Case 5:12-cv FB-PMA Document 42 Filed 08/09/13 Page 1 of 22 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

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1 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 1 of 22 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION e-watch, INC., Plaintiff, v. ACTi CORPORATION, INC., Defendant. CIVIL NO. SA-12-CA-69-FB REPORT AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE TO: Honorable Fred Biery Chief United States District Judge Pursuant to the order of referral of the above-styled and numbered cause to the 1 undersigned United States Magistrate Judge for pretrial management, and consistent with the authority vested in United States Magistrate Judges under the provisions of 28 U.S.C. 636 and Rule 1 of the Local Rules for the Assignment of Duties to United States Magistrate Judges, Appendix C to the Local Rules for the Western District of Texas, the following report is submitted for your review and consideration of defendant ACTi Corporation, Inc. s ( defendant or ACTi ) opposed motion for stay pending the conclusion of inter partes review ( IPR ) 2 proceedings ( IPR ) involving three of the four patents-in-suit, filed July 17, I. JURISDICTION Subject matter jurisdiction is noted pursuant to 28 U.S.C and 1338(a) because plaintiff asserts claims arising under federal laws relating to patents and unfair competition. 1 2 Docket no. 40. Docket no. 37.

2 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 2 of 22 II. SUMMARY OF PROCEDURAL HISTORY Plaintiff, e-watch, Inc. ( plaintiff or e-watch ), initiated the case on July 17, 2012, 3 when it filed its original complaint for patent infringement against ACTi. Plaintiff alleges it is a Nevada corporation with a principal place of business in San Antonio, Texas, and ACTi is a 4 Delaware corporation with a principal place of business in Irvine, California. The case concerns patents for use in digital camera systems, such as those used for surveillance systems. Plaintiff s first amended complaint is its live pleading. Plaintiff asserts: e-watch has developed and marketed a digital camera system, which, among other things, has the capability of creating high resolution still and streaming video signals from a multiplicity of image transducers, compressing the digital image signal, and sending a multiplicity of image signals over a digital network. The advantage of e-watch s technology is, among other things, that it allows live monitoring and digital recording of high resolution, full frame rate, color images, either on site, offsite, or in distributed locations. Plaintiff alleges ACTi makes, uses, sells, and provides, or attempts to do so, products which use 6 the systems and methods described by claims in patents owned by e-watch. Plaintiff alleges infringement of four patents that it owns: United States Patent No. 6,970,183 ( the 183 patent ); United States Patent No. 7,228,429 ( the 429 patent ); United States Patent No. 7,733,371 ( the 371 patent ); and United States Patent No. 7,89,396 ( the 3 Docket no. 1. Upon filing, the case was assigned to the docket of Chief United States District Judge Biery. On August 8, 2012, Chief Judge Biery transferred the case to the docket of Senior United States District Judge Hudspeth. Docket no.. As discussed further below, on July 23, 2013, Judge Hudspeth transferred the case back to the docket of Chief Judge Biery. Docket no Docket no. 1 at 1. Docket no. 1 at 3, 8. Id. at 3-4, 10. 2

3 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 3 of patent ). Plaintiff asserts ACTi makes, uses and sells, or attempts to make, use or sell, or otherwise provides throughout the United States and within the geographical area covered by the United States District Court for the Western District of Texas products and services in the form of ACTi camera models utilizing encoder firmware v AC or equivalent and ACTi cameras using firmware v or later which include but are not limited to models ACM-3411, ACM-3401, ACM-3703, ACM-3701, ACM-7411, ACM 811, TCM-111 TCM-311, TCM-601, TCM-611, TCM-1111, TCM-1231, TCM-4201, TCM-411, TCM-3111, TCM-311, TCM-7411, TCM-7811, ACM-811, and TCM These camera systems and, on information and belief, other camera systems made or sold by the defendant, utilize the systems and methods described by at least one claim in each of the 429, 183, 371 and 396 Patents. 8 Plaintiff seeks an award of actual and consequential damages, to include lost profits, reasonable royalties, unjust enrichment, and benefits received by the Defendant as a result of using the misappropriated technology, exemplary treble damages, a permanent injunction, reasonable and necessary attorneys fees, pre- and post-judgment interest, costs, and such other relief in law and 9 10 equity to which it may be entitled. Plaintiff demands a trial by jury. On December 14, 2012, ACTi filed an answer to e-watch s first amended complaint and 7 Id. at 3. Three of the patents-in-suit in this case ( ACTi ) are also patents-in-suit in e- Watch, Inc. v. Mobotix Corp, SA-12-CA-492-FB ( Mobotix) the 183 patent, 429 patent, and 371 patent. There is a fourth patent-in-suit in Mobotix, that is not a patent-in-suit in ACTi (and, as noted, a fourth patent-in-suit in ACTi that is not a patent-in-suit in Mobotix). The 183 patent a patent-in-suit in ACTi and Mobotix is also a patent-in-suit in e-watch v. Matrix Systems, Inc., SA-12-CA-84-FB ( Matrix ). The 183 patent is the only patent-in-suit in Matrix Id. at 3-4, 10,11. Id. at Id. at 10, 4. 3

