Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 1 of 13

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1 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 1 of 13 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ) BRIESE LICHTTENCHNIK VERTRIEBS ) No. 09 Civ GmbH, and HANS-WERNER BRIESE, ) ) ORDER DENYING MOTION TO Plaintiffs, ) STAY EXECUTION OF THE ) JUDGMENT -against- ) ) BRENT LANGTON, B2PRO, KEY ) LIGHTING, INC., and SERGIO ORTIZ, ) ) Defendants. ) ) ) ) I. INTRODUCTION Now pending before the Court is Defendants' motion to stay execution of damages pending reexamination of the patent in suit by the U.S. Patent and Trademark Office ("PTO"). ECF Nos. 487 ("Mot."), 488 ("Mem."). The Motion is fully briefed and appropriate for resolution without oral argument. ECF Nos. 492 ("Opp'n"), 499 ("Reply"), 504 ("Surreply"). For the reasons set forth below, the Motion is DENIED. II. BACKGROUND This is a patent infringement action brought by Hans-Werner Briese and Briese Lichttenchnik Vertriebs GmbH (collectively "Plaintiffs") against B2Pro, Key Lighting, Inc. ("Key

2 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 2 of 13 Lighting"), Brent Langton, and Sergio Ortiz (collectively, "Defendants") concerning U.S. Patent No. 5,841,146 (the "'146 patent"), an umbrella-shaped light reflector for use in photography and videography. Plaintiffs initially alleged infringements of Claims 1-13 and of the '146 patent. ECF No In April 2013, Plaintiffs informed Defendants that, in order to narrow the dispute and avoid unnecessary litigation costs, they would only assert Claim 1 at trial. ECF No The case proceeded to trial in October The jury found all four Defendants jointly and severally liable for infringing Claim 1 of the '146 patent and awarded damages of $300,000. The jury also found that the infringement was willful. ECF No On March 5, 2014, the Court entered judgment in favor of Plaintiffs in the amount of $953,424.66, which encompassed $300,000 in compensatory damages, $600,000 in enhanced damages, and pre-judgment interest in the amount of $53, ECF No The Court also awarded post-judgment interest, and enjoined Defendants from further use of the infringing devices. Id. Defendants have appealed the judgment to the Federal Circuit. ECF No Only a few days before trial, on September 24, 2013, Defendants filed a request for reexamination with the PTO, requesting reexamination of Claims 1-13 and of the '146 patent. ECF No ("Non-Final Office Action"). The PTO granted the request for reexamination on November 20, Id. Plaintiffs were given until January 20, 2014 to file a statement to challenge the PTO's decision to grant the reexamination, but 2

3 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 3 of 13 they declined to do so. On January 31, 2014, the PTO issued a Non-Final Office Action rejecting Claim 1 and various other claims as invalid in light of the prior art. Id. Defendants now move to stay execution of the damages awarded by the judgment, pending resolution of the reexamination proceedings before the PTO. III. DISCUSSION Defendants' motion conflates the standard for a stay pending PTO examination and the standard for a stay pending appeal. It is unclear whether Defendants are advocating a new, hybrid standard or whether they are moving in the alternative for a stay pending appeal. The Court gives Defendants the benefit of the doubt and assumes they are moving in the alternative. The Court considers both types of stays below. A. Stay Pending PTO Examination District courts have the discretion to stay proceedings pending the conclusion of a PTO examination. Telemac Corp. v. Teledigital, Inc., 450 F. Supp. 2d 1107, 1110 (N.D. Cal. 2006). In determining whether a stay is appropriate, courts generally consider three factors: "(1) whether discovery is complete and whether a trial date has been set; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether a stay would unduly prejudice or present a clear tactical disadvantage to the nonmoving party." Id. The Court finds all three factors weigh against a stay in the instant action. 3

4 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 4 of 13 As to the first factor, the proceedings in this case have proceeded far beyond the early stages. Discovery has concluded and the jury rendered a verdict on Plaintiffs' claim for patent infringement months ago. Instead of requesting reexamination soon after this case was filed, Defendants waited over four years. Defendants point out that the judgment is non-final and on appeal. Reply at 3. But the fact that a judgment has already been entered weighs against a stay, not in favor of it. With respect to the second factor, a stay could not possibly simplify the issues for trial since the trial has concluded. Defendants argue that the PTO's decision could simplify the issues on appeal. Id. at 3-4. But Defendants are merely asking the Court to stay execution of damages, not their appeal to the Federal Circuit. To the extent that they are seeking a stay of the appeal, Defendants have cited no authority establishing that the Court has the power to issue such an order. Moreover, it is unclear that the PTO proceedings will change anything. The PTO's action on the '146 patent is nonfinal, and Plaintiffs have yet to present their arguments to the PTO on the merits of the reexamination. Defendants make much of the fact that Plaintiffs did not file a statement to challenge the PTO's decision to grant the reexamination. Mem. at 3. But Plaintiffs' response was optional, ECF No at 3, and there are legitimate tactical reasons for declining to file such a response, ECF No. 493 ("Serbin Decl.") Ex. C at 34. Thus, while the PTO's Non-Final Office Action does not bode well for the 4

5 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 5 of 13 validity of the '146 patent, it is not dispositive. Since the reexamination is still in its early stages, the PTO's initial conclusions may change. As to the third factor, a stay would prejudice and present a clear tactical disadvantage to Plaintiffs. Plaintiffs initially asserted that Defendants had infringed fifteen of the claims in the '146 patent. Plaintiffs later decided to focus only on Claim 1 in order to simplify the issues for trial. Had Plaintiffs known that Defendants would request reexamination, they might have continued to assert a number of other '146 patent claims at trial, just in case the PTO found some of the claims invalid and others valid. Thus, Defendants' decision to request reexamination only a few days prior to trial -- long after Plaintiffs strategically narrowed the claims at issue disadvantaged Plaintiffs.' Moreover, as this case has been pending since 2009, additional delay in compensating Plaintiffs for Defendants' willful infringement would further prejudice Plaintiffs. The Court's conclusion is not remarkable, as courts generally disfavor motions to stay filed late in the proceedings. See, e.g., Viskase Corp. v. Am. Nat. Can Co., 261 F.3d 1316, 1328 (Fed. Cir. 2001) (affirming district court's denial of motion to stay filed by defendant where reexamination sought after trial); Storus Corp. v. Aroa Mktg., Inc., C Defendants argue that Plaintiffs limited their infringement claims to moot Defendants' motion in limine to preclude Plaintiffs from introducing certain expert testimony. Reply at 13. But it is altogether unclear that Plaintiff believed that the Court would grant Defendants' motion in limine. 5

6 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 6 of 13 MMC, 2008 WL , at *1 (N.D. Cal. Feb. 25, 2008) ("Parties should not be permitted to abuse the reexamination process by applying for reexamination after protracted, expensive discovery or trial preparation.") (quotations omitted); Fresenius Med. Care Holdings, Inc. v. Baxter Int'l, Inc., C SBA, 2007 WL , at *3 (N.D. Cal. June 7, 2007) ("[W]here. discovery has commenced, claim construction has been briefed, and dispositive motions have been filed and disposed of, courts should not grant stays for reexamination before the PTO."); Eolas Techs. Inc. v. Microsoft Corp., 99 C 0626, 2004 WL , at *6 (N.D. III. Jan. 15, 2004) ("[T]here is little support, if any, for staying entry of judgment when reexamination is ordered well into the briefing period for post-trial motions"), rev'd on other grounds, 399 F.3d 1325 (Fed. Cir. 2005). Moreover, the cases Defendants cite in favor of a stay are inapposite. In Fresenius USA, Inc. v. Baxter International, Inc., the Federal Circuit held that, when the PTO cancels a patent claim upon reexamination, "the patentee loses any cause of action based on that claim, and any pending litigation in which the claims are asserted becomes moot." 721 F.3d 1330, 1340 (Fed. Cir. 2013). However, the Federal Circuit's decision in Fresenius did not address the issue presented here: under what circumstances should a district court stay an action pending reexamination. And contrary to Defendants' arguments, there is no indication that Fresenius disturbed the three-factor test for a stay enunciated in Telemac. 2 2 See Apple, Inc. v. Samsung Electronics Co., Ltd., 11-CV LHK, 2013 WL , at *1 (N.D. Cal. Nov. 25, 2013) (post 6

