United States: Come On And Take A Free Ride

Last Updated: March 13 2014
Article by   Orrick

Motion to Stay Pending Inter Partes Review Conditionally Granted, Evolutionary Intelligence, LLC v. Sprint Nextel Corp., Case No. C-13-4513-RMW (J. Whyte).

The mountain is high

The valley is low

And you're confused on which way to go

So I've come here to give you a hand

And lead you into the promised land

So...

Come on and take a free ride [free ride!]

Come on and sit here by my side

Come on and take a free ride!

The Edgar Winter Group – Free Ride – Epic Records (1972) (music and lyrics by Dan Hartman).

On October 2012, non-practicing entity Evolutionary Intelligence LLC filed nine lawsuits—in the Eastern District of Texas—alleging infringement of two patents addressed to "systems and methods for creating and manipulating information containers with dynamic registers" against a who's-who of Bay Area technology stalwarts including Apple, Facebook, Groupon, LivingSocial, and Twitter, and also against telecommunications/internet carrier Sprint Nextel.  Over the course of the summer of 2013, all were transferred to N.D. Cal where they sat, and continue to sit, unrelated before more than a half-dozen judges and magistrates.  Last fall, defendants Apple, Yelp, Twitter, and Facebook filed a series of petitions for inter partes review ("IPR") under the America Invents Act, collectively seeking review of all of the claims of the asserted patents.  Subsequently, courts granted stays in seven of the nine cases, including for defendants Foursquare, Groupon, and LivingSocial, none of whom had filed IPR petitions.  In each of the latter three cases, the court (Judges Chesney, Illston, and Orrick, respectively) granted a stay based solely on the traditional three-factor test¹  — providing these grasshoppers a free ride on the petitions of their fellow-defendant ants.  Most recently, on February 28, Judge Whyte granted a stay for a fourth non-petitioning defendant, in Evolutionary Intelligence, LLC. v. Sprint Nextel Corp., Case No. C-13-4513-RMW.  Sprint, however, did not get off quite as scot-free.

The America Invents Act encourages courts to stay patent litigation pending inter partes review by requiring speedy review petitions—up to three times as quickly as the PTO was managing under the prior law.  And, the AIA assures courts that no matter the result of IPR, the case will come back simpler than it left because win or lose, the IPR petitioner is estopped from relitigating invalidity arguments that were raised or could have been raised in the IPR.  35 U.S.C. § 315(e)(2).  This quid-pro-quo is frustrated however when parties fighting the same patent in a different lawsuit realize the benefit of the stay, yet none of the downsides of estoppel that attach to pursuing an IPR given that by its language, the statute does not preclude non-IPR filers from taking a second swing at any arguments that didn't fly with the PTO.  Should a free rider not only enjoy the savings of not filing an IPR, but also avoid estoppel?

Judge Whyte was not inclined to think so.  He predicated the grant of a stay on Sprint's willingness to agree to be estopped from raising invalidity arguments actually raised by the other defendants.  In limiting the estoppel only to arguments actually raised by the IPR participants, Judge Whyte credited Sprint's argument that it hadn't been involved in the IPR process at all.  And, he noted that the purpose of the statutory estoppel—"protect[ing] patent owners from harassment via successive petitions by the same or related parties, prevent[ing] parties from having a 'second bite at the apple,' and protect[ing] the integrity of both the USPTO and Federal Courts by assuring all issues are promptly raised and vetted" would be adequately served by preventing Sprint from relitigating arguments actually raised during IPR.

Judge Whyte is not the only judge to have predicated the grant of a stay on an agreement to be bound by some form of estoppel.  N.D. Cal Magistrate Judge Grewal considered the same question in Pi-Net Int'l, Inc. v. Focus Bus. Bank, C-12-4958 PSG (N.D. Cal.) and, granted a stay only on the condition that they would be estopped only from relitigating any invalidity argument that was actually raised in the IPR.  In e-Watch Inc. v. Mobitiz Corp., Civ. No. 12-CV-00492-FB-PMA (W.D.Tex), under analogous circumstance, the court granted a stay but explicitly left open the future preclusive effect of arguments raised by others during IPR.

So what about Sprint's fellow grasshoppers?  Groupon obtained a stay although it refused to be estopped by arguments raised by others in IPR.  The LivingSocial court also granted a stay despite Evolutionary Intelligence's argument that because LivingSocial did not join in the IPR process it therefore would not be estopped from rearguing prior art raised in those proceedings.  Finally, Foursquare received an order staying its case that did not mention estoppel at all.

Allowing non-filing defendants to take advantage of someone else's IPR filing is one way the economies of scale that can make litigation as a business model profitable—stamping out related pleadings against numerous defendants—can be reversed  against a non-practicing entity.  If you're one of a dozen or more targets in an NPE's sights, odds are good that someone is going to take advantage of IPR,  if it's available.  If someone does, you could get lucky, like Groupon, LivingSocial, and Foursquare, and catch a free ride to a second bite at the apple if the IPR fails to do the job.  But travel safely – you could lose your best art if you rely on a bad driver for the trip.

Footnote

1. (1) the stage and history of the litigation, (2) whether granting the stay may simplify issues the issues and question and an eventual trial, and (3) whether a stay would unduly prejudice one party or present a clear tactical disadvantage.

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