Free Opening Brief in Support - District Court of Delaware - Delaware

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LEXSEE 2005 US DIST LEXIS 22933 HONEYWELL INTERNATIONAL INC., and HONEYWELL INTELLECTUAL PROPERTIES INC., Plaintiffs, v. AUDIOVOX COMMUNICATIONS CORP., AUDIOVOX ELECTRONICS CORPORATION, NIKON CORPORATION, NIKON, INC., NOKIA CORPORATION; NOKIA INC., SANYO ELECTRIC CO., LTD., and SANYO NORTH AMERICA CORPORATION, Defendants. HONEYWELL INTERNATIONAL INC., and HONEYWELL INTELLECTUAL PROPERTIES INC., Plaintiffs, v. APPLE COMPUTER, INC.: ARGUS A/K/A HARTFORD COMPUTER GROUP. INC.; CASIO COMPUTER CO., LTD.; CASIO, INC.; CONCORD CAMERAS: DELL INC.; EASTMAN KODAK COMPANY; FUJI PHOTO FILM CO., LTD.; FUJI PHOTO FILM U.S.A., INC.; FUJITSU LIMITED; FUJITSU AMERICA, INC.; FUJITSU COMPUTER PRODUCTS OF AMERICA, INC.; KYOCERA WIRELESS CORP.; MATSUSHITA ELECTRICAL INDUSTRIAL CO.; MATSUSHITA ELECTRICAL CORPORATION OF AMERICA; NAVMAN NZ LIMITED; NAVMAN U.S.A. INC.; OLYMPUS CORPORATION; OLYMPUS AMERICA, INC.; PENTAX CORPORATION; PENTAX U.S.A., INC.: SONY CORPORATION; SONY CORPORATION OF AMERICA; SONY ERICSSON MOBILE COMMUNICATIONS AB; SONY ERICSSON MOBILE COMMUNICATIONS (USA) INC.; TOSHIBA CORPORATION; and TOSHIBA AMERICA, INC., Defendants. OPTREX AMERICA, INC., Plaintiff, v. HONEYWELL INTERNATIONAL INC., and HONEYWELL INTELLECTUAL PROPERTIES INC., Defendants. Civil Action No. 04--1337-KAJ, Civil Action No. 04--1338--KAJ, Civil Action No. 04--1536-KAJ UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE 2005 U.S. Dist. LEXIS 22933 May 18, 2005, Decided CASE SUMMARY: PROCEDURAL POSTURE: Plaintiff patent holders filed a patent infringement suit against defendants, manufacturers and their customers. The patent holders subsequently filed a motion for consolidation under Fed. R. Civ. P. 42(a), a third party manufacturer filed a motion to intervene under Fed. R. Civ. P. 24(a), a third party seller filed a motion to have its declaratory judgment suit against the patent holders tried first, and several defendants filed motions to stay. OVERVIEW: The patent in question claimed a liquid crystal display (LCD) apparatus that provided enhanced brightness and clarity when compared to prior art LCDs. The patent holders' claims were brought against manufacturers of allegedly infringing LCDs and their customers who incorporated the LCDs into their consumer electronics. The court held: (1) the patent holders were entitled to consolidation with respect to their claims against defendant manufacturers because the claims involved common questions of law and fact; (2) the third party manufacturer, which was the original manufacturer of allegedly infringing LCDs, was entitled to intervene because its interests would be affected by the disposition of the suit and were not adequately protected by existing parties; (3) the third party seller was entitled to proceed with its claims on a priority basis because the court had found that the dispute between the patent holders and defendant manufacturers should go forward first; and (4) the customers were entitled to a stay of the litigation, except with respect to certain limited discovery, because a stay would vastly simplify the issues and trial of the case against defendant manufacturers. OUTCOME: The court granted the patent holders' motion for consolidation with respect to defendant manufacturers and with respect to pretrial activities concerning the customers, granted the seller's motion to intervene, granted the third party manufacturer's motion to proceed with its claims on a priority basis, and stayed the litigation against the customers except with respect to certain