7 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 7 of 13 Fresenius does highlight a potential danger in declining to stay the enforcement of a judgment, as the Federal Circuit stated that cancellation of a patent's claims cannot be used to reopen a final damages judgment. Id. Thus, if the Federal Circuit affirms the judgment in this case and the PTO later cancels the '146 patent, Defendants cannot use the PTO decision to cancel the judgment. However, these concerns are premature. The PTO could render a final action on the validity of the '146 patent while the appeal is pending and the judgment remains nonfinal. If so, the Court would be willing to reconsider its decision on the stay. The district court decisions cited by Defendants are not binding on this Court, and are inapposite in any event. In Baseball Quick, LLC v. MLB Advanced Media L.P., the Court stayed proceedings because the PTO issued an Action Closing Prosecution that rejected all claims of the patent in suit U.S. Dist. LEXIS , at *3-5 (S.D.N.Y. Oct. 9, 2013). In contrast, in the instant action, the PTO has only issued a non-final office action, without the benefit of input from Plaintiffs. Moreover, the Baseball Quick court noted that "it is not this Court's typical practice or inclination to stay patent infringement actions pending resolution of the USPTO reexamination process." Id. at *3. In both Xerox Corp. v. 3Com Corp., 97-CV-6182T, 1999 U.S. Dist. LEXIS 9977 (W.D.N.Y June 25, 1999), and K.G. Motors v. Fresenius decision applying Telemac test); PersonalWeb Techs., LLC v. Facebook, Inc., 5:13-CV EJD, 2014 WL , at *3 (N.D. Cal. Jan. 13, 2014) (same). 7

8 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 8 of 13 Specialized Bicycle, 11 Civ (KBF), 2009 U.S. Dist. Lexis (S.D.N.Y. July 22, 2009), courts granted motions to stay. But the motions in those cases were filed relatively early in the proceedings. In Xerox, the motion to stay was filed prior to the Markman hearing U.S. Dist. LEXIS 9977, at *4-5. In K.G. Motors, the defendant requested reexamination by the PTO only two months after the lawsuit was filed, and moved to stay about one month after that U.S. Dist. Lexis 62870, at *1-2. In contrast, in the instant action, Defendants waited to file a request for reexamination until days before trial, and years after Plaintiffs filed suit. Flexiteek Americas, Inc. v. Plasteak, Inc., , 2012 U.S. Dist. LEXIS (S.D. Fla. Sept. 10, 2012), is also distinguishable. In that case, the defendants were held liable for literal patent infringement at trial and the district court enjoined defendants from further use of the accused devices. Id. at *12. After entry of final judgment, but before the appeal, the defendants initiated an ex parte reexamination of the patent in suit. Id. The PTO considered the plaintiff's arguments, but rejected the only patent claim at issue in the proceedings before the district court. Id. After the PTO issued a final office action and denied the plaintiff's request for reconsideration, the district court terminated the injunction and stayed execution of the judgment pending the plaintiff's appeal to the Board of Patent Appeals and Interferences. Id. at * Later, the Federal Circuit affirmed the judgment of the district court and the PTO 8

9 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 9 of 13 cancelled the sole claim at issue in the proceedings. Id. at * The magistrate judge recommended that the district court grant the defendant's Rule 60 motion for relief from the judgment, reasoning "it would be inequitable and unjust to let stand, let alone enforce, an injunction and an unexecuted money judgment predicated on a patent claim found to be invalid and cancelled." Id. at *36. The magistrate judge also noted that the "[d]efendants moved as expeditiously as could be expected," as the plaintiffs had failed to disclose invalidating prior art during discovery. Id. at *37. The district court subsequently adopted the magistrate judge's report and recommendation U.S. Dist. LEXIS (S.D. Fla. Oct ). In contrast, in the instant action, the PTO has yet to issue a final office action, cancel the patent in suit, or even consider Plaintiffs' arguments in favor of validity. Moreover, there is no indication that Plaintiffs failed to disclose invalidating prior art or that Defendants moved expeditiously in seeking reexamination. For these reasons, Defendants' motion to stay execution of the judgment pending the PTO examination is DENIED. B. Stay Pending Appeal Defendants could obtain a stay pending appeal as a matter of right by posting a supersedeas bond to secure the amount of the judgment. De la Fuente v. DCI Telecomms., Inc., 269 F. Supp. 2d 237, 240 (S.D.N.Y. 2003). However, Defendants ask the Court to stay the action without requiring a bond. Accordingly, the Court must consider (1) whether Defendants are likely to 9

