Emseal Joint Systems, Ltd., Plaintiff v. Schul International Co., LLC; Steven R. Robinson; Brian J. Iske; Willseal, LLC; and Ion Management, LLC, Defendants

2015 DNH 066

• Court: District Court, D. New Hampshire
• Decided: March 27, 2015
• Docket: 14-cv-358-SM
• Status: Published

Opinion

UNITED STATES DISTRICT COURT

DISTRICT OF NEW HAMPSHIRE

Emseal Joint Systems, Ltd., Plaintiff

v. Case No. 14-cv-358-SM Opinion No. 2015 DNH 066 Schul International Co., LLC; Steven R. Robinson; Brian J. Iske; Willseal, LLC; and Ion Management, LLC, Defendants

O R D E R

Plaintiff, Emseal Joint Systems, Ltd., brings this

consolidated action for patent infringement against Schul

International Co., LLC, Willseal, LLC, Ion Management, LLC, and

their principals, Brian Iske and Steven Robinson. The patent at

issue - U.S. Patent No. 8,739,495 (“the ‘495 patent”) - teaches a

“fire and water resistant expansion joint system.” It contains

three independent claims and 34 dependent claims. See

Consolidated Complaint, Exhibit A, The ‘495 Patent (document no.

32-1).

Defendants move the court to stay all proceedings in this

action, pending resolution of an ongoing reexamination of the

‘495 patent by the United States Patent and Trademark Office

(USPTO). Plaintiff objects. For the reasons discussed,

defendants’ motion to stay is granted, subject to plaintiff’s right to move the court to lift that stay if the USPTO has not

completed its review within six months.

Background

The ‘495 patent issued on June 3, 2014. In August of 2014,

Emseal brought suit against Willseal, Ion Management, Brian Iske,

and Steven Robinson alleging that they infringed the ‘495 patent,

engaged in unfair and deceptive trade practices in violation of

state law, and were unjustly enriched at Emseal’s expense. Civil

Action No. 14-cv-359-PB. Subsequently, that action was

consolidated with this one, which involves substantially similar

claims against Schul International and Steven Robinson. On

November 25, 2014, Emseal filed a Consolidated Complaint

(document no. 32), essentially restating its claims that

defendants: infringed the ‘495 patent (count one); engaged in

unfair and deceptive trade practices by selling products that

infringe the ‘495 patent (count two); and were unjustly enriched

by such unlawful conduct (count three). The validity of the ‘495

patent is, therefore, critical to all three claims.

On November 10, 2014, Schul submitted a Request for Ex Parte

Reexamination of the ‘495 patent to the USPTO. See 37 C.F.R. §

1.510. In December, the USPTO granted that request, concluding

that it raises ten “substantial new questions of patentability”

2 affecting all 37 claims of the ‘495 patent. Order Granting

Request for Ex Parte Reexamination (document no. 41-1) at 2.

Defendants’ move the court to stay this litigation pending

resolution of the USPTO’s reexamination of the ‘495 patent.

Emseal objects.

Standard of Review

The commencement of a reexamination proceeding does not

automatically stay pending patent litigation. See, e.g.,

Soverain Software LLC v. Amazon.com, Inc., 356 F. Supp. 2d 660,

662-63 (E.D. Tex. 2005) (noting that there is no “per se rule

that patent cases should be stayed during reexamination because

some of the relevant claims may be affected. To do so would not

promote the efficient and timely resolution of patent cases, but

would invite parties to unilaterally derail timely patent case

resolution by seeking reexamination.”). Nevertheless, district

court’s have the inherent authority to manage their dockets,

including the power to stay proceedings when, in the court’s

exercise of its discretion, it deems such a stay appropriate.

See, e.g., Clinton v. Jones, 520 U.S. 681, 706 (1997) (“The

District Court has broad discretion to stay proceedings as an

incident to its power to control its own docket.”). See also

Landis v. N. Am. Co., 299 U.S. 248, 254–55 (1936). As the moving

3 parties, defendants bear the burden of showing that a stay is

appropriate.

When, as here, the USPTO has determined that a request for

reexamination raises one or more substantial new questions of

patentability, the argument in favor of a stay becomes more

compelling. See, e.g., VirtualAgility Inc. v. Salesforce.com,

Inc., 759 F.3d 1307, 1316 (Fed. Cir. 2014) (“no doubt the case

for a stay is stronger after post-grant review has been

instituted”). See also Advanced Micro Devices, Inc. v. LG

Electronics, Inc., 2015 WL 545534, *2 (N.D. Cal. 2015) (“There is

a liberal policy in favor of granting motions to stay proceedings

pending the outcome of USPTO reexamination or reissuance

proceedings. This policy stems from recognition that granting a

stay can avoid inconsistent results, narrow the issues, obtain

guidance from the PTO, or simply avoid the needless waste of

judicial resources, especially if the evidence suggests that the

patents-in-suit will not survive reexamination.”) (citations and

internal punctuation omitted).

In determining whether it is appropriate to stay litigation

pending patent reexamination, courts typically consider three

factors: (1) whether a stay will unduly prejudice or tactically

disadvantage the nonmoving party; (2) whether a stay will

4 simplify the issues in question and streamline trial of the case;

and (3) whether the case is at an early stage, including whether

discovery is complete and whether a trial date has been set. See

CANVS Corp. v. United States, 118 Fed. Cl. 587, 591-92 (2014)

(collecting cases).

Discussion

In support of its argument that the court should not stay

these proceedings, Emseal asserts that any delay in litigating

its claims would put it at a substantial tactical disadvantage.

Specifically, it says a stay would: (1) delay its ability to

exclude defendants from producing and marketing (allegedly)

infringing products; (2) delay discovery in this matter, leading

to the potential loss of essential materials and/or testimony;

(3) “avoid” a hearing on its motion to dismiss various

counterclaims asserted by defendants and “deprive” it the

opportunity to defend itself against defendants’ counterclaims;

and (4) afford defendants the benefit of a “lower standard of

proof (preponderance of evidence) before the USPTO than the

higher standard of proof (clear and convincing) before the

Court.” Plaintiff’s Memorandum (document no. 34-1) at 3. None

of those arguments is persuasive.

5 First, while there may well be some delay in Emseal’s

ability to preclude defendants from selling infringing products

(assuming, of course, that the ‘495 patent is valid and

defendants’ products actually infringe), Emseal has not sought a

temporary restraining order, nor has it moved for preliminary

injunctive relief. Such choices imply that Emseal has been

content to let this litigation proceed to its conclusion and,

should it prevail, that monetary damages will be sufficient to

make it whole. See generally Procter & Gamble Co. v. Kraft Foods

Global, Inc., 549 F.3d 842, 850 (Fed. Cir. 2008) (counseling

against issuance of a stay if the court has already granted a

party’s request for preliminary injunctive relief).

Second, while a stay will obviously delay discovery, Emseal

fails to show how it will be prejudiced by such a delay.

Moreover, Emseal is incorrect in asserting that a stay will

prevent the court from addressing its pending motions to dismiss

various counterclaims advanced by defendants. It will not.

Assuming the ‘495 patent survives reexamination, the court will

have ample opportunity to resolve those motions.

Finally, Emseal’s argument that a stay will deprive it of

the more favorable standard of review applicable in this court is

misplaced. While it is certainly true that the ‘495 patent is

6 entitled to a presumption of validity in this forum, that is of

little moment. Whether this court grants a stay or not, should

the USPTO invalidate that patent, all of the claims advanced in

Emseal’s consolidated complaint will be foreclosed, as each

relies upon defendants having unlawfully infringed Emseal’s

intellectual property rights, as embodied in the ‘495 patent.

Considering the totality of the circumstances presented in

this case, the court is persuaded that, on balance, the factors

discussed above counsel in favor of granting a limited stay.

Emseal has not shown that it will be unduly prejudiced or

tactically disadvantaged if the court stays this proceeding. Of

course the stay can be limited in duration, thereby minimizing

the risk, to all parties, that memories of relevant witnesses may

fade, or that critical documents might somehow be lost.

