this case. In addition, the Wireless court distinguished Amersham based on the amount of discovery that had already occurred in Amersham.
While the instant case has not progressed beyond the pleadings, this factor does not carry much weight when the record as a whole is considered. The two parties to this action have previously engaged in litigation on numerous occasions. They have an intimate understanding of the other's business. Moreover, a substantial amount of official discovery, at least as to two of the three patents, has already taken place in the context of the PTO action. While the discovery during the PTO proceeding might not have encompassed all the issues facing this court, I do not believe the remaining discovery for this case will be overwhelming. Thus, the fact that discovery has not yet begun carries little weight.
Lastly, it is quite apparent that litigation in this court is inevitable, regardless of the outcome at the Federal Circuit. If it were possible that all issues involved in this case could be rendered moot by the Federal Circuit, I may be persuaded to grant the stay. However, that is not the case. If plaintiff prevails at the Federal Circuit, as is likely, every issue in this case will proceed to trial. If defendant triumphs at the Federal Circuit, against the odds, plaintiff attests it will still litigate the infringement claim regarding patent '562. Thus, the orderly course of justice does not justify staying this action. Granting the stay would merely delay the inevitable for a considerable time and cause plaintiff more harm, while defendant would not be prejudiced by such a decision.
IV. Clear Case of Hardship
The Supreme Court has held that a petitioner for a stay "must make out a clear case of hardship or inequity in being required to go forward, if there is even a fair possibility that the stay for which he prays will work damage to someone else." Landis, 299 U.S. at 255. However, the Court also qualified this statement in saying that it was not a limitation on the court's power to grant a stay. Id.
I do not find that defendant has shown such a "clear case of hardship or inequity." Id. Defendant initiated the priority hearing and has been so prosecuting for the last four years. It was well aware of the costs of this litigation and it seems no stranger to litigation with plaintiff. Additionally, defendant will be defending at least a part of this action in this court, regardless of what occurs at the Federal Circuit.
CONCLUSION
Defendant's motion to stay proceedings, filing its answer, and discovery (#8) is denied.
IT IS SO ORDERED.