Stay pending ex parte reexamination denied where parties are direct competitors

eComSystems sued Shared Marketing Services and Ace Hardware for infringement of 5 patents. Shared Marketing and Ace filed a request for ex parte reexamination with the Patent Office arguing that certain prior art rendered each of the patents invalid. 92% of ex parte reexamination requests are granted, and this case was no exception.

Shared Marketing and Ace asked the Court to stay the litigation pending resolution of the reexamination. The Court refused.

Courts typically analyze 3 factors when considering a motion to stay pending reexam: (1) will the stay unduly prejudice the non-moving party; (2) will the stay simplify the issues; and (3) will the stay streamline the litigation.

Here, the Court noted that the case was in its infancy, and thus on initial look the factors seemed to favor a stay. But 2 key points tilted the scale in the opposite direction. First, defendants requested ex parte reexamination and would not be bound by the result (and could thus relitigate the same invalidity issues if the patents survived reexamination). Second, eCom and Shared Marketing are direct competitors. Staying the litigation 2 years for reexam (and then another 2 for appeals) would prejudice eCom because it could not enjoin its competitor during this indefinite time frame:

However, because the pending Patent and Trademark Office proceedings are ex parte reexaminations, rather than inter partes reexaminations, the Court is not persuaded that the second and third factors weigh in favor of a stay. Rather, the Court anticipates that the benefits of a stay would likely to be marginal, at best.

Inter partes reexaminations provide a third party the right to participate in the reexamination process and, thus, have a res judicata effect on the third party requester in any subsequent or concurrent civil action. See 35 U.S.C. §§ 314- 315; Tomco2 Equip. Co. v. S.E. Agri-Systems, Inc., 542 F. Supp. 2d 1303, 1306 (N.D. Ga. 2008). Ex parte reexaminations, on the other hand, do not bar the requestor from relitigating the exact same issues in district court. Id.

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Courts have recognized that where the parties are direct competitors, a stay would likely prejudice the non-movant. Tesco Corp. v. Weatherford Int'l, Inc., 599 F. Supp. 2d 848, 851 (S.D. Tex. 2009). In such situations, stays are denied where there is concern that the patent owner will be irreparably harmed because the accused product will continue to gain market share during the pendency of the stay. Heraeus Electro-Nite Co., LLC v. Vesuvius USA Corp., Case No. 09-2417, 2010 U.S. Dist. LEXIS 1887, at *3 (E.D. Pa. Jan. 11, 2010).

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Furthermore, the potential prejudice to eCom is exacerbated by the lengthy and indefinite amount of time required to complete the reexamination proceedings for all five of the patents-in-suit. The requested stay would expire only after completion of the reexamination and the appellate process. Fusilamp, LLC v. Littelfuse, Inc., No. 10-20528-CIV, 2010 U.S. Dist. LEXIS 56553, at *12 (S.D. Fla. June 7, 2010). The reexamination process averages 25.4 months to complete, and the appellate process averages 24 months to complete. Id.

Motion to stay denied.

eComSystems, Inc. v. Shared Marketing Services, Inc., Case No. 8:10-CV-1531, slip op. (M.D. Fla. Jan. 26, 2011)(J. Covington)