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Smart Modular Technologies, Inc. v. Netlist, Inc.

United States District Court, E.D. California

June 26, 2017

SMART MODULAR TECHNOLOGIES, INC., Plaintiff and Counterdefendant,
v.
NETLIST, INC., Defendant and Counterclaimant.

          ORDER DENYING DEFENDANT'S MOTION TO REINSTITUTE STAY

          TROY L. NUNLEY UNITED STATES DISTRICT JUDGE

         This matter is before the Court pursuant to Defendant and Counterclaimant Netlist, Inc.'s (“Defendant”) Motion to Reinstitute Stay. (ECF No. 176.) Plaintiff and Counterdefendant Smart Modular Technologies, Inc. (“Plaintiff”) filed an opposition (ECF No. 177), and Defendant has replied (ECF No. 179). For the reasons set forth below, the Court hereby DENIES Defendant's Motion to Reinstitute Stay. (ECF No. 176.)

         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. It 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 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 seven 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 Answer and Countercl., ECF No. 49.)

         On September 15, 2012, Defendant filed an inter partes reexamination (“IPR”) request with the Patent and Trade Office (hereinafter “PTO”) proposing claims 1 through 7 of the '295 Patent be rejected on six different combinations of prior art. (ECF No. 107.) On December 7, 2012, the PTO granted Defendant's request and ordered reexamination. (Transmittal of Communication to Third Party Requester IPR, ECF No. 107-3.)

         On December 13, 2012, Defendant filed a Motion to Stay Pending Patent Reexamination. (ECF No. 107.) On May 30, 2013, this Court ordered the case stayed. (ECF No. 154.) In its order to stay, the Court noted: (1) the litigation was in its early stages; (2) the PTO proceedings would simplify issues for trial; and (3) Plaintiff would not be unduly prejudiced by the stay. (ECF No. 154.) Thereafter, on April 29, 2014, the PTO examiner issued an Action Closing Prosecution (“ACP”) upholding the patentability of all seven challenged claims. (ECF No. 165.) On August 4, 2015, the PTO examiner issued a Right of Appeal Notice (“RAN”) concluding the reexamination and allowing Defendant to appeal to the Patent Trial and Appeal Board (“PTAB”). (ECF No. 165.)

         On November 4, 2015, Defendant filed its opening appellate brief. (ECF No. 165.) Shortly thereafter, on February 25, 2016, the PTO examiner issued an answer to Defendant's brief in which the examiner incorporated the RAN and determined that there were no new grounds to reject the claims of the '295 Patent. (ECF No. 165.) On May 5, 2016, Plaintiff filed a Motion to Lift Stay. (ECF No. 165.) On September 20, 2016, the Court ordered the stay lifted. (ECF No. 173.) In its decision to lift the stay, the Court considered three factors and found the PTAB's confirmation of Plaintiff's patent shifted the analysis to weigh in favor of lifting the stay.

         On March 23, 2017, Defendant filed a Motion to Reinstitute Stay because the PTAB “reversed the patent examiner's inter partes reexamination decision and rejected” claims 1 through 7 of the '295 Patent. (ECF No. 176 at 1.) Defendant argues because the PTAB “rejected all of the asserted claims as unpatentable over the prior art, ” the '295 Patent should not be subjected to litigation at this time to conserve the Court's and parties' resources. (ECF No. 176 at 2-5.)

         II. Standard of Law

         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 Proctor & Gamble, 549 F.3d 842, 848 (Fed. Cir. 2008). “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 (1936) (holding the court's power to stay proceedings secondary to the inherent power the court has to control its docket). “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 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

         Defendant argues the stay should be reinstituted because the reasons for lifting the stay are no longer applicable since the PTAB “reversed the patent examiner's . . . decision and rejected all asserted claims” of the '295 Patent. (ECF No. 176 at 1.) Defendant argues the stay is necessary to conserve the Court's and parties' resources until the PTAB makes a final ruling on the '295 Patent. (ECF No. 176 at 3.) Plaintiff argues the stay should not be reinstituted because the PTAB has not released a final decision, thus Plaintiff “should not be precluded from enforcing its valid patent against an infringing competitor.” (ECF No. 177 at 1.) Plaintiff argues the longer litigation is postponed the more difficult it will be to recover redress from Defendant's infringement, thus the stay should not be reinstituted to avoid prejudice to Plaintiff. (ECF No. 177 at 5.) The Court considers the aforementioned three Telemac factors when determining whether to reinstitute the stay pending reexamination. Telemac, 450 F.Supp.2d at 1111.

         A. Whether Discovery is Complete and Whether a Trial ...


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