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limited discovery. LexisNexis(R) Headnotes Civil Procedure > Pleading & Practice > Motion Practice Generally > Content & Format of Motions [HN1] See Fed. R. Civ. P. 7(b)(1). Civil Procedure > Joinder of Claims & Parties > Intervention Civil Procedure > Trials > Judicial Discretion [HN2] Motions to intervene are entrusted to the discretion of the court. Civil Procedure > Joinder of Claims & Parties > Intervention Civil Procedure > Appeals > Standards of Review > Abuse of Discretion [HN3] An appeals court will reverse a district court's determination on a motion to intervene as of right if the court has abused its discretion by applying an improper legal standard or by reaching a conclusion that the appeals court is confident is incorrect. Civil Procedure > Joinder of Claims & Parties > Intervention [HN4] See Fed. R. Civ. P. 24(a). Civil Procedure > Joinder of Claims & Parties > Intervention [HN5] Fed. R. Civ. P. 24(a) has been interpreted to require proof of four elements from an applicant seeking intervention as of right: (1) a timely application for leave to intervene; (2) a sufficient interest in the litigation; (3) a threat that the interest will be impaired or affected, as a practical matter, by the disposition of the action: and (4) inadequate representation of the prospective intervenor's interest by existing parties to the litigation. Civil Procedure > Trials > Consolidation of Actions Civil Procedure > Trials > Judicial Discretion Civil Procedure > Entry of Judgments > Stay of Proceedings & Supersedeas [HN6] A district court generally has broad discretion when deciding whether to consolidate or stay proceedings. Civil Procedure > Trials > Consolidation of Actions [HN7] A trial judge, under Fed. R. Civ. P. 42(a), is given the broad authority to make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.

Civil Procedure > Trials > Consolidation of Actions [HN8] See Fed. R. Civ. P. 42(a). Civil Procedure > Trials > Judicial Discretion Civil Procedure > Entry of Judgments > Stay of Proceedings & Supersedeas [HN9] The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the cases on its docket with economy of time and effort for itself, for counsel, and for litigants. Civil Procedure > Trials > Judicial Discretion Civil Procedure > Entry of Judgments > Stay of Proceedings & Supersedeas [HN10] When considering a motion to stay, a court considers the following factors: (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 and trial of the case; (3) whether discovery is completed; and (4) whether a trial date has been set. Civil Procedure > Entry of Judgments > Stay of Proceedings & Supersedeas [HN11] The "customer suit exception" to the preference for allowing a first--filed action to proceed first is based on the manufacturer's presumed greater interest in defending its actions against charges of patent infringement. COUNSEL: [*1] For Honeywell International Inc., Honeywell Intellectual Properties, Inc., Plaintiffs: Steven J. Balick, John G. Day, Ashby & Geddes, Wilmington, DE. For Nikon Corporation, Defendant: Richard L. Horwitz, Potter Anderson & Corroon, LLP, Wilmington, DE; Barry M. Graham, Darren M. Jiron, Pro Hac Vice. For Nikon Inc., Defendant: Richard L. Horwitz, Potter Anderson & Corroon, LLP, Wilmington, DE; William J. Marsden, Jr., Fish & Richardson, P.C., Wilmington, DE; Barry M. Graham, Darren M. Jiron, Pro Hac Vice. For Nokia Corporation, Nokia Inc., Defendants: William J. Marsden, Jr., Tara D. Elliott, Fish & Richardson, P.C., Wilmington, DE. For Sanyo Electric Co., Ltd, Sanyo North America, Defendants: Richard L. Horwitz, David Ellis Moore, Potter Anderson & Corroon, LLP, Wilmington, DE; Timothy J. Vezeau, Pro Hac Vice. For Audiovox Electronics Corporation, Defendant: Paul A. Bradley, McCarter & English, LLP, Wilmington, DE.

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For Audiovox Communications Corp., Defendant: Matt Neiderman, Duane Morris LLP, Wilmington, DE. For Seiko Epson Corporation, Defendant: Robert J. Katzenstein, Smith, Katzenstein, & Furlow, Wilmington, DE; Robert J. Benson, Pro Hac Vice. For [*2] Audiovox Electronics Corporation, Counter Claimant: Paul A. Bradley, