Monday, November 9, 2015

Are Shotgun Patent Infringement Pleadings Allowed?


The Eleventh Circuit is not a big fan of shotgun pleadings, and neither is the Middle District of Florida.  Christ Tavantzis and Christrikes Custom Motorcycles filed a complaint asserting at least 10 counts against 29 defendants for allegations including alleged patent infringement of U.S. Patent 7,419,024 directed to a wheelchair accessible motorcycle:

It appears the reality show American Chopper built such a bike and the plaintiffs' claims concern allegations that the show stole the idea from the inventor and conspired to profit off of this invention.  TMZ wrote a brief story about the lawsuit here.

The complaint is not without colorful language:
This metaphorical "shoving of the disabled inventor into the darkness of a closet" to bring the light upon themselves is disheartening, pathetic, appalling, distressing, disparaging, offensive, atrocious and utterly intolerable to the reasonable decency of humankind everywhere.
It goes on to allege the following actions violate the plaintiffs' rights:
  1. Building the Bike on National Television to increase [defendants'] public image and sales
  2. Offering the bike for sale on the company website for approximately $45,000, plus customaization fees for additional requests.
  3. Publicly and falsely holding the bike out to be theirs by distributing the images and production concepts through distribution channels "TLC", "Discovery," "CMT" and their parent corporations, partnerships and mass media distribution companies.
  4. Creating an infringing copy that is a dangerous instrumentality and life threatening to the Disabled and the public
It then goes on to allege Counts I through X.  But each count incorporates all allegations previously pleaded.  A number of defendants sought dismissal.  The Court explained the law in the Eleventh Circuit:

The most common type—by a long shot—is a complaint containing multiple counts where each count adopts the allegations of all preceding counts, causing each successive count to carry all that came before and the last count to be a combination of the entire complaint. The next most common type . . . is a complaint . . . replete with conclusory, vague, and immaterial facts not obviously connected to any particular cause of action. The third type of shotgun pleading is one that commits the sin of not separating into a different count each cause of action or claim for relief. Fourth, and finally, there is the relatively rare sin of asserting multiple claims against multiple defendants without specifying which of the defendants are responsible for which acts or omissions, or which of the defendants the claim is brought against.
quoting Weiland v. Palm Beach Cnty. Sheriff's Office, 792 F.3d 1313, 1321-23 (11th Cir. 2015) (footnotes omitted).  These shotgun pleadings fail to put the defending parties on adequate notice and must be amended.  Aside from each count incorporating all prior allegations, the Court was also troubled by another issue:

Finally, and what causes the most confusion in this case, Plaintiffs do not identify which counts and factual allegations are alleged against which defendants or which plaintiff brings each count. For example, Plaintiffs’ patent infringement claim references “Defendant” in some paragraphs and “Defendants” in other paragraphs. (Id. ¶¶ 70–75). However, Plaintiffs never name a particular defendant and the Court is left to guess whether Plaintiffs intend to sue one defendant, some of the defendants, or all thirty-one defendants for patent infringement. Further, Plaintiffs never identify which of them brings each count, which can be especially confusing where, as here, one plaintiff is an individual and the other plaintiff is a corporation. For example, as the Complaint currently reads, both Plaintiffs allege claims for ADA discrimination, ADA exclusion, and intentional infliction of emotional distress. However, without an explanation from Plaintiffs, the Court is left to guess whether these counts are brought by the individual plaintiff, the corporate plaintiff, or both, despite the fact that one would presume a corporation could neither be disabled within the meaning of the ADA nor suffer emotional distress. Plaintiffs further exacerbate this confusion by referring to the individual plaintiff and the corporate plaintiff both collectively and interchangeably throughout the Complaint.
As such, plaintiffs must amend their complaint.

Motion to dismiss, granted.
Tavantzis v. American Choppers, Case No. 6:14-CV-1519 (M.D. Fla. Nov. 4, 2015) (J. Byron)

Tuesday, October 20, 2015

Is Using an Unflattering Candid Photo in Blog Posts To Criticize the Subject of the Photo Fair Use?


