Wednesday, August 30, 2006

Reexamination Stays Litigation in E.D. Tex. - EchoStar Technologies v. TiVo

In what may be seen as an unusual move, Magistrate Judge Caroline Craven ordered a stay in EchoStar's countersuit against TiVo in the E.D. Tex., pending reexamination of the patents-in-suit - U.S. Patent Nos. 5,774,186 ("Interruption Tolerant Video Program Viewing"), 6,208,804 ("Multimedia Direct Access Storage Device and Formatting Method"), and 6,529,685("Multimedia Direct Access Storage Device and Formatting Method").

This case is the second patent infringement case concerning DVR technology involving EchoStar and Tivo. In the first case, EchoStar was found to infringe TiVo's patent after a jury trial and was assessed $89 million in damages. In the meantime, EchoStar retaliated by countersuing TiVo. In turn, TiVo filed ex partes reexamination requests on the '186 and '804 patents and an inter partes reexamination of the '685 patent, and followed these requests with a motion to stay.

EchoStar opposed the motion on four grounds: (1) TiVo's reexamination requests were not timely, (2) the possibility of issue simplification is remote, (3) discovery in the case was nearing completion, (4) staying the litigation would place EchoStar at a "huge tactical disadvantage." EchoStar also pointed out that the E.D. Texas has traditionally refused to grant motions to stay and favored hearing cases in their entirety without waiting on the USPTO (side note: pendency of patent cases before the E.D. Tex. average at least 6 months shorter than reexamination proceedings at the USPTO).

The court rejected these arguments, and seemed to take issue with the perception that the court "routinely" denies motions to stay:

[T]he Court reminds Plaintiff that each motion to stay pending reexamination filed in this Court is considered on a case by case basis with each cause of action presenting distinct circumstances; there exists no policy or rule in this district to 'routinely' deny such motions.
More interesting was the weight the court gave to the '685 patent being an inter partes reexamination, and the estoppel restraints that accompany such a request. The language of the order suggests that, because of the estoppel provision, inter partes reexamination requests will be given greater deference when considering a motion to stay:

[P]laintiff fails to consider the potential effect of Defendants' inter partes reexamination request. The statute governing inter partes reexamination provides for full participation by a third party at all stages of the proceedings. See 35 U.S.C. § 311, et. seq. Unlike an ex partes reexamination, an inter partes reexamination allows the third-party requester "to file written comments addressing issues raised by the action of the Office or the patent owner's response thereto[.]" Id. at § 314(b)(2). In addition, the third-party requester may appeal to the Patent Board of Appeals and may appeal from the Board's decision to the Federal Circuit if the Board affirms a finding of patentability or reverses an examiner's finding of unpatentability. Id. at § 315(b)(1). Moreover, the third-party requester may participate as a party if the patent owner appeals to the court from an unfavorable decision regarding patentability. Id. at § 315(b)(2).

However, and of particular import here, the statute imposes estoppel restraints on a third-party requester. That is, a third-party requester is estopped from relitigating the same issue "which the third-party requester raised or could have raised during the inter partes reexamination proceedings." Id. § 315(c); see also Middleton, Inc. v. Minnesota Mining and Mfg. Co., 2004 WL 1968669, *10 (S.D. Iowa, 2004). In addition, the third-party requester will be estopped from seeking review of factual determinations made in the inter partes reexamination. Id. Thus, an inter partes reexamination can have no other effect but to streamline ongoing litigation. For these reasons, courts have an even more compelling reason to grant a stay when an inter partes reexamination is proceeding with the same parties, which is precisely the case here.

[W]hat is more, this case presents an issue which distinguishes it from those cases cited by Plaintiff in that Defendants have requested an inter parties reexamination of one the patents at issue in this case. As the Court has pointed out, this will have a dramatic effect on future litigation. Lastly, the Court notes that if, after reexamination, Plaintiff's patents are again upheld, Plaintiff's rights will only be strengthened, as the challenger's burden of proof becomes more difficult to sustain. See Custom Accessories, Inc. v. Jeffrey-Allan Indus., Inc., 807 F.2d 955, 961 (Fed.Cir.1986) (holding that upon reissue, the burden of proving invalidity is "made heavier") (quoting Interconnect Planning Corp. v. Feil, 774 F.2d 1132, 1139 (Fed.Cir.1985)). To this end, and given the particular circumstances of this case, the court cannot find any undue prejudice to Plaintiff.

Another interesting aspect of this case is that, to date, none of the reexamination requests have been granted yet by the USPTO (see here, here and here). Nevertheless, the court went ahead with the stay:

While recognizing the merits of Plaintiff's position, on balance, the Court finds that the equities weigh in favor of staying this matter pending reexamination. First, the Court is not persuaded that a stay would unduly prejudice Plaintiff Although Plaintiff correctly notes that Defendants have not acted with dispatch in seeking reexamination and that Plaintiff has undoubtedly pursued an extremely burdensome discovery program, Plaintiff cannot say that its future costs associated with this litigation will be affected by the grant or denial of a stay. Further, the Court does not weigh in on the tactical effects on separate litigation. This matter stands on its own.

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