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Interwoven v. Vertical Computer Systems: Motion to Stay Pending Reexamination Denied Where Alleged Infringer Filed Declaratory Judgment Action to Initiate Litigation and Then Participated in Litigation Through the Markman Hearing

Interwoven moved to stay all proceedings pending the outcome of an ex parte reexamination of the two patents-in-suit. Interwoven asserted that a stay was warranted because the defendant appeared unprepared to litigate and a reexamination would likely modify the issues in the case, with no undue burden to the defendant. The defendant, Vertical, opposed the motion, arguing that a stay would impose an unreasonable delay and that the stay request was a dilatory tactic that would prejudice the defendant, as the alleged infringement would continue while the stay was in effect.

Vertical had filed a patent infringement action against Microsoft Corporation in the Eastern District of Texas. After it settled with Microsoft, Vertical told Interwoven that it believed Interwoven was infringing its patents. After negotiations failed, Interwoven filed the declaratory judgment action in the Northern District of California. During the litigation, the parties began discovery, briefed claim construction issues and participated in the Markman hearing. The district court then issued its claim construction ruling, which largely rejected Interwoven’s positions. Interwoven then filed its ex parte request for reexamination and moved to stay the litigation that it had initiated.

Vertical argued that the stay would impose unreasonable delay and create undue prejudice. The district court agreed based on the timing of the request coming after the claim construction ruling. “Vertical insists granting a stay would merely impose unreasonable delay and create undue prejudice. It further impugns plaintiff’s motion as a dilatory tactic designed to prolong the alleged infringing behavior. Specifically, Vertical emphasizes that Interwoven waited a year and three months into litigation to file for reexamination, only doing so after receiving the Court’s claim construction order. This order notably rejected most of Interwoven’s arguments, construing the majority of disputed terms according to their plain and ordinary meanings. That Interwoven waited until after receiving an unfavorable ruling to request reexamination lends credence to Vertical’s contention that the current motion is simply a delaying strategy.”

The district court also found that the parties’ status as direct competitors weighed against a stay. The district stated that “there is evidence to support Vertical’s fear that it will not only be financially disadvantaged, but also strategically prejudiced by a stay. Evidence, witness availability, and memory concerning the pertinent timeframe will likely become more stale and difficult to retriever as time passes. In short, adding additional years onto a case already past the claim construction stage is unreasonable and would place Vertical at a tactical disadvantage.”

Looking at whether the reexamination would significantly simplify or streamline the litigation, the district court found that there was only a small likelihood that the claims would be canceled in their entirety and therefore this factor did not favor the stay. “Consequently, the only way Interwoven’s requested reexaminations will resolve invalidity issues is if the PTO cancels the claims in their entirety, of which there is only a 12% chance. … Interwoven has not persuasively demonstrated that the results of reexamination will streamline the litigation such that a stay would be helpful.”

Finally, the district court found that the procedural posture of the case also weighed against a stay. “The case is not, as defendants insist, in its infancy. Discovery is well underway and the parties are working towards an agreeable protective order. They have exchanged documents, excepting source code, served interrogatories and document requests, and responded to each other’s requests and interrogatories. More importantly, the parties have fully briefed the issue of claim construction, attended a Markman hearing, and received a claim construction order.”

Accordingly, the request for stay was denied.

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The obvious lesson here is that in order for a stay request to be granted it is prudent to move sooner, at the beginning of the litigation, rather than later. Here, it appeared that Interwoven was trying to have its cake and eat it too and the district court plainly saw through that strategy.

Interwoven, Inc. v. Vertical Computer Systems, Inc., Case No. C 10-04645 RS (N.D. Cal. March 3, 2012)

The authors of are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or