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Smart Modular Technologies, Inc. v. Netlist

May 30, 2013

SMART MODULAR TECHNOLOGIES, INC., PLAINTIFF,
v.
NETLIST, INC., DEFENDANT.



The opinion of the court was delivered by: Troy L. Nunley, District Judge.

ORDER

This matter is before the court pursuant to Plaintiff Smart Modular Inc.'s ("Plaintiff") Motion for Preliminary Injunction (ECF No. 22) and Defendant Netlist, Inc.'s ("Defendant") Motion to Stay (EC F No. 107). For the reasons below, the court GRANTS Defendant's Motion to Stay and DENIES Plaintiff's Motion for Preliminary Injunction.*fn1

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff is the assignee and owner of all rights, title and interest in U.S. Patent Number 8,250,295 ("the '295 Patent") entitled "Multi-Rank Memory Module That Emulates A Memory Module Having A Different Number of Ranks." (ECF No. 1 at 7.) The '295 Patent was issued on August 21, 2012, by the United States Patent and Trademark Office ("PTO"). The Patent involves a memory module with rank multiplication capability, which enables a memory module to provide a given memory capacity using greater numbers of lower-capacity, lower-cost Dynamic Random Access Memory ("DRAM") devices, as opposed to using lower numbers of higher-capacity, higher-cost DRAM devices that would otherwise be imposed by memory controller limitations. ( See Pl.'s Compl., ECF No. 1.) The ' 295 Patent is composed of eight claims. (ECF No. 1 at 7.) Plaintiff alleges that Defendant's Hypercloud memory module products infringe at least one of the '295 Patent's 1-7 claims. (ECF No. 22 at 6.) Infringement of at least one of the claims means that the entire patent is being infringed. Thus, Plaintiff alleges that Defendant is infringing upon Plaintiff's exclusive right to exclude others from making, using, offering to sell, and selling articles covered by the '295 Patent. Defendant brought counterclaims alleging that the '295 Patent is invalid. ( See Def.'s Answer and Countercl., ECF No. 49.) On September 15, Defendant filed a reexamination request with the PTO proposing that claims 1-7 of the '295 Patent be rejected based on six different combinations of prior art. (ECF No. 107.) On September 21, 2012, Plaintiff filed a Motion for Preliminary Injunction alleging that Defendant's infringement is causing Plaintiff irreparable harm. (ECF No. 22.) On December 7, 2012, the PTO granted Defendant's request and ordered reexamination. (Transmittal of Communication to Third Party Requester Inter Partes Reexamination, ECF No. 107-2.) Additionally, the PTO issued a concurrent Office Action rejecting claims 1-7 of the '295 Patent. (PTO Office Action, ECF No. 107-3.) On December 13, 2012, Defendant filed a Motion to Stay Pending Patent Reexamination. (ECF No. 107.)

II. STANDARD

"Staying a lawsuit without considering the merits of a preliminary injunction motion may effectively deny a party its right to petition for preliminary relief." Mailblocks, Inc. v. Spam Arrest, LLC, No. CV03-0077, 2003 WL 23325432, at * 3 (W.D.Wash. June 9, 2003); see also Procter & Gamble Co. v. Kraft Foods Global, Inc., 549 F.3d 842, 849 (Fed.Cir.2008) (noting that the district court ordinarily should not grant both a preliminary injunction and a stay). Thus, the merits of both the Motion for Preliminary Injunction and the Motion to Stay must be addressed simultaneously.

A. Preliminary Injunction Standard

" 'A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.' " W. Watersheds Project v. Salazar, 692 F.3d 921, 923 (9th Cir.2012) (quoting Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008)). All four factors must be met, however, they operate on a sliding scale. "Under this approach, the elements of the preliminary injunction test are balanced, so that a stronger showing of one element may offset a weaker showing of another." Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir.2011). Thus, "a stronger showing of irreparable harm to plaintiff might offset a lesser showing of likelihood of success on the merits." Id. at 1135.

B. Motion to Stay Standard

When patentability is at issue, 35 U.S.C. § 318 allows a party to request a stay of litigation upon an order of inter partes reexamination of the patent. See Procter & Gamble, 549 F.3d at 848. "Congress instituted the reexamination process to shift the burden of reexamination of patent validity from the courts to the PTO. H.R.Rep. No. 1307, 96th Cong., 2d Sess., pt. 7 at 4 (1980), reprinted in 1980 U.S.C.C.A.N. 6460. Patent validity is a commonly asserted defense in litigation and courts are cognizant of Congress's intention of utilizing the PTO's specialized expertise to reduce costly and timely litigation." Canady v. Erbe Elektromedizin GmbH, 271 F.Supp.2d 64, 78 (D.D.C.2002). Thus, courts have the authority to order a stay pending conclusion of a PTO reexamination. Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426-27 (Fed.Cir.1988); see also Landis v. N. Am. Co., 299 U.S. 248, 254-55, 57 S.Ct. 163, 81 L.Ed. 153 (1936) (holding that "a court's power to stay proceedings is incidental to the power inherent in every court to control the disposition of causes on its docket with economy of time and effort for itself, for counsel, and for litigants"). "While courts are not required to stay judicial proceedings pending reexamination of a patent, a stay for purposes of reexamination is within the district court's discretion." Telemac Corp. v. Teledigital, Inc., 450 F.Supp.2d 1107, 1110 (N.D.Cal.2007); see also Medichem, S.A. v. Rolabo, S.L., 353 F.3d 928, 936 (Fed.Cir.2003) (holding that a stay of proceedings in the district court pending the outcome of the parallel proceedings in the PTO remains an option within the district court's discretion).

Some courts have noted that there is a "liberal policy in favor of granting motions to stay proceedings pending the outcome of USPTO reexamination." ASCII Corp. v. STD Entm't USA, Inc., 844 F.Supp. 1378, 1381 (N.D.Cal.1994). Other courts have recognized that a stay pending reexamination must be approached with caution because it can prolong the proceeding without achieving sufficient benefits. See Eakin Enters. v. Specialty Sales LLC, Civ. No. 11-02008 LJO SKO, 2012 WL 2445154, at * 10 (E.D.Cal. June 26, 2012). "In determining whether to stay [a] case pending reexamination, the [c]ourt considers the following 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." Telemac, 450 F.Supp.2d at 1110 (citations omitted).

III. ANALYSIS

A. Motion for Preliminary Injunction

"A preliminary injunction is a 'drastic and extraordinary remedy that is not to be routinely granted.' " National Steel Car, Ltd. v. Canadian P. Ry., Ltd., 357 F.3d 1319, 1324 (Fed.Cir.2004) (quoting Intel Corp. v. ULSI Sys. Tech., Inc., 995 F.2d 1566, 1568 (Fed.Cir.1993)). Plaintiff argues that it is entitled to a preliminary injunction enjoining Defendant from infringing the ' 295 Patent and in particular enjoining Defendant from selling its HyperCloud product. (ECF No. 22.) Plaintiff asserts that it more than meets its burden because (1) testimony from Defendant's officers make it likely Plaintiff will prevail on infringement; (2) Plaintiff's loss of current and future business opportunities to Defendant's infringing ...


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