Additionally, if the patent is deemed valid, the court will

benefit from the USPTO’s special expertise and evaluation of the

relevant prior art. If, on the other hand, the ‘495 patent is

deemed invalid, each of Emseal’s three claims will be foreclosed,

as they all turn on defendants’ alleged unlawful sale of

infringing goods.

Plainly, then, regardless of the outcome of the USPTO’s

reexamination process, allowing that process to run its course -

7 assuming that happens in a reasonably timely manner - will assist

the court, simplify the issues in question, and streamline trial

of the case. See Cygnus Telecomms. Tech., LLC v. United World

Telecom., L.C., 385 F. Supp. 2d 1022, 1023 (N.D. Cal. 2005) (“A

stay is particularly justified where the outcome of the

reexamination would be likely to assist the court in determining

patent validity and, if the claims were canceled in the

reexamination, would eliminate the need to try the infringement

issue.”). As the Court of Appeals for the Federal Circuit has

observed:

The present stay has thus not terminated the action but has merely shifted to the PTO an issue (patent claim validity) involved in the dispute before the district court. One purpose of the reexamination procedure is to eliminate trial of that issue (when the claim is canceled) or to facilitate trial of that issue by providing the district court with the expert view of the PTO (when a claim survives the reexamination proceeding). Early versions of what became the reexamination statute, 35 U.S.C. §§ 301–307 (Supp. V 1981), expressly provided for a stay of court proceedings during reexamination.

Gould v. Control Laser Corp., 705 F.2d 1340, 1342 (Fed. Cir.

1983).

Finally, the court notes that this potentially complex and

lengthy litigation is at a very early stage and discovery is far

from complete. Emseal has made only a preliminary discovery

request (and, that request was made after defendants had already

8 moved to stay these proceedings). No depositions have been taken

or even noticed. No substantial discovery has commenced. That

fact also counsels in favor of granting a (limited) stay of this

litigation. See generally Everett Labs., Inc. v. River’s Edge

Pharms. LLC, 2009 WL 4508584, *4 (D.N.J. Nov. 24, 2009) (“One of

the most critical factors in determining whether to stay

litigation pending the outcome of a reexamination proceeding is

the stage of the litigation. Courts stress the importance of the

stay being sought early in the litigation.”).

Conclusion

The issuance of a limited stay of these proceedings will not

unduly prejudice or tactically disadvantage Emseal. As

importantly, it will likely simplify the issues in question and

streamline trial of the case, thereby employing the limited

resources of both the parties and the court in a more efficient

manner. Moreover, this case is plainly at a very early stage, so

the parties have yet to expend substantial time or resources

conducting discovery or addressing the merits of Emseal’s

(potentially invalid) patent claims.

For the foregoing reasons, as well as those set forth in

defendants’ memoranda (documents no. 30-1 and 41), defendants’

motion to stay these proceedings (document no. 30) is granted.

9 This litigation, including all discovery and motion practice,

shall be stayed until further order of the court.

In 90 days, the parties shall file with the court a joint

status update, apprising the court of the status (to the extent

it is known) of the reexamination process. When the USPTO has

completed its review of the ‘495 patent, the parties shall notify

the court. If the USPTO has not completed that process within

six months - that is, by September 30, 2015 - Emseal may, but is

not required to, petition the court to lift the stay. Defendants

may file an objection to any such motion within 30 days of its

filing.

The following pending motions are denied, without prejudice

to refiling once the stay is lifted:

1. Motion to Dismiss for Failure to State a Claim (document no. 14).

2. Motion to Strike (document no. 15).

3. Motion to Dismiss for Failure to State a Claim (document no. 19).

4. Motion to Strike (document no. 20).

5. Motion to Dismiss Count Three of Defendants’ Counterclaims (document no. 47).

Finally, in light of the court’s order granting defendants’

motion to stay these proceedings (including all discovery),

10 defendants’ motion to stay discovery (document no. 33) is denied

as moot.

SO ORDERED.

____________________________ Steven J. McAuliffe United States District Judge

March 27, 2015

cc: James E. Hudson, III, Esq. Gary E. Lambert, Esq. Robert R. Lucic, Esq. John H. Mutchler, Esq. Brian D. Thomas, Esq.