In our Augmented Reality/Virtual Reality Litigation Update series, we provide continuous updates on legal proceedings involving AR/VR technology. As we follow these developing proceedings, we highlight the technologies involved, the intellectual property at issue, and the litigation strategies of the parties.
In our last post, we discussed the defendant furniture companies petition for inter partes review ("IPR") against AR Design Innovations' U.S. Patent No. 7,277,572, and their request for a stay in the district court case pending a final decision in the IPR. In their motion, the defendants argued that staying the case pending IPR would be appropriate because AR Design Innovations—a non-practicing entity—would not be prejudiced. The defendants also argued that a stay would be appropriate since the litigation was still in its early stages and granting their request would simplify the issues before the court. In its reply, the plaintiff argued that the defendants' motion to stay was premature and that the case was more advanced than the defendants suggested in their motion.
In this post, we will discuss the district court denial of the defendants' request.
IPR proceedings are trials conducted before the Patent Trial and Appeal Board ("PTAB" or the "Board") to review the patentability of one or more claims. IPR review is limited to the questions of novelty and obviousness. An IPR may be instituted upon a showing that there is a reasonable likelihood that the petitioner would prevail with respect to at least one of the challenged claims. To start an IPR proceeding, the patent challenger files a petition challenging the claims of a patent. The patent owner may file a preliminary response with the Board to argue that institution is not warranted. And the Board must decide whether or not to institute no later than three months after the patent owner's preliminary response is filed (or the last day that one could be filed). After institution, the Board will issue a final determination within 1 year, extendable by up to 6 months for good cause. Because the PTAB answers the question of validity in an IPR proceeding, district courts may grant a stay to postpone the litigation until the Board has reached a final decision on the validity of the patent.
In this case, the Eastern District of Texas explained that courts hold inherent power over their dockets, including the power to stay litigation pending IPR proceedings. When determining if a stay pending an IPR proceeding is appropriate, district courts typically consider three factors: (1) if the stay will cause undue prejudice or present a clear tactical disadvantage to the nonmoving party; (2) if the court has reached an advanced stage in the litigation, including whether discovery has been completed and a trial date has been set; and (3) if the stay will simplify the issues in the litigation.
Applying this test, the court found that a stay was not appropriate based on the third factor. In its discussion of the third factor, the court explained that the stay would only simplify the litigation if the PTAB grants institution in the proceeding. The court cited case law to explain that the third factor of the test "does not cut in favor of granting a stay prior to the time that the PTAB decides whether to grant" institution. In the IPR proceeding, the PTAB would not have to reach a decision regarding institution until May 24, 2021. Since the PTAB had not yet issued an institution decision, the court determined that this factor cut in favor of the patent owner and denied the defendants' motion without prejudice.
The court concluded by indicating that the defendants could refile for a stay if the PTAB instituted the petition.
What does this mean? Under Apple v. Fintiv, the first factor that the Board will consider when determining whether to institute an IPR under 35 U.S.C. § 314(a) is if the court granted a stay or evidence exists that it would grant a stay if the proceeding is instituted. Other factors, however, consider the advancement of the litigation. Here, the Eastern District of Texas indicated that it would be willing to grant a stay if the Board instituted, but that it would not do so beforehand. This means that any progress made in the case prior to the May 24, 2021 deadline could cut against institution. The court's decision here does not solely affect its own docket—it will likely impact the course of action that the Board takes as well.
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