Irina Chevaldina was a tenant in commercial property owned by one of Raanan Katz's corporate entitles.  Chevaldina was unhappy with Katz and posted a number of blog entries criticizing him.  Some of those posts included a candid photo of Katz that Katz deemed unflattering:

Katz acquired the copyright to the photo from the photographer, and then sued Chevaldina (and Google) for infringement.  Katz apparently dropped his vicarious infringement claim against Google but pursued the direct infringement claim against Chevaldina.  Chevaldina argued that fair use protected her usage.  The district court agreed, granting summary judgment in her favor.  Katz appealed.

The Eleventh Circuit explained the test for fair use:
In deciding whether a defendant's use of a work constitutes fair use, courts must weigh the following four factors: (1) the purpose and character of the allegedly infringing use; (2) the nature of the copyrighted work; (3) the amount of the copyrighted work used; (4) and the effect of the use on the potential market or value of the copyrighted work. Id. These four statutory factors are not to be treated in isolation from one another. See Campbell v. Acuff–Rose Music, Inc., 510 U.S. 569, 578, 114 S.Ct.1164, 1170–71, 127 L.Ed.2d 500 (1994)
Purpose and Character
Katz argue that the purpose and character of usage was commercial in nature because one of the blog posts indicated a desire to write a book in the future about the experience.  The Court was not persuaded:
Chevaldina's reference to her intention to write a book about her experiences with Katz does not alone, however, transform the blog post into a commercial venture. Overall, the blog post retains her educational purpose of lambasting Katz and deterring others from conducting business with him. See March 4, 2012 Blog Post (“I hope my book will help ambitious people in their dream to be successful without selling the[ir] soul to the [d]evil.”). Moreover, the link between Chevaldina's commercial gain and her copying of the Photo was attenuated given that Chevaldina never wrote a book nor made any profits whatsoever. See Swatch Grp. Mgmt. Servs. Ltd. v. Bloomberg L.P., 756F.3d 73, 83 (2d Cir.2014) (discounting commercial nature of use where “the link between the defendant's commercial gain and its copying is attenuated such that it would be misleading to characterize the use as commercial exploitation” (quotations and alterations omitted)).
The Court also explained that, even though the photo was not altered, the usage was still transformative:
Chevaldina's use of the Photo was also transformative. A use is transformative when it “adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.” See Campbell, 510 U.S. at 579, 114 S.Ct. at 1171. Chevaldina's use of the Photo was transformative because, in the context of the blog post's surrounding commentary, she used Katz's purportedly “ugly” and “compromising” appearance to ridicule and satirize his character. See Swatch,756 F.3d at 84 (“Courts often find such uses [of faithfully reproduced works] transformative by emphasizing the altered purpose or context of the work, as evidenced by the surrounding commentary or criticism.”); A.V. ex el Vanderhyev. iParadigms, LLC, 562 F.3d 630, 639 (4th Cir.2009) (“The use of a copyrighted work need not alter or augment the work to be transformative in nature.”); Suntrust Bank v. Houghton Mifflin Co., 268 F.3d 1257, 1270 (11th Cir.2001) (finding transformative use where work was “principally and purposefully a critical statement”).
Nature of the Copyrighted Work
The Court stated that the law recognized a greater need to disseminate factual works than works of fantasy or fiction and went on to find this work to be factual as it was a mere candid photo.

Amount of Work Used
This factor garnered little attention as it is less relevant in analyzing alleged infringements of photographs.

Effect of the Use on the Potential Market for the Work
By Katz's own activities, it appears there is no market for the work, thus no market to destroy:
The district court did not err in finding Chevaldina's use of the Photo would not materially impair Katz's incentive to publish the work. Katz took the highly unusual step of obtaining the copyright to the Photo and initiating this lawsuit specifically to prevent its publication. Katz profoundly distastes the Photo and seeks to extinguish, for all time, the dissemination of his “embarrassing” countenance. Due to Katz's attempt to utilize copyright as an instrument of censorship against unwanted criticism, there is no potential market for his work. While we recognize that even an author who disavows any intention to publish his work “has the right to change his mind,” see Monge v. Maya Magazines, Inc., 688 F.3d 1164, 1181 (9thCir.2012) (quotation omitted), the likelihood of Katz changing his mind about the Photo is, based on the undisputed evidence in the record, incredibly remote.
Summary judgment decision affirmed.
Katz v. Google, Inc., Case No. 14-14525 (11th Cir. Sept. 17, 2015)

Tuesday, October 13, 2015

Patent Eligibility and Collateral Estoppel

previously wrote about a Middle District of Florida Court invalidating one FairWarning IP's patents at the pleading stage.  There, the Court determined the asserted patent (U.S. Patent 8,578,500) was invalid because it was directed only an abstract idea.  FairWarning has appealed that decision.

FairWarning had also sued Cynergistek for alleged infringement of the '500 Patent.  That case was reassigned to Judge Merryday (who decided the case above) as it shared common issues.  Cynergistek also moved for judgment on the pleadings based on the alleged invalidity of the '500 Patent, but also argued that FairWarning was now collaterally estopped from asserting the '500 Patent because of Judge Merryday's prior finding.

The Court explained the standard:
Blonder–Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971), holds that, if a previous action invalidated a patent after the patent-holder had a full and fair opportunity to litigate, collateral estoppel prevents the patent-holder from enforcing the patent against an unrelated party in another action.
FairWarning argued that it lacked a full and fair opportunity to present its case in the prior decision because that decision "was one of those relatively rare instances where the courts wholly failed to grasp the technical subject matter and issues in suit."  The Court was not persuaded:
A review of Iatric System confirms (1) that FairWarning responded (without requesting a hearing) to Iatric Systems's motion to dismiss, which challenged the '500 patent's validity, and (2) that the order dismissing the action both considered and rejected FairWarning's arguments.
The Court then avoided the collateral estoppel question and ruled on the merits:
Regardless of collateral estoppel, for the same reasons explained in Iatric Systems, FairWarning fails to state a claim for infringement of the ‘500 patent, which is directed to nothing more than a patent-ineligible abstract idea. FairWarning asserts neither a fact nor an argument that warrants a different conclusion in this action.
The Court then dismissed as moot defendant's counterclaims seeking declarations of invalidity and non-infringement.

Motion for judgment on the pleadings, granted in part.

Monday, August 3, 2015

Middle District of Florida Releases New Discovery Handbook

The Handbook on Civil Discovery Practice has been revised (dated June 5, 2015).  You may download a copy here.  (You may receive a printed copy at the Intake counter in each divisional Clerk's office.)  It's a good idea to take a read through every now and then, and nice to see the Court has updated it.  (I believe the last revision was 15 years ago.)   From the Court's website announcing this revised version:
The Federal Rules of Civil Procedure, the Local Rules of the Middle District of Florida, and existing case law cover only some aspects of civil discovery practice. Many of the gaps have been filled by the actual practice of trial attorneys and, over the years, a custom and usage has developed in this district in frequently recurring discovery situations. Originally developed by a group of trial attorneys, this handbook on civil discovery practice in the United States District Court, Middle District of Florida, updated in 2001, and again in 2015, attempts to supplement the rules and decisions by capturing this custom and practice. This handbook is neither substantive law nor inflexible rule; it is an expression of generally acceptable discovery practice in the Middle District. It is revised only periodically and should not be relied on as an up-to-date reference regarding the Federal Rules of Civil Procedure, the Local Rules for the Middle District of Florida, or existing case law. Judges and attorneys practicing in the Middle District should regard the handbook as highly persuasive in addressing discovery issues. Parties who represent themselves (“pro se”) will find the handbook useful as they are also subject to the rules and court orders and may be sanctioned for noncompliance. Judges may impose specific discovery requirements in civil cases, by standing order or casespecific order. This handbook does not displace those requirements, but provides a general overview of discovery practice in the Middle District of Florida.

Sunday, June 28, 2015

Fraud Detection in Patient Records Patent -- Is it Patent-Eligible?

"In other words, Claim 1 comprises..." Perhaps the most dangerous words in a court opinion directed to the patent eligibility of a challenged patent. I say dangerous because essentially any patent claim can be presented "in other words" in order to describe them broadly directed to some abstract idea and doing so avoids careful analysis of the particular meaning of all words in a challenged claim. 

Fairwarning IP, LLC sued Iatric Systems for infringement of U.S. Patent 8,578,500 directed to a method and system for detecting fraud and misuse in connection with electronic patient data.  The defendant asked the Court to dismiss the claim, arguing the patent was directed to an ineligible abstract idea.

The Court went through the basic framework for making such a determination: (1) Is the claim directed to an abstract idea; and (2) if so, look at the claims to determine whether the elements of the claim transform the nature of the claim into patent-eligible subject matter.  See Alice Corp. v. CLS Bank International, 134 S. Ct. 2347, 2355 (2014).

