The Texas Two Step, A Tale of Two Texas District Courts’ Differing Views Concerning Stay Requests Pending Inter Partes Review

The District Courts for the Southern and Western Districts of Texas appear to have taken different positions with regard to estoppel in an inter partes review (“IPR”) context, in e-Watch v. FLIR Systems, Case No. 4-13-00638 (S.D. Texas) and e-Watch v. ACTi Corp., Case No. 5-12-cv-00695, (W.D. Texas), respectively.

The apparent split arose when the courts were confronted with motions to stay their respective patent infringement lawsuits pending disposition of a petition for IPR brought by another defendant in a related patent lawsuit, e-Watch v. Mobotix Corp., Case No. 5-12-cv-00492, (W.D. Texas). Interestingly, the petition for IPR has not yet been decided by the Patent Trial and Appeal Board (PTAB) of the U.S. Patent & Trademark Office.

In the first case, e-Watch v. FLIR Systems, Judge Lake of the Southern District of Texas issued an Order on August 8, 2013, granting defendant FLIR Systems’ motion to stay, finding that “a stay could materially simplify the issues in the case if the [USPTO] decides to institute an inter partes review with respect to either of the patents at issue.” In response to e-Watch’s argument that defendant was not entitled to a stay because it did not file the IPR petition and would not be subject to the statutory estoppel resulting from a PTAB decision, Judge Lake noted that FLIR earlier agreed to be subject to a limited estoppel (as to specific grounds raised in the IPR). As a condition of granting the stay, Judge Lake ordered that FLIR agree to estoppel that would be applied to the petitioner under 35 USC § 315(e)(2) (that is, “’any ground’ that [Petitioner] raised or reasonably could have raised during the IPR”).

In the second case, e-Watch v. ACTi Corp., Magistrate Judge Mathy of the Western District of Texas issued a Report and Recommendation on August 9, 2013, recognizing several factors militating against a stay, including limited estoppel applied to defendant ACTi Corp.:

… (a) there may be no formal estoppel applying to certain of ACTi’s later advanced invalidity arguments; (b) one of the patents-in-suit is not the subject of an IPR petition; (c) it is not yet known whether the USPTO will initiate IPR proceedings regarding the three other patents-in-suit; and (c) an inter partes review may be made “only on a ground that could be raised under section 102 or 103 … such that further proceedings in this Court after the conclusion of the IPR proceedings may be required even if Mobotix receives a favorable determination from the PTAB on the three patents at issue

Nevertheless, Judge Mathy recommended granting the motion for stay for the following reasons:

If this case were not stayed pending the conclusion of IPR proceedings, the Court is legitimately concerned about requiring the parties to pursue discovery, prepare and file claim construction statements, and participate in a claim construction hearing for patent claims that may be limited, changed or invalidated by the USPTO. Even though one of the patents-in-suit (‘396 patent) is not the subject of an IPR petition filed by Mobotix, e-Watch’s response does not directly ask that the proceedings regarding that patent only go forward. Nevertheless, recognizing that ACTi bears the burden to demonstrate the entry of a stay is appropriate, staying all of this action pending disposition of any reexamination will preserve the resources of both the parties and the Court.

While a significant percentage of motions to stay pending IPR have been granted since the institution of these reviews last Fall under the America Invents Act (“AIA”), some district courts have been reluctant to grant these motions before the petitions have been decided by the PTAB. In the present situation, it is surprising to see two districts courts in two closely related cases take such polar positions as to non-petitioner defendant estoppel as a condition of staying a litigation pending the same IPR. It will be interesting to see whether the Federal Circuit finds an opportunity in the short term to encourage more uniformity in the calculus applied by district courts in deciding motions of this type.

Gibbons will continue to monitor and report on cases and trends for this and other related IP law topics.