Amending Claims in Reexam Sufficient for Judge to Reconsider Prior Refusal to Stay Litigation

November 16th, 2010

Judge Davis, on November 10, 2010 ordered a stay in Southwire v Cerro Wire, Inc, 6:09-CV-289 (EDTX) (Davis) a case involving a patent for “Electrical Cable Having a Surface with Reduced Coefficient of Friction”––USPN 7,557,301.  The defendants requested and obtained ex parte reexamination for the ‘301 patent.  The ‘301 patent is a continuation of USPN 7,411,129, which Southwire previously asserted against the defendants in this case, and which is also under reexamination before the USPTO.   The Court denied (without prejudice) the defendants’ initial request to stay the litigation in view of the reexamination.  But when the patent holder/plaintiff Southwire amended claims in the ‘301 patent in response to a first Office action rejection, defendants renewed their request to stay.  On review, the Court determined that Southwire’s claim amendments and responses in the ‘301 patent’s reexamination, combined with the still early stage of the litigation, were sufficient to warrant a stay. 

In considering again whether to stay the litigation pending reexamination of the ‘301 patent, the Court found compelling at least two factors not previously present. 

First, Southwire substantively amended each of the independent claims in the ‘301 patent.  The Court found the amendments to certain claim terms to be “entirely new and … intertwined with the terms the parties currently request the Court to construe.”  Further, the Court determined that the amendments resulted in “claims with different scope and limitations”—a point Southwire “tacitly acknowledged” by conceding that the proposed revisions would require the Court to follow up with additional claim construction. 

Second, the Court found that Southwire made inconsistent statements to the PTO that favor a stay.  Specifically, Southwire did not attempt to distinguish the prior art over the original claims; instead choosing to amend straightaway each of the independent claims.  In its reply, Southwire stated to the PTO that the revised claims “particularly as amended” were not anticipated by the cited art.  Taken together, the Court found these actions/statements to be inconsistent with Southwire’s contentions to the Court that the original ‘301 patent claim are not invalid. 

These two new factors, according to the Court, strongly favored staying the litigation.  Additionally, the Court found that the fact that the PTO had also rejected all claims in a parent patent (USPN 7,411,129), over which Southwire overcame a double patent rejection in the ‘301 patent with a terminal disclaimer, weighed “slightly in favor” of a stay.  When these factors were combined with the fact that the litigation was still in its early stages—no Markman hearing, discovery still ongoing, expert reports not exchanged—the Court stayed the litigation.  The Court did consider the fact that the parties are direct competitors to weigh heavily against a stay.  But this was not sufficient to overcome the Court’s finding that a stay would “simplify the issues in question and at trial … [and] will allow time to resolve any inconsistencies between Southwire’s representations to the Court and the PTO regarding the ‘301 patent’s scope and validity.”  In short, the Court stated that “Southwire is not prejudiced by a stay of patent claims that it is attempting to change.” 

This stay decision appears consistent with other Eastern District of Texas stay decisions.  The Court is generally reluctant to stay litigations in favor of reexamination.  Indeed, the Court initially refused to stay the Southwire litigation in favor of reexamination and reiterated in its order that “[r]eexamination is not necessarily such an extraordinary circumstance that justifies a stay….”  But where a patentee faces rejection of all claims asserted in the litigation and chooses not argue the merits of the rejection in favor a substantive amendment, this casts serious doubt over the patentability of the asserted claims.  Though not apparently considered by the Court, the substantive claim amendments could also effectively wipe out any claim for past damages Southwire may have had against the defendants under the doctrine of intervening rights.  This fact also mitigates any prejudice against Southwire if the case were stayed.  In sum, this case is an example of how the actions taken by a patent owner during reexamination can have a real and immediate impact on the course of a concurrent district court litigation. 

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