The Federal Circuit has sought to clarify this test, particularly in connection with computer inventions.  See DDR Holdings LLC. v., L.P., 773 F.3d 1245, 1247 (Fed. Cir. 2014) (upholding claims which are "necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.")

Claim 1 of the '500 patent requires the following elements:
1. A method of detecting improper access of a patient’s protected health information (PHI) in a computer environment, the method comprising: 
generating a rule for monitoring audit log data representing at least one of [the] transactions or activities that are executed in the computer environment, which are associated with the patient’s PHI, the rule comprising at least one criterion related to accesses in excess of a specific volume, accesses during a pre-determined time interval, accesses by a specific user, that is indicative of improper access of the patient’s PHI by an authorized user wherein the improper access is an indication of potential snooping or identity theft of the patient’s PHI, the authorized user having a pre-defined role comprising authorized computer access to the patient’s PHI;  
applying the rule to the audit log data to determine if an event has occurred, the event occurring if the at least one criterion has been met;  
storing, in a memory, a hit if the event has occurred; and providing notification if the event has occurred. 

Here, the defendant argued the claims were directed to the abstract idea of "analyzing records of human activity to detect suspicious behavior."  The Court agreed:

[T]he ’500 patent is “directed to” or “drawn to” the concept of “analyzing records of human activity to detect suspicious behavior.” (Doc. 50 at 2) Reviewing activity to detect suspicious behavior is not unique to the context of private health information, and binding precedent has invalidated patents “directed to” similar concepts. E.g., CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1367 (Fed. Cir. 2011) (invalidating a patent that claimed a “method and system for detecting fraud in a credit card transaction between [a] consumer and a merchant over the Internet”); accord Intellectual Ventures II LLC v. JP Morgan Chase & Co., 2015 WL 1941331, *3 (S.D.N.Y. April 28, 2015) (Hellerstein, J.) (invalidating a patent that claimed a “method for monitoring multiple computer hosts within a network for anomalies, and alerting the various hosts of possible intrusion”); Wireless Media Innovations, LLC v. Maher Terminals, LLC, 2015 WL 1810378, *8 (D.N.J. April 20, 2015) (Linares, J.) (invalidating patents “directed to the . . . abstract idea[ of] monitoring locations, movement, and load status of shipping containers within a container-receiving yard, and storing, reporting and communicating this information in various forms through generic computer functions”). Reviewing activity to detect suspicious behavior is a basic and well-established abstract idea 
[EDITOR'S NOTE: The Court referred to "binding precedent," yet only cited a 2011 (i.e. pre-Alice and pre-DDR) decision.]

FairWarning argued the claims were necessarily rooted in computer technology (per DDR Holdings) because the claims "provide[] a solution to a technological problem, namely identifying potential snooping and identify theft by authorized users."  The Court was not persuaded.

Finding the patent directed to an abstract idea, the Court turned to the second step -- do the claim elements transform the patent into something more.  The Court begins the discussion as follows:

In other words, Claim 1 comprises (1) generating a rule “related to” the number of accesses, the timing of accesses, and the specific users in order to review “transactions or activities that are executed in a computer environment”; (2) applying the rule; (3) storing the result; and (4) announcing the result.
[EDITOR'S NOTE: The Court looked at the individual elements of the claim, but then merely paraphrased what those elements might be.  And the Court did so without considering what one of skill in the art would understand the terms to mean.]

The Court conducted the analysis as follows:

None of the steps in Claim 1’s method transforms the abstract idea into a patentable concept. Although the first step of the method requires “generating a rule for monitoring audit log data,” Claim 1 neither states a rule nor instructs a computer to generate a rule. Instead, in at least one embodiment of the invention, “the rule is created by the user and/or a third party, such as a consultant with particular knowledge as to fraud or misuse of the particular type of data.” ’500 patent, col. 13, ll. 11–13. Also, the function performed by the computer in each remaining step of Claim 1’s method is “purely conventional.” Alice, 134 S. Ct. at 2358 
[EDITOR'S NOTE:  The Court appears to have limited its analysis to a single embodiment disclosed in the specification.  And it's not clear the Court addressed Claim 1's limitation that the rule at issue must be "indicative of improper access of the patient's PHI by an authorized user wherein the improper access is an indication of potential snooping or identify theft of the patient's PHI, the authorized user having a pre-defined role comprising authorized computer access to the patient's PHI"]

The Court went on to find the patent directed to ineligible subject matter, and to dismiss plaintiff's complaint without prejudice, allowing "FairWarning [to] amend the complaint to assert a claim that is independent of the '500 patent's validity."

Motion to dismiss, granted.

FairWarning IP, LLC v. Iatric Systems, Inc., Case No. 8:14-CV-2685 (M.D. Fla. June 24, 2015) (J. Merryday)

Monday, May 11, 2015

Are the Kardashians' European Activities Beyond The Reach of a U.S. Court?


Lee Tillett owns U.S. Trademark No. 4079066 for KROMA in connection with cosmetics.  Tillett exclusively licensed the mark to Kroma Makeup EU, LLC ("Kroma EU") granting Kroma EU the right to import, distribute, and sell products using the mark in Europe.  Kroma EU's business thrived selling cosmetics under this mark.

Separately, Kim, Kourtney, and Khloe Kardashian set out to create a Kardashian-themed makeup line.  They engaged Boldface Licensing + Branding ("Boldface") to assist in this venture.  Boldface conducted a preliminary trademark search for terms like "Khroma" and "Kardashian Khroma."  Those searches revealed Tillet's trademark.  The Kardashians inquired of Boldface the propriety of using the "Khroma" mark in light of Tillet's registration.  Notwithstanding, the Kardashians eventually selected and went to market with the "Khroma" mark.

Tillett sent the Kardashian's a couple of cease and desist letters which failed to prevent the accused activity.  Instead, Boldface sued Tillett for a declaratory judgment that its actions did not infringe.  Tillett countersued for infringement (and brought the Kardashians into that dispute under a vicarious trademark infringement theory).  Tillett ultimately was awarded a preliminary injunction.  Thereafter, the case settled.  Notably, Kroma EU was not a party to that lawsuit and Tillett does not appear to have pursued a claim for damages on behalf of Kroma EU.

Kroma EU sued Tillett, the Kardashians, and Boldface in Florida for trademark infringement (direct and vicarious).  Kroma EU also sued Tillett under a promissory estoppel theory for Tillett's failure to recover Kroma EU's damages in the prior litigation.  Boldface defaulted.  The remaining defendants sought dismissal, which presented the court with four issues to resolve:

  1. Does Kroma EU have standing to bring its claim for trademark infringement?
  2. Are Kroma EU's claims barred by res judicata?
  3. Does the Lanham Act reach the Kardashian's infringing activities occuring outside the U.S?
  4. Does Kroma EU's promissory estoppel claim survive?

The court resolved these issues on the pleading stage as follows:


The Kardashian's argument was essentially that "because Tillett is the registrant and owner of the 'Kroma' mark in the United States, Tillett is the only one who can prosecute claims on the mark's behalf."  The court was not persuaded:
[S]imply because the licensor remains the owner of the trademark does not mean that he is the only person with rights in the mark to enforce. Although § 32(1) of the Lanham Act speaks of the "registrant" who may bring an action for trademark infringement, see 15 U.S.C. § 1114(1), section 43(a)—the provision through which Kroma EU asserts its infringement claims—is not so limited in scope. Specifically, § 43(a) permits "any person who believes that he or she is or is likely to be damaged" to bring a claim for infringement resulting from false association or false advertising. 15 U.S.C. § 1125(a)(1). Section 43(a) therefore affords relief to any plaintiff who shows the requisite injury from the defendant's infringing conduct, without regard to any ownership interest the plaintiff may have in the trademark. Murphy v. Provident Mut. Life Ins. Co. of Phila., 756 F. Supp. 83, 86 (D. Conn. 1990) ("[T]he question of ownership is immaterial to standing under § 43(a) . . . ."), aff'd 923 F.2d 923 (2d Cir. 1990), cert. denied 502 U.S. 814 (1991). Indeed, courts frequently find non-owners—such as manufacturers, competitors, distributors, and others—to have standing under § 43(a). See, e.g., Scotch Whisky Ass'n v. Majestic Distilling Co., Inc., 958 F.2d 594 (4th Cir. 1992) (trade association has standing), cert. denied 506 U.S. 862 (1992)Quabaug Rubber Co. v. Fabiano Shoe Co., Inc., 567 F.2d 154, 160 (1st Cir. 1977) (non-exclusive distributor has standing).
The court went on to explain the Supreme Court's recent pronouncement resolving the question of non-owner standing.  See Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014).  There, the Court formulated a two-prong test to analyze for "statutory standing".

First, the plaintiff must fall within the "zone of interests" of the statute at issue.  Second, the plaintiff must show its injuries are proximately caused by the defendant's conduct.  Here, the court quickly found Kroma EU's claim satisfied this standard because Kroma EU had an exclusive license to the mark in Europe and Kroma EU had engaged in actual commercial conduct to promote the brand abroad.  Additionally, it was clear that Kroma EU pleaded injuries proximately caused by the defendants activities.  As such, standing was proper.

Res Judicata

The court did not require much time to deal with this issue, as res judicata requires identical parties in the respective disputes and Kroma EU was not a party to the prior litigation.

Extraterritorial Reach of the Lanham Act

The Kardashians sought dismissal of the claim for failing to state sufficient conduct to hold the Kardashian's liable for vicarious trademark infringement because the claim was based on activities outside the U.S.  The court explained the law as follows:
Where trademark infringement occurs primarily in a foreign nation, the extraterritorial reach of the Lanham Act becomes a concern, as it is presumed that Congress intends to legislate "with respect to domestic, not foreign matters." Morrison, 561 U.S. at 255. Only Congress' clear, affirmative expression of its intent to give a federal statute extraterritorial consequence can rebut this presumption. Id.
The United States Supreme Court found such an intent in the Lanham Act inSteele v. Bulova Watch Co., 344 U.S. 280 (1952). In Bulova Watch, the Supreme Court recognized Congress' undeniable ability to "project the impact of its laws beyond the territorial boundaries of the United States." Id. at 282. Upon reviewing the Lanham Act's purpose and statement of broad jurisdictional scope, the Supreme Court deduced that the Lanham Act regulates not only domestic conduct, but also foreign conduct of U.S. citizens where the conduct involves U.S. commerce and does not otherwise interfere with the rights of foreign nationals in their own countries. Id. at 285-86.
The Eleventh Circuit has formulated a three factor test in resolving such issues:

  1. is the defendant a U.S. citizen?
  2. does the foreign conduct have a substantial effect on U.S. commerce?
  3. does adjudicating the claim interfere with another nation's sovereignty?

See Int'l Café, S.A.L. v. Hard Rock Café Int'l (U.S.A.), Inc., 252 F.3d 1274, 1278 (11th Cir. 2001) (per curiam) accord Vanity Fair Mills, Inc. v. T. Eaton Co., 234 F.2d 633, 642-43 (2d Cir. 1956), cert. denied 352 U.S. 871 (1956).  There was no question on the first and third factors.  As to the second, the court wrote:
the Court finds that the Kardashian Defendant's conduct has had a substantial effect on U.S. commerce.  ... When Khroma was released in Europe, the retailer backed out, stating that it did not want to be associated with the Kardashian Defendants or to be perceived as selling discount or inferior-quality products.  Other potential clients also expressed their confusion as to why Kroma was partnering with the Kardashian Defendants.
Thus, Kroma EU could proceed on its claim in the U.S.

Promissory Estoppel

Here, while Tillett may have been technically correct that Kroma EU could not proceed on a promissory estoppel theory in light of the written agreement between the parties (i.e. the license agreement), Kroma EU's claim could still proceed under a breach of contract theory.  The court is not obligated to adhere to the labels parties apply to their claims and Kroma EU will be given an opportunity to amend its claim upon a proper motion.  

Motion to dismiss, denied.

Kroma Makeup EU, Ltd. v. Boldface Licensing + Branding, Inc., Case No. 6:14-CV-1551 (M.D. Fla. Apr. 15, 2015) (J. Byron)

Monday, April 6, 2015

Staying Litigation Because of Request for Inter Partes Review?

Not yet.  The request is premature until the Patent Office determines whether or not to institute the Inter Partes Review ("IPR").

TAS Energy, Inc. sued Stellar Energy Americas, Inc. for patent infringement concerning U.S. RE 44,815.  TAS and Stellar are competing engineering firms that each sought to design and construct a gas turbine inlet air cooling and thermal energy storage system for Duke Energy.  TAS additionally sought a preliminary injunction to enjoin Stellar's activities, but that motion was denied.  Stellar next petitioned the U.S. Patent and Trademark Office for IPR, seeking to invalidate claims of the '815 patent.

As has become common practice, Stellar also asked the district court to stay the litigation based on Stellar's request for review.  TAS responded that the request for a stay was premature because the Patent Office had not yet decided whether or not to grant the petition.

The Court resolved the issue quickly:
Stellar argues that there is a substantial likelihood that the PTO will institute review of the patent-in suit because it already instituted review of the parents of the patent-in-suit in prior inter partes review proceedings. Stellar also argues that TAS Energy will not be unduly prejudiced because its motion for preliminary injunction was denied, which Stellar argues raises a substantial question as to the validity of the patent-in-suit. Stellar further argues that the PTO grants a majority of the petitions filed and it is likely to resolve the question regarding the validity of the patent-in-suit, which would minimize duplicative efforts and may streamline the district court’s litigation. It further argues that the stay would be “brief.”
TAS Energy opposes Stellar’s Motion and argues that this Court should deny the motion for three reasons: Stellar’s motion is premature; Stellar exaggerates the possibility that its IPR petitions—if instituted at all—will simplify this litigation; and Stellar ignores the prejudice that TAS Energy will suffer as a result of a stay. It argues that the majority of the courts in the Middle District of Florida deny motions for stay when the PTO has not yet granted a movant’s petition for inter partes review and no circumstances in this case justify a departure from that trend. Further, TAS Energy states that Stellar’s petitions challenge different claims of the ‘815 patent, and each petition challenged less than half of the ‘815 patent’s claim; therefore, the review would not simplify the issues in this case because it will not finally resolve all issues in the litigation. It further argues that when the parties are direct competitors the risk of prejudice in delaying a patent infringement suit is high, which courts in this district recognize as a basis to deny a stay.
The Court concludes that granting a stay at this stage of the inter partes review process is premature. Therefore, the Court denies the Motion without prejudice to Stellar to raise the issue if and when the PTO grants its petitions. Accord CANVS Corp. v. FLIR Sys., Inc.,2:14-CV-180-FTM-38CM, 2014 WL 6883127, at *1 (M.D. Fla. Dec. 5, 2014) (referencing defendant’s previous motion for stay which the court denied as premature without prejudice to re-file if and when the PTO granted inter partes review). See also Automatic Mfg. Sys., Inc. v. Primera Tech., Inc., No. 6:12-cv-1727-Orl-37DAB,2013 WL 1969247, at *3 (M.D. Fla. May 13, 2013) (“it seems clear that a stay of a patent infringement action is not warranted when based on nothing more than the fact that a petition for inter partes review was filed in the USPTO.”); U.S. Nutraceuticals, LLC [v. Cyanotech Corp.], 2013 WL 6050744, at *3 (explaining since it remained uncertain as to whether the petition for inter partes review would be granted, a stay would prejudice the plaintiff’s ability to prosecute its claims and present a clear tactical advantage to the defendants).

[EDITOR'S NOTE: This is a very disturbing and troubling trend to me, and it appears to me that the Middle District of Florida is handling it correctly.  Issued patents are presumed valid, and the owner of the patent is charged with policing his or her rights.  That policing is in the form of a patent infringement litigation to stop the alleged infringer from violating the patent owner's presumed-valid rights.   Congress, perceiving there is a larger problem with patent infringement activity than actually exists, created a framework for attacking the validity of patents at the Patent Office.  Under this framework, if the Patent Office agrees to analyze the validity of the patent, a Court should stay the litigation under most circumstances.  But numerous (hundreds?  more?) defendants have asked district courts to stay litigations on the basis of their requests for review alone.  These defendants usually combine their requests for a stay with outright refusals to cooperate in the litigation, forcing the plaintiff to engage in additional motion practice to compel compliance with the rules of civil procedure.  In essence, the presumption of validity has disappeared and the already daunting task of enforcing Constitutionally created property rights is even harder.  It's worthwhile to remember we are an innovation economy and patents have historically been a strong vessel for protecting and valuing that innovation.  Time will tell whether balance will return to the patent system or not.]

Motion to stay, denied as premature.
TAS Energy, Inc. v. Stellar Energy Americas, Inc., Case No. 8:14-CV-3145 (M.D. Fla. Apr. 2, 2015) (J. Moody)