4 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 4 of counterclaims. On April 22, 2013, the Court denied ACTi s motion to dismiss and plaintiff s 12 cross-motion to dismiss defendant s counterclaims. 13 On May 6, 2013, ACTi filed a first amended answer and counterclaims. In its first amended answer, ACTi admits the following ACTi cameras can be found in the United States, ACM-3411, ACM-3401, ACM-3703, ACM-3701, ACM-7411, ACM 811, TCM-111[,] TCM311, TCM-601, TCM-611, TCM-1111, TCM-1231, TCM-4201, TCM-411, TCM-3111, TCM-311, TCM-7411, TCM-7811, ACM-811, and TCM-6630 ( Asserted Products ). 14 ACTi denies that any of its products or services use the systems and methods described by at 1 least one claim of any patent-in-suit. ACTi asserts six affirmative defenses, including: noninfringement of the patents-in-suit; invalidity of the patents-in-suit; e-watch is estopped from asserting constructions of the claims of the Patents-in-Suit that read on any accused product of ACTi and from construing any valid claim of the Patents-in-Suit to be infringed literally or under the doctrine of equivalents; any recovery for any alleged infringement of at least the 183 Patent is limited by at least 3 U.S.C. 286; noninfringement of the patents-in-suit based at a minimum on the prosecution history of each of the [patents-in-suit]; and e-watch s first 16 amended complaint fails to state a claim upon which relief may be granted. ACTi also asserts Docket no. 21. Docket no. 30. Docket no. 31. Id. at 2-3, 10. Id. at 3, 11. Id. at 6-7,

5 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page of 22 eight counterclaims in which it seeks declarations of its noninfringement and invalidity of each of the patents-in-suit. ACTi also seeks an award of attorneys fees and costs. ACTi demands a 19 jury trial on its counterclaims. On May 7, 2013, the Court entered an initial scheduling order that provided, among other deadlines, that any motions to amend or supplement pleadings or join new parties must be filed by June 7, 2013, discovery would end on October 7, 2013, and claim construction briefs would be filed on October 17, 2013 (for e-watch) and November 1, 2013 (for ACTi), with the Court 20 thereafter setting dates for a Markman hearing and trial. On May 24, 2013, e-watch filed an answer to ACTi s counterclaims, admitting jurisdiction and certain facts, denying other material 21 facts, and again demanding a trial by jury. Plaintiff asks that each of ACTI s counterclaims be dismissed and that e-watch be awarded its attorneys fees, costs, pre- and post-judgment interest, 22 and such other relief to which it maybe entitled. On June 10, 2013, the Court granted the parties joint motion for a protective order. 23 On July 17, 2013, ACTi filed a motion to stay the litigation of this suit pending inter Id. at 8-13, Id. at 8-14, 13, 17, 21, 24, 28, 32, 36, 40, and at prayer (e), (f). Id. at 13. Docket no. 32. Docket no. 33 at 1-4, Id. at 4-. Docket nos. 34, 3.

6 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 6 of partes review of three of the four patents-in-suit. On July 24, 2013, e-watch filed its 2 response. On July 26, 2013, Chief Judge Biery referred the case to the undersigned for pretrial management. On August 2, 2013, ACTi filed its reply. A. ACTi s Motion III. SUMMARY OF ARGUMENTS ACTi s opposed motion for stay requests an immediate stay of the litigation pending Inter Partes Review of three of the four Patents-in-Suit at the U.S. Patent and Trademark Office 28 ( USPTO ). According to ACTi, [t]he purpose of the USPTO Inter Partes Review proceedings is to establish a more efficient and streamlined patent system that will improve 29 patent quality and limit unnecessary counterproductive litigation costs. ACTi represents that three of the four patents-in-suit are the subject of IPR petitions filed with the USPTO 24 Docket no. 37. ACTi s motion specifically referenced a stay of litigation recently granted by Chief Judge Biery in Mobotix in which three of the patents in this lawsuit [ACTi] are undergoing Inter Partes Review. Id. at 1. On July 23, 2013, Judge Hudspeth transferred the case back to the docket of Chief Judge Biery finding that the patents in this lawsuit are also the subject matter of another lawsuit presently pending before the Honorable Judge Fred Biery, to wit: [Mobotix], and that it would be more expedient and a better utilization of judicial resources for this related matter to be handled by the same judge assigned to that civil action. Docket no Docket no. 39. Docket no. 40. Docket no. 41. Docket no. 37 at Id. at 1-2 (citing Changes to Implement Inter Partes Review Proceedings, 77 Fed. Reg. 17 (Aug. 14, 2012)). 6

