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Smt Solutions, Inc v. Expoevent Supply LLC and Larry Edinger

August 15, 2012

SMT SOLUTIONS, INC.,
PLAINTIFF,
v.
EXPOEVENT SUPPLY LLC AND LARRY EDINGER, DEFENDANTS.



The opinion of the court was delivered by: Cathy L. Waldor, U.S.M.J.

MEMORANDUM OPINION AND ORDER

This matter comes before the Court upon motion by defendants ExpoEvent Supply LLC ("ExpoEvent") and Larry Edinger (collectively "Defendants") to stay this matter pending reexamination by the United States Patent and Trademark Office ("PTO") of United States Patent Nos. 7,178,470 ("'470 patent") and 7,320,287 ("'287 patent"). (Docket Entry No. 38, the "Motion"). Plaintiff SMT Solutions, Inc. ("Plaintiff" or "SMT") opposes the Motion. The Court decides the matter without oral argument pursuant to Federal Rule of Civil Procedure 78. For the reasons stated herein, Defendants' Motion is GRANTED and this civil action shall be stayed pending the PTO's reexamination of the '470 patent and '287 patent.

I.Background

Plaintiff filed its complaint against Defendants on October 26, 2011, alleging infringement of SMT's '470 patent and '287 patent, titled "Tablecloth Covering And Method of Covering and Skirting a Table." (Docket Entry No. 1, Complaint, ("Compl.") at ¶¶ 11-24). Defendant Edinger is named as an inventor of the '470 patent and '287 patent and formerly owned a share of SMT. (Id. at ¶ 14). After leaving SMT, Defendant Edinger founded ExpoEvent, which is in the business of creating and distributing items for the expo and special event industries. (Id. at ¶ 15). SMT contends that Defendants have been infringing and inducing others to infringe one or more of the claims of the SMT patents through their sale of certain table cover products. (Id. at ¶¶ 17-20).

On January 17, 2012, Defendants filed their answer and counterclaim, alleging that the '470 patent and '287 patent are invalid. (Docket Entry No. 10, "Answer"). On June 13, 2012, SMT filed its Amended Complaint to add recently issued United States Patent Nos. 8,127,693 ("'693 patent") and 8,196,528 ("'528 patent"). (Docket Entry No. 33, Amended Complaint, ("Amended Compl.")). The '693 patent and '528 patent were duly and legally issued by the PTO and assigned to SMT on March 6, 2012 and June 12, 2012, respectively. (Amended Compl. ¶¶ 19-20).

On April 20, 2012, Defendants filed a request for ex parte reexamination of the '470 patent citing a number of prior art references allegedly not disclosed to or considered by the PTO in their initial examination or initial reexamination of the '470 patent. (Defs' Decl. of Yariv Waks, Docket Entry No. 38, Ex. A). On May 10, 2012, the PTO granted Defendants' request. Specifically, the PTO found a substantial new question of patentability with respect to the '470 patent of, inter alia, two new prior art references that were not previously brought to the PTO's attention either during the original prosecution of that patent or during its first reexamination. (Id.). Likewise, Defendants filed a request for ex parte reexamination of the '287 patent on May 3, 2012. (Id., Ex. B). On May 24, 2012, the PTO similarly found that a substantial new question of patentability with respect to the '287 patent was raised by Defendants' request for ex parte reexamination. (Id.).

II.Discussion

It is well-established that "the power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. North American Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936). Thus, the decision to stay a patent case in which a reexamination by the Patent Office has been requested is within the sound discretion of the district court. Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426-27 (Fed. Cir. 1988) (noting that "[c]courts have inherent power to manage their dockets and stay proceedings, including the authority to order a stay pending conclusion of a PTO reexamination.") (internal citations omitted). Additionally, while courts weigh the costs and benefits associated with granting a stay pending reexamination of a patent, "courts have noted that granting a stay pending reexamination is favored." ICI Uniqema, Inc. v. Kobo Products, Inc., No. 06-2943, 2009 WL 4034829, at *1 (D.N.J. Nov. 20, 2009) (citing Alltech, Inc. v. Cenzone Tech, Inc., No. 06-0153, 2007 WL 935516 (S.D.Cal. Mar. 21, 2007)) ("[t]here is a liberal policy in favor of granting motions to stay proceedings pending the outcome of reexamination proceedings").

In deciding whether to stay a matter pending reexamination, courts have developed a three-part test (hereinafter referred to as the "Xerox" factors). A court should consider "(1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether discovery is complete and whether a trial date has been set." Xerox Corp. v. 3Com Corp., 69 F.Supp 2d 404, 406 (W.D.N.Y. 1999). The Court will address each Xerox factor in turn:

A. Undue Prejudice or Tactical Advantage

Defendants maintain that SMT will suffer no undue prejudice by the stay. First,

Defendants contend that these patents are relatively new, and do not expire until at least 2023. "Thus, even if the patents are ultimately upheld on reexamination and by the Court, and Defendants are ultimately found to infringe, then SMT could recover its damages and seek injunctive relief after this litigation reconvenes." (Motion at 9). Second, a stay pending reexamination will not unduly prejudice SMT financially because the sales at issue here are relatively modest. To that end, ExpoEvent has sold approximately $145,000 of accused table covers over the course of nearly three years since they were first sold. (Id.).

SMT claims it will be unduly prejudiced if a stay is granted for two reasons. First, Defendant Edinger is a former employee of SMT who is targeting SMT's customers. (Pl.'s Opp. Br. at 13). Through limited discovery, SMT has learned that ExpoEvent has sold infringing table cover products to at least fifteen (15) of SMT's customers. (Id.). SMT contends that courts are reluctant to impose stays where the parties are direct competitors, such as here, because the delay itself will allow the alleged infringer's business to continue to expand, making sales that would have been plaintiff's but-for the infringement. (Id.) (citing Adaptor, Inc. v. Sealing Systems, Inc., No. 09-1070, 2010 WL 4236875, at *3 (E.D.Wis. Oct. 21, 2010)) ("[T]he potential delay alone is enough to suggest loss of market share and eroded prices if an alleged infringer is allowed to continue its practices [during a stay awaiting reexamination]."). Second, Defendants may not have the means to satisfy a judgment for the substantial damages that will accrue during a stay. (Id.).

The Court is not persuaded that SMT will be unduly prejudiced by the entry of a stay in this case. First, as Defendants point out in their moving papers, "[t]he delay inherent to the reexamination process does not constitute, by itself, undue prejudice." CCP Systems AG v. Samsung Electronics Corp., No. 09-4354, 2010 WL 5080570, at *3 (D.N.J. Dec. 7, 2010) (internal citations omitted). As a result, the fact that the ...


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