IP Law Daily, PATENT—E.D. Pa.: Infringement proceedings against Target suspended during inter partes review of 27 claims involving maternity pants patent, (Mar 25, 2014)

By Mark Engstrom, J.D.

The federal district court in Philadelphia has stayed the proceedings of a lawsuit involving a patent for flexible maternity pants (Destination Maternity Corp. v. Target Corp., March 24, 2014, Brody, A.). Because all three stay factors favored the temporary suspension of a patent action that Destination Maternity Corporation (DMC) had brought against Target Corporation (and Elizabeth Lange LLC), the court stayed the proceedings pending inter partes review of the patentability of 27 claims.

Background. In October of 2012, DMC sued the defendants for patent infringement. Seven months later, DMC served its disclosure of asserted claims and infringement contentions, which identified for the first time the specific claims that DMC was asserting. Nearly four months thereafter, Target filed petitions for inter partes review. The petitions asked the Patent Trial and Appeal Board (“PTAB”) to invalidate all 29 claims that DMC was asserting against the defendants in this case. The following day, Target filed a motion to stay the litigation in this case pending the resolution of the petitions for inter partes review.

In February of 2014, the PTAB concluded that Target would likely prevail on 27 of the 29 challenged claims, and thus instituted inter partes review proceedings for the 27 claims. Although 2 of the 29 claims were not included in the review, Target was planning to file two new review petitions that demonstrated the invalidity of those claims, based on Japanese prior art that was not disclosed to Target before the original petitions for inter partes review were filed. Target thus believed that all 29 claims would soon be subject to inter partes review proceedings.

In determining whether to stay an action pending inter partes review, courts considered whether: (1) a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (2) a stay would simplify the issues in question and trial of the case; and (3) discovery was complete and a trial date had been set.

Prejudice, tactical disadvantage. DMC argued that Target had intentionally delayed the filing of its inter partes review petitions to gain a tactical advantage in the litigation. Target filed its petitions for inter partes review more than ten months after DMC filed its complaint; a day later, Target filed its motion to stay. According to DMC, the extended delay between the filing date of the complaint and the filing date of the petitions for inter partes review permitted an inference that Target’s delay was impermissibly tactical.

Target noted that, although DMC had filed its complaint in October of 2012, it waited until May of 2013 to serve its infringement contentions. Prior to receiving those contentions, Target did not know which of the 50 possible patent claims DMC would assert. Target emphasized that, once it learned about the patent claims that DMC was asserting, it was able to prepare and file its petitions for inter partes review in fewer than four months.

In similar cases, courts have found that a similar delay between the filing of a complaint and the filing of an inter partes review petition was not unreasonable, the court observed. In this case, Target filed its petitions within the statutory time frame, and it filed its motion to stay only a day after its review petitions were submitted. Target’s actions did not permit the inference that its delay was impermissibly tactical, the court explained. In light of those facts, Target’s delay was not unreasonable and did not place DMC at an unfair tactical disadvantage.

DMC also alleged that it would be unduly prejudiced by a stay of litigation because Target was a direct competitor. However, the fact that there were other competitors in the market, in addition to Target, undermined DMC’s assertion of undue prejudice based on a loss of market value.

Although DMC and Target were direct competitors, DMC had several other competitors in the market, including H&M, Babies “R” Us, Walmart, Old Navy, J.C. Penny, and Gap. Although DMC could experience a loss of market share during a delay in litigation, only a fraction of that loss would be attributable to Target because other competitors continued to compete for market share, without repercussions. DMC could experience prejudice as a result of a stay, but multiple competitors belied the assertion that DMC would experience undue prejudice because of a loss of market value.

Finally, DMC never sought a preliminary injunction, which suggested that any prejudice suffered from a delay in the resolution of the dispute would not be as severe as DMC had contended. Because a stay would not unduly prejudice DMC or place it at a tactical disadvantage, the first stay factor favored Target.

Issue simplification. DMC argued that a stay would not simplify the issues because two of the asserted claims were not included in the inter partes review proceedings. Target disagreed. The PTAB’s review of 93 percent of the asserted claims would “certainly” simplify the issues, in Target’s view. Further, Target planned to file two new inter partes review petitions that demonstrated the invalidity of the two claims that were not yet subject to review. Target hoped that the new petitions would be joined with the other petitions if the PTO instituted review proceedings for those two claims.

Whether or not the two remaining claims would be accepted for inter partes review, a significant probability existed that at least one of the 27 claims that were already accepted would be cancelled—because the PTO could not institute inter partes review unless a reasonable likelihood existed that the petitioner would prevail “with respect to at least 1 of the claims challenged in the petition.”

Even if all of the claims were ultimately confirmed, the court would likely benefit from the PTO’s analysis of prior art because “the PTO has acknowledged expertise in evaluating prior art and assessing patent validity.” Issues or defenses that could not be addressed through inter partes review could arise, but the PTO’s review of 93 percent of the asserted claims would very likely provide a significant simplification of the issues. Accordingly, the issue simplification factor favored Target.

Stage of litigation. The court noted that a case did not need to be in its infancy to warrant a stay. In fact, courts granted stays “even where discovery has been completed and even when a trial date has been scheduled or is forthcoming.”

The court acknowledged that the parties in this case had already conducted a significant amount of discovery. Nevertheless, fact and expert discovery were “nowhere near complete,” the parties had not filed any dispositive motions, and a trial date had not yet been set. In addition, the court had conducted only two conferences with the parties, resolved only one disputed motion, and resolved no discovery disputes. Ultimately, the court had invested limited resources in the case thus far.

Moreover, if litigation continued without a stay, the parties and the court would have to expend a considerable amount of resources on discovery, motions practice, and trial. The grant of a stay would therefore avoid the potential waste of judicial and litigant resources. Given the substantial amount of work that lay ahead, the stage of litigation factor favored Target.

The case is No. 12-5680.

Attorneys: Francis W. Ryan (DLA Piper LLP) for Destination Maternity Corp. Andrew F. Johnson (Faegre Baker Daniels LLP) for Target Corp. and Elizabeth Lange, LLC.

Companies: Destination Maternity Corp.; Target Corp.

Cases: Patent PennsylvaniaNews