U.S. District Judge, James Donato, Northern District of California (Diego M. Radzinschi / The National Law Journal)
SAN FRANCISCO — Patent litigators are getting good vibes from one of the Northern District of California’s newest federal judges.
Ruling in a dispute between manufacturers of personal massagers, U.S. District Judge James Donato joined the debate on staying patent infringement litigation while companies seek inter partes review at the Patent Trial and Appeal Board (PTAB).
Donato stayed a case between Lelo Inc. and Standard Innovation Corp., ruling on June 24 that delay would not prejudice the companies even though they compete in the same “intimate products” market. The reasoning was that some of Lelo’s products are subject to a U.S. International Trade Commission exclusion order, and Lelo doesn’t practice the patent it is asserting.
Sidley Austin partner Vernon Winters said the ruling seemed informed by Donato’s background in competition law at premier law firms. “He really drilled down on an issue that’s often given short shrift in the published opinions,” said Winters, who’s not involved in the case. “It’s a useful data point from a new judge in a patent-heavy district.”
Donato was a partner at Shearman & Sterling and Cooley before joining the Northern District of California bench this spring.
Stay orders in general are getting more attention as companies accused of infringement flood the PTAB with petitions for inter partes and covered business-method review. Earlier this month the U.S. Court of Appeals for the Federal Circuit sent a loud message backing stays when the PTAB initiates CBM review.
The appellate court on July 10 ordered U.S. District Judge Rodney Gilstrap of Texas to stay litigation between cloud-based information technology provider VirtualAgility and a host of defendants led by Salesforce.com.
Gilstrap had questioned the PTAB’s preliminary finding that it was “more likely than not” that VirtualAgility’s patents are invalid, saying his own analysis showed that VirtualAgility had a strong case on validity. Therefore, the PTAB review wasn’t likely to eliminate many claims, simplify the issues and reduce the burden of litigation, Gilstrap had ruled.
That was an abuse of discretion, judges Kimberly Moore and Raymond Chen ruled on appeal. “Congress clearly did not intend district courts to hold mini-trials reviewing the PTAB’s decision on the merits” of CBM review, Moore wrote.
The PTAB had granted review on all of the patent claims, on two different theories of invalidity. If its preliminary view prevailed, it “could dispose of the entire litigation: the ultimate simplification of issues,” she wrote.
Judge Pauline Newman dissented, saying Gilstrap had been well within his discretion. “A stay of litigation is not available as a matter of right,” she wrote, and Gilstrap had the case on a fast track, headed for a jury trial by November of this year. He properly concluded that VirtualAgility “is likely to be harmed disproportionately in both the litigation and the marketplace if the defendants are allowed to draw out this case for an extended period, all the while continuing to infringe a presumptively valid patent.”
Fish & Richardson partner Christian Chu said the decision was not surprising because Congress made clear that stays are favored during CBM review. Congress instructed judges to consider the “burden of litigation” along with the other traditional factors for granting a stay, and made the decision immediately appealable, said Chu, who was not involved in the case. Just this month, Magistrate Judge John Love of the Eastern District of Texas described it as a “heavy thumb” on the scale in favor of granting a stay.
“Congress did put that thumb on the scale by saying they wanted defendants to have the ability to get faster and cheaper review in the patent office,” Chu said.
Bingham McCutchen partner Sasha Rao said district judges are already granting stays in a high number of CBM cases, estimating it to be above 80 percent, “and I think this will make it even higher.”
Wilson Sonsini Goodrich & Rosati partner Jose Villareal argued the appeal for the Salesforce.com codefendants. VirtualAgility was represented by Christian Hurt of Nix Patterson & Roach.
THE SAN FRANCISCO CASE
The dispute before Donato over “sexual wellness products” is on inter partes review to the PTAB. There are no special rules for stays because of inter partes review and no immediate right to appeal. Stays are being granted just more than 70 percent of the time in inter partes review cases, according to Fish & Richardson research.
San Jose-based Lelo, which is represented by Fenwick & West, and Ottawa’s Standard Innovation, backed by Mayer Brown and Houston’s Osha Liang, have been “at war in different forums for several years,” Donato wrote in his order.
Standard persuaded an ITC judge last year that Lelo was infringing its patents. Around the same time, Lelo acquired a new patent, on wireless battery charging, and sued Standard in the Northern District for infringement. Standard then sought inter partes review of the charging patent before the PTAB, which instituted proceedings in May of this year.
Donato ruled that although discovery is underway, claim construction and summary judgment are still some months off, so Standard’s request for a stay is timely. And the PTAB proceedings are likely to simplify the case, even if they don’t eliminate all of Lelo’s patent claims.
The remaining factor was whether issuing a stay would give Standard an unfair competitive advantage. Donato acknowledged that is “a closer call,” so close that he asked for declarations from each company’s CEO. Lelo’s Pavle Sedic argued that the companies share the same customer base, work with the same retailers, and that Lelo’s Picobong Mahana Duo Vibe product directly competes with Standard’s We-Vibe products. A stay would let Standard “continue selling its lower-priced infringing product for as long as the stay is in place,” Fenwick partner Hector Ribera argued.
Standard CEO Anne Finlayson argued that the ITC exclusion order ended competition between the companies in the U.S. And because Lelo doesn’t practice the battery-charging patent, it should be considered a nonpracticing entity for purposes of the stay, Osha Liang special counsel Tammy Terry argued.
“While some competition appears to exist between the parties,” Donato concluded, “the overall state of affairs does not raise the specter of undue prejudice or clear disadvantage to Lelo.”
Quoting a 1995 Federal Circuit decision, Donato concluded, “Lelo does not practice the ’178 patent, and therefore, ‘by definition, there can be no lost profits.’”
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