10 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 10 of 13 prevail on the merits of their appeal to the Federal Circuit, (2) whether denying a stay would irreparably harm Defendants, (3) whether issuance of a stay will substantially harm Plaintiffs, and (4) where the public interest lies. See Hilton v. Braunskill, 481 U.S. 770, 776 (1987). The Court finds that these factors do not favor a stay. As to the first factor, Defendants argue that they are likely to succeed on their appeal because the PTO has issued a Non-Final Office Action finding that Claim 1 of the '146 patent is invalid. Reply at However, as discussed above, the PTO proceedings are still at an early stage and the PTO has yet to consider Plaintiffs' arguments in favor of validity. Defendants argue that Plaintiffs waived their right to file an initial statement to delay the PTO's final resolution of the reexamination. Id. at 15. But Plaintiffs' tactical decisions would not be an issue if Defendants had not waited four years to file their request for reexamination. Moreover, the PTO and federal courts employ different standards of proof when assessing invalidity. Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1429 (Fed. Cir. 1988). Thus, "even where the PTO's determination by preponderance of the evidence invalidates a patent, no inconsistency arises upon a contrary finding by the district court based on clear and convincing evidence." Fisher- Price, Inc. v. Kids II, Inc., 10-CV-00988A F, 2011 WL , at *5 (W.D.N.Y. Dec. 21, 2011). With respect to the second factor, Defendants argue that enforcing the judgment could effectively put Key Lighting out of 10

11 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 11 of 13 business. Mot. at 6. Defendants rely on the declaration of Mr. Langton, but that declaration is vague on Key Lighting's actual financial condition and appears to speculate on the impact of the judgment. 3 ECF No This case is distinguishable from Standard Havens Products v. Gencor Industries, where the Federal Circuit granted a stay based in part on irreparable harm to the defendant. 897 F.2d 511, 515 (Fed. Cir. 1990). Unlike the vague declaration submitted here, the defendant in Standard Havens submitted an affidavit from its vice president, as well as a corroborating affidavit from its independent accountant, stating that enforcement of the judgment would result in "employee layoffs, immediate insolvency, and, possibly, extinction." Id. Mr. Langton's declaration is also at odds with the evidence adduced at trial, which indicates that Defendants earned over $4 million in total revenue from July 2009 through July 2010 alone. ECF No. 477 at 14. Moreover, Defendants do not address the financial condition of the other three defendants, who are also jointly and severally liable for the judgment. 4 Without more information about the financial condition of all four defendants, the Court cannot find that 3 On reply, Defendants appear to argue that Mr. Langton was actually referring to B2Pro, not Key Lighting, further underscoring the vagueness of his declaration. Reply at Defendants argue that the finances of Messrs. Ortiz and Langton are tied to B2Pro, because they are employees of the company. Reply at 19. But the evidence adduced at trial shows that Messrs. Ortiz and Langton jointly run B2Pro as a partnership. In any event, Defendants have presented no evidence that Messrs. Ortiz and Langton have no income or assets outside of B2Pro and Key Lighting. 11

12 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 12 of 13 execution of the judgment would cause irreparable harm. To the extent that the execution of the judgment will harm Defendants, they could have avoided that harm had they requested a PTO reexamination years ago. See Fresenius, 2007 WL , at *6 ("Any irreparable harm that Fresenius will suffer will be of its own making, attempting, as it did, to 'game the system' by playing both fields simultaneously.") The Court finds that the third and fourth factors are neutral. Further delay in the execution of the judgment may be inconvenient, but there is no indication that Plaintiffs will suffer financial hardship absent immediate compensation. Further, since the Court has awarded Plaintiffs post-judgment interest and enjoined Defendants from using the accused devices, Plaintiffs would be compensated for any delay in the execution of the judgment and would not suffer any competitive disadvantage during the appeal. As to the fourth factor, there is no indication that the public has an interest in the execution of the judgment in this action. On balance, the Court finds that, absent a supersedeas bond, a stay pending appeal is not warranted here. IV. CONCLUSION For the reasons set forth above, Defendants' motion for a stay of execution of the judgment is DENIED. Nothing in this Order precludes Defendants from posting a bond and moving for a stay pending appeal as a matter of right pursuant to Federal Rule of Civil Procedure 62(d). Moreover, Defendants may renew 12

13 Case 1:09-cv SC-MHD Document 505 Filed 04/11/14 Page 13 of 13 their motion for a stay if the PTO issues a final office action rejecting the claims at issue in the '146 patent. IT IS SO ORDERED. April 11, 2014 UNITED STATES DISTRICT JUDGE 13