7 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 7 of challenging... validity. ACTi argues, in part: its request for stay is timely as the case is in its early stages; neither side is tactically disadvantaged by a stay, as neither party served any discovery before ACTi notified e-watch it intended to file the motion for stay; and a stay could substantially simplify the issues and insure consistent results with Plaintiff s other action pending in this Court regarding the three patents at issue in the IPR petitions. 31 B. e-watch s Response Plaintiff opposes a stay in this case, making six main arguments in support of its position that the requested stay should be denied:! e-watch will be unduly prejudiced by the stay because e-watch and ACTi are direct competitors; the new IPR procedure could cause a delay of up to two years not including the delay for appellate proceedings that would likely arise as a result of a decision; e-watch has requested permanent injunctive relief; [i]f ACTi is found to infringe, a stay will not only compound Plaintiff s damages during the course of the stay, but will cause Plaintiff irreparable injury that is not compensable by money damages; 32! ACTi s contention that denial of a stay would prejudice ACTi is not at issue in the analysis because ACTi floods the United States market with infringing products made with cheap Chinese labor, at the expense of the patent holder who developed the technology; 33! [a] patent is a property right of exclusion, and is presumed valid, and a court should be wary of requiring a patentee to submit and surrender his patent right to the USPTO as a condition of pursuing his remedies against an alleged infringer, as it borders on a taking of property without due process of law; Id. at 2. Id. at 2, Docket no. 39 at 3-, 12. Id. at. Id. at -6. 7

8 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 8 of 22! ACTi s contention the IPR proceeding may simplify issues is speculative because ACTi is not a party in the IPR proceedings; e-watch has not yet filed its response with the USPTO; the USPTO has not granted the requests for review; statements made by a patentee during the course of a patent prosecution are not necessarily admissible, and no one knows if the USPTO will invalidate or change any claim in any patent at issue in the IPR; 3! IPR proceedings cannot simplify any issues relating to any defenses such as laches, waiver, estoppel and standing which will not be reviewed by the USPTO; 36 one of the patents-in-suit is not the subject of IPR proceedings; and! this case is not in its infancy, but was initiated more than one year ago, the timing of the requested stay smacks of seeking a stay for a tactical advantage to avoid answering discovery; and ACTi is not a party to the IPR proceedings, has cited no case in which a stay has been granted based on a third party s IPR application, and is seeking to take advantage of a stay that sometimes is granted to parties filing an inter [partes] review, and avoid discovery and the potential estoppel effects of an inter partes review. 37 e-watch also argues that, even though it [f]or its own reasons... chose not to challenge the Magistrate[] [Judge s] Recommendation in Mobotix to grant Mobotix s motion for a stay pending conclusion of the IPR proceedings, including any appeals, the Court s analysis of the factors regarding the stay favored e-watch, the Court required Mobotix to make certain disclosures, and the effect of the provisional stay required Mobotix to file petitions for IPR proceedings on every patent-in-suit. 38 C. ACTi s Reply In reply, ACTi presents further arguments in support of the requested stay. ACTi Id. at 6-8, 12. Id. at 8-9, 12. Id. at 10, 12. Id. at & n.2. 8

9 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 9 of 22 emphasizes that e-watch has not presented any credible evidence to support its contention that e-watch and ACTi are direct competitors: Although both e-watch and ACTi offer cameras and surveillance systems, Plaintiff has failed to present any evidence that the parties have ever competed for a sale or are direct competitors. Nor has Plaintiff offered any evidence to support its charge that ACTi floods the market with infringing products made with cheap Chinese labor, at the expense of the patent holder who developed the technology. Opp.. Obviously, ACTi is not a Chinese company, but a Taiwanese company that makes its products in Taiwan. See This erroneous statement shows that e-watch knows little about ACTi, and raises doubts about whether there was any investigation about ACTi and its products before this lawsuit was filed. 39 In any event, even if the parties were to be considered direct competitors, ACTi refers, in part, to the district court s balancing of the factors in Capriola Corp. v. LaRose Industries, LLC, a case in which the parties were direct competitors, when the court concluded if the PTO declines inter partes review, little time is lost, but if [the] PTO grants inter partes review, the promise is greater for an important contribution by the PTO to resolution of the governing issues in the 40 litigation. ACTi acknowledges that, because it has not sought an IPR of any patent-in-suit, it will not be estopped from changing any position it took in the USPTO and will not be estopped from asserting the litigation positions taken by Mobotix in the Inter Partes Reviews; but, ACTi argues, the issues [in this case] could nevertheless be simplified by the pending IPR proceedings sought by Mobotix, explains it did not earlier request a stay because ACTi did not find out about [Mobotix s IPR petitions] until the beginning of July, and [a]ny actions taken by 39 Docket no. 41 at Id. at 2 (quoting Capriola, No. 8:12-cv T-23TBM (M.D. Fla. Mar. 11, 2013) (attached at docket no. 37, exhibit 9)). 9

10 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 10 of the USPTO will affect the patents and this litigation.... Finally, ACTi argues that IPR proceedings have not been requested for one of the patents-in-suit in this case is of little consequence for the reasons identified by the district court in Bosch Healthcare Systems, Inc. v. ExpressMD Solutions, LLC, namely, there is no requirement that reexamination resolve all the issues in a case in order to warrant a stay. 42 A. Standards IV. DISCUSSION 1. selected summary of statutory IPR procedures Inter partes review of existing patents is addressed in the Leahy-Smith America Invents 43 Act ( AIA ), effective on September 16, Under the AIA, a petitioner may challenge the validity of a patent for anticipation or obviousness under 3 U.S.C. 102 and 103 on the basis 44 of prior art consisting of patents or printed publications. The Patent Trial and Appeal Board 4 ( PTAB ) will conduct any IPR proceedings. The PTAB must expeditiously conduct IPRs: [i]f an inter partes review petition is filed under section 311, the patent owner shall have the right to file a preliminary response to the 41 Id. 42 Id. at 4- (citing Bosch Healthcare Sys., No. C JSW (N.D. Cal. Feb. 27, 2013) (attached at docket no. 37, exhibit 6)). 43 Pub. L. No , 12 Stat. 284 (codified as amended at 3 U.S.C (2011). See 3 U.S.C U.S.C. 311(b) ( A petitioner in an inter partes review may request to cancel as unpatentable 1 or more claims of a patent only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications. ). 4 3 U.S.C. 316(c). 10

11 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 11 of 22 petition, within a time period set by the Director, that sets forth reasons why no inter partes review should be instituted based upon the failure of the petition to meet any requirement of this 46 chapter; The Director shall determine whether to institute an inter partes review under... a petition filed under section 311 within 3 months after... receiving a preliminary response to the petition under section 313; or... if no such preliminary response is filed, the last date on which 47 such response may be filed; and a final determination on the validity of the patent is to be issued not later than 1 year after the date on which the Director notices the institution of a review under this chapter, except that the Director may, for good cause shown, extend the 1-year 48 period by not more than 6 months.... A petitioner in IPR proceedings will be estopped at the district court from asserting that a reviewed claim in a patent is invalid on any ground that the 49 petitioner raised or reasonably could have raised during that inter partes review. The determination by the Director whether to institute an inter partes review under this section shall 46 3 U.S.C The statute does not set a time within which any preliminary response must be filed. But, the implementing regulations provide that [t]he preliminary response must be filed no later than three months after the date of a notice indicating that the request to institute an inter partes review has been granted a filing date. A patent owner may expedite the proceeding by filing an election to waive the patent owner preliminary response. 37 C.F.R C.F.R. 1.94(a), captioned Response to Office action by patent owner in inter partes reexamination, provides: The patent owner will be given at least thirty days to file a response to any Office action on the merits of the inter partes reexamination U.S.C. 314(b). 3 U.S.C. 316(a)(11). 3 U.S.C. 31(e)(2). 11

12 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 12 of 22 0 be final and nonappealable, but any party to IPR review who is dissatisfied with the final written decision of the Patent Trial and Appeal Board under section 318(a) may appeal the decision pursuant to sections 141 through stay of related civil actions Inter partes review may not be instituted if, before the date on which an IPR petition is filed, a petitioner (or real party in interest) has already filed a civil action challenging the validity 2 of a claim of the patent. But, if an IPR petitioner/real party in interest files a civil action challenging the validity of a patent claim on or after the date on which the petitioner files an IPR 3 petition, the civil action is automatically stayed. A counterclaim challenging the validity of a claim of a patent does not constitute a civil action challenging the validity of a claim of a patent On the other hand, if the patent owner has filed a civil action asserting infringement, the accused infringer may not file an IPR petition asking for review of a claim of a patent-in-suit more than 1 year after the date on which the petitioner, real party in interest, or privy of the petitioner was served with the complaint alleging patent infringement U.S.C. 314(d). 3 U.S.C U.S.C. 31(a)(1). 3 3 U.S.C. 31(a)(2). The automatic stay is lifted when the patent owner moves the court to lift the stay, the patent owner files a claim/counterclaim of infringement against the petitioner/real party in interest, or the petitioner/real party in interest moves to dismiss the civil action. Id. 4 3 U.S.C. 31(a)(3). 3 U.S.C. 31(b). As discussed further below, the one-year time limitation does not apply when the Director seeks to join related IPR proceedings. 12

13 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 13 of 22 Here, ACTi was the defendant in e-watch s patent infringement action filed in this Court before the record shows any petition for IPR of any patent-in-suit was submitted to the USPTO. Thus, there is no automatic statutory stay of this case. But, the parties agree the Court has the 6 inherent authority and discretion to stay this action. There is no material dispute between the parties as to the factors to be considered in evaluating ACTi s request for stay. Both sides acknowledge the determination is an equitable 7 8 one, committed to the inherent power and discretion of the trial court, in which a court may consider specific factors, such as: (1) whether the litigation is at an early stage; (2) whether a stay will simplify the issues in question; and (3) whether a stay would unduly prejudice or 9 present a clear tactical disadvantage to the nonmoving party. As stated by the court in ImageVision.net, Inc. v. Internet Payment Exchange, Inc.: The court s inherent power to conserve judicial resources by controlling its own docket includes the discretion to stay a litigation, which has been found to extend to patent cases where a reexamination by the Patent and Trade[mark] Office has been requested. In determining whether a stay is appropriate, the court's discretion is guided by the following factors: (i) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (ii) whether a stay will simplify the issues in question and trial of the case; and (iii) whether discovery is complete and whether a trial date has been set. A final See docket no. 37 at 1-6; docket no. 39 at 2-3. Docket no. 37 at 3-4; docket no. 39 at 2-3. Id. 9 Docket no. 37 at 4 (quoting Soverain Software LLC v. Amazon.Com, 36 F. Supp.2d 660, 662 (E.D. Tex. 200)); docket no. 39 at 2 (referencing four factors: (i) the stage of the case, (ii) whether issues will be simplified for trial, (iii) whether a stay would cause undue prejudice or present a clear tactical disadvantage, and (iv) the totality of the circumstances, and citing Universal Electronics, Inc. v. Universal Remote Control, Inc., F. Supp. 2d, No. SACV AG, 2013 WL (C.D. Cal. May 2, 2013)). 13

14 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 14 of 22 decision is made with an eye toward maintaining an even balance between the competing interests of the parties at issue. In maintaining that even balance, the Court must consider whether there is even a fair possibility that the stay would work damage on another party. 60 B. Analysis As a threshold matter, in Mobotix, according to one of the attachments to Mobotix s motion for stay, e-watch had indicated it opposed Mobotix s request for stay based simply on Mobotix s filing of a petition for IPR regarding the 183 patent on April 26, 2013 (and intent to file three additional IPR petitions pertaining to the remaining three patents-in-suit in Mobotix the 913 patent, the 429 patent, and the 371 patent on or before June 7, 2013), but would consider whether a stay is appropriate or not if the PTAB accepts a petition for inter 61 partes review and initiates review. But, the record on ACTi s motion for stay does not show e- Watch expressed any willingness to agree to a stay for any period because Mobotix has now filed petitions for IPR review of three of the four patents-in-suit in this case. To be clear, the record does not show the PTAB has accepted any of Mobotix s IPR petitions and instituted review of any of the four patents-in-suit in Mobotix. Again, the parties agree ACTi has not filed any IPR petition for any patent-in-suit. 1. stage of the litigation in this Court With respect to the stage of the litigation, although e-watch initiated the case more than 60 C.A. No GMS-MPT, 2012 WL , at *1 (D. Del. Sept. 4, 2012) (report of Hon. Mary Pat Thynge, U.S. Mag. J.) (notes omitted) (attached at docket no. 24, ex. 8); 2012 WL 99338, at *2-*4 (D. Del. Nov. 1, 2012) (decision of Hon. Gregory M. Sleet, U.S. Dist. J., overruling objections and finding report s statement of the applicable legal standard is correct and not contrary to law ). 61 Mobotix, docket no. 22, Swider Decl., ex. F. 14

15 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 1 of 22 one year ago and a scheduling order was entered by the Court on May 7, 2013, ACTI represented in its motion for stay (and e-watch s response did not present evidence to rebut) that discovery thus far [is] limited to an exchange of Preliminary Disclosures and [n]o discovery has taken place in the case, except that after Plaintiff s counsel was called and asked whether Plaintiff would oppose this motion to stay[,] Plaintiff thereafter, on July 1, 2013, served interrogatories 62 and document requests. Neither side has submitted any evidence to show it already has spent any significant time or money to prepare for claim construction. If the USPTO declines IPR regarding the three patents-in-suit at issue in Mobotix s requests, little time will be lost before the stay is lifted. But, if the USPTO accepts inter partes review, continuing to prosecute this case is likely to result in the unnecessary expenditure of the parties and the Court s resources on claims and issues that could be resolved or changed as a result of the IPR proceedings. The stage of the litigation is a factor that weighs in favor of a stay. 2. simplification of issues and trial With respect to simplification of the issues and trial, the record does not show the USPTO has accepted any of the IPR petitions Mobotix has submitted regarding three of the patents-in-suit in this case. ACTi has not filed any petition for IPR review of any patent-in-suit, 63 including the one patent that is not the subject of a Mobotix IPR petition. To be clear, there is 62 Docket no. 37 at 6, and Elliot Decl. at 3, It is not clear that the time for ACTi to file an IPR petition for any patent-in-suit expired by the time it learned of Mobotix s IPR petitions or even has expired as of the date of the filing of this report. Under 31(a), with the exception of a challenge to the validity of a patent claim in a counterclaim, IPR review may not be instituted if, before the date on which the petition for such a review is filed, the petitioner or real party in interest filed a civil action challenging the validity of a claim of the patent. 3 U.S.C. 31(a). Under 31(b), inter partes review may not be instituted if the petition requesting the proceeding is filed more than 1 1

16 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 16 of 22 no known IPR petition seeking review of one of the patents-in-suit in this case. As ACTi is not an applicant for IPR review of any patent-in-suit, and there is no evidence to show ACTi is the real party in interest or privy of Mobotix with respect to the IPR petitions Mobitix has submitted, ACTi will not be estopped from arguing any claim of any patent-in-suit is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review. 64 year after the date on which the petitioner, real party in interest, or privy of the petitioner is served with a complaint alleging infringement of the patent except that [t]he time limitation... does not apply to a request for joinder under subsection (c). 3 U.S.C. 31(b) (emphasis added). Under 31(c), [i]f the Director institutes an inter partes review, the Director, in his or her discretion, may join as a party to that inter partes review, any person who properly files a petition under section 311 that the Director, after receiving a preliminary response under section 313 or the expiration of the time for filing such a response, determines warrants the institution of an inter partes review under section U.S.C. 31(c). Because there is no evidence ACTi has properly filed a petition under 311, there is no basis to conclude on this record that the one-year time limitation established in 31(b) does not apply. Further, the CM/ECF record of docket entries, shows that summons issued to ACTi on July 20, 2012 (docket no. 4), and on August 13, 2012, the parties file a stipulation and order for extension of time in which the parties agreed e-watch had attempted to serve ACTi and, subject to the approval of the Court, ACTi time to file a responsive pleading shall be extended to September 14, Docket no. 6 at 1. If the USPTO were to conclude the date on which ACTi entered an appearance and agreed to a date to file its responsive pleading is the date on which the petitioner... is served with a complaint alleging infringement of a patent, then the one-year time period for ACTi to file an IPR petition for any patent in suit has not expired as of the date this report was tendered to the District Clerk for filing U.S.C. 31(e). As observed in the May 21, 2013 report in Mobotix, That Mobotix will be estopped at the district court from asserting that any claim of the reviewed patent is invalid on any ground that the petitioner raised or reasonably could have raised during the Inter Partes Review seems relatively less significant, as Mobotix will be the master of its inter partes review petition and, presumably, will prepare sufficiently comprehensive petitions to allow for the litigative posture it may wish to advance in further proceedings in this Court. As already noted, Mobotix seeks inter partes review of the nine claims of the 183 patent asserted by e-watch as well as twenty-one additional claims of the 183 patent. Further, even if [a]ll statements made by the patentee during the prosecution form part of the public record and must be considered by the court during claim construction, as argued by e-watch, Defendant has no idea if statements will be made, much less what statements will be made during the 16

17 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 17 of 22 Even though: (a) there may be no formal estoppel applying to certain of ACTi s lateradvanced 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 and only on the basis of prior art consisting of patents or 6 printed publications (that is, not all of the grounds asserted in ACTi s affirmative defenses and counterclaims) 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, if the USPTO invalidates any of the three patents-in-suit at issue or changes the scope and terms of any claim, the matters at issue in this Court will change. It is not necessary for ACTi to be a party to IPR proceedings for the USPTO s substantive decisions in reexamination proceedings to have an effect of the patent issues to be litigated in this case. As the Court observed in Mobotix, that the USPTO s inter partes review decision(s) might invalidate a patent or limit asserted patent claims at some point in time after, under the current scheduling order, the parties have incurred the expense of preparing claim construction statement(s) and the Court has begun the process of claim construction, or has construed claims the result of e-watch s request to deny the stay decidedly would complicate the issues in, and expenses of, this case. As observed by the United States District Court for the Central District of California in Semiconductor Energy Laboratory Company v. Chimei Innolux Corporation: As this Court has previously noted, the amended standards for granting inter partes review probably result[] in an even higher likelihood than under the prior standard that the issues in this action will be simplified by the reexamination.... On the other review process. Mobotix, docket no. 26 at 1-16 (internal notes omitted). 6 3 U.S.C. 311(b). 17

18 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 18 of 22 hand, if the USPTO rejects the inter partes requests, the stay will be relatively short. 66 This factor weighs in favor of a stay. 3. undue prejudice and tactical considerations With respect to whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party, e-watch asserts the parties are Direct Competitors and stresses it has sought permanent injunctive relief such that [i]f Mobotix is found to infringe, a stay will not only compound Plaintiff s damages during the course of the stay, but will cause 67 Plaintiff irreparable injury that is not compensable by money damages. e-watch s response submits examples of products that [it] sells which practice one or more of the claims of the 68 patents-in-suit and examples of ACTi products alleged to infringe the patents-in-suit. Plaintiff asserts: As one can see by comparing the specifications, the products are directly competitive and are offered for sale in the same United States markets. 69 But, as observed by ACTi, e-watch has not submitted any evidence that the parties have 70 ever competed for a sale or are direct competitors. Although ACTi has the burden of proof on its motion for stay, e-watch relies on its averments in its first amended complaint as supplemented by visual depictions of allegedly infringing, and arguably competing, products. 66 Mobotix, docket no. 26 at (quoting Semiconductor Energy Lab., No. SACV JST (JPRx), 2012 WL , at *3 (C.D. Cal. Dec. 19, 2012) (citation omitted)) Docket no. 39 at 4. Id., and exhibits 1, 2. Id. Docket no. 41 at 1. 18

19 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 19 of Plaintiff does not identify how it will be injured if the Court grants a stay. If the parties are not direct competitors, the injunctive relief e-watch seeks in this case could be considered to be prophylactic, with a possible award of monetary damages affording arguably adequate protection for the delay to be interjected into the case by a stay in favor of inter partes review. Nevertheless, even if the parties are direct competitors, as they were in Capriola, as the United States District Court for the Middle District of Florida found in that case, if the PTO declines inter partes review, little time is lost, but if [the] PTO grants inter partes review, the promise is greater for an important contribution by the PTO to resolution of the governing issues in the 72 litigation. Further, courts have held that the mere fact and length of any delay... does not 73 demonstrate prejudice sufficient to deny [a] request for a stay. ACTi represents it did not 74 learn of Mobotix s IPR petitions, filed in April and June 2013, until the beginning of July. ACTi filed its motion for stay on July 17, Although e-watch asserts ACTi timed the filing of its motion for stay to gain a tactical advantage regarding discovery or disclosure obligations, e- Watch has not presented specific argument and authority to support its conclusory assertion. In sum, this factor weighs in favor of a stay. C. Conclusion If this case were not stayed pending the conclusion of IPR proceedings, the Court is See Semiconductor Energy Lab., 2012 WL , at *3. No. 8:12-cv-02346, order (M.D. Fla. Mar. 11, 2013). Semiconductor Energy Lab., 2012 WL , at *3 (citation omitted). Docket no. 41 at 4. 19

20 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 20 of 22 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 7 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. It seems likely that discovery costs will increase significantly, as discovery initially would be required to be limited to matters appropriately at issue regarding the 396 patent, but would need to be undertaken again regarding the other three patents-in-suit once the stay is lifted. For example, some individuals would need to be deposed twice once in the nonstayed 396 patent litigation and again once the stay is lifted regarding the remaining three patents-in-suit, just as other forms of discovery would need to be pursued twice. Costs would sky-rocket if the court were to undertake two trials, once for the 396 patent and then for the three remaining patents-in-suit. Staying this case as a whole pending reexamination would 76 simplify the issues and streamline the trial. 7 See docket no. 39 at 12 ( conclusion summarizing the reasons to deny the stay). 76 See Bosch Healthcare Sys., No. C JSW, Order Granting Defendant s Motion to Stay at 9-10 (N.D. Cal. Feb. 27, 2013) (attached at docket no. 37, exhibit 6) ( [t]he fact that one of the patents-in-suit is not subject to a request for reexamination and that the PTO has rejected reexamining some of the claims of the [patent] does not significantly undermine the potential benefits of the reexamination process.... [T]here is no requirement that reexamination resolve all issues in a case in order to warrant a stay. The Court finds that staying this action pending reexamination would simplify the issues and streamline the trial, thereby reduce the burden on, and preserve the resources of both the parties and the Court. Therefore, this factor weighs in favor of a stay as well. ). 20

21 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 21 of 22 V. RECOMMENDATION Based on the foregoing discussion, it is recommended that defendant ACTi s Opposed 77 Motion for Stay be GRANTED and:! all unexpired deadlines in the scheduling order should be suspended pending further order of the Court;! this case should be immediately stayed and administratively closed pending further order of the Court; and! the parties must file joint or separate advisories within thirty (30) calendar days of the conclusion of inter partes review of each of the three patents-in-suit which are the subject of the inter partes review, providing the Court notice of the conclusion of the proceedings, the parties position(s) on whether any appeal of any inter partes review decision will be pursued, an estimate on the time required for any appellate proceedings, and any other relevant matters (to include a brief report on the status of any other relevant inter partes review proceeding then pending before the PTAB or on appeal); unless and until the Court orders otherwise, the stay of this case will continue through the conclusion of any appellate proceedings regarding any patent-in-suit. VI. INSTRUCTIONS FOR SERVICE AND NOTICE OF RIGHT TO OBJECT/APPEAL The United States District Clerk shall serve a copy of this Report and Recommendation on all parties by either: (1) electronic transmittal to all parties represented by an attorney registered as a Filing User with the Clerk of Court pursuant to the Court s Procedural Rules for Electronic Filing in Civil and Criminal Cases; or (2) by certified mail, return receipt requested, to any party not represented by an attorney registered as a Filing User. As provided in 28 U.S.C. 636(b)(1) and FED. R. CIV. P. 72(b), any party who desires to object to this Report must file with the District Clerk and serve on all parties and the Magistrate Judge written Objections to the Report and Recommendation within 14 days after being served with a copy, unless this time 77 Docket no

22 Case :12-cv-0069-FB-PMA Document 42 Filed 08/09/13 Page 22 of 22 period is modified by the District Court. A party filing Objections must specifically identify those findings, conclusions or recommendations to which objections are being made and the basis for such objections; the District Court need not consider frivolous, conclusive or general objections. A party s failure to file timely written objections to the proposed findings, conclusions and recommendations contained in this Report will bar the party from receiving a de novo determination by the District 78 Court. Additionally, a party s failure to file timely written objections to the proposed findings, conclusions and recommendations contained in this Report will bar the aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Court. 79 SIGNED and ENTERED this 9th day of August, PAMELA A. MATHY UNITED STATES MAGISTRATE JUDGE 78 See Thomas v. Arn, 474 U.S. 140, 10, 106 S. Ct. 466, 472 (198). 79 Acuna v. Brown & Root Inc., 200 F.3d 33, 340 (th Cir. 2000); Douglass v. United Serv. Auto. Ass n., 79 F.3d 141, 1428 (th Cir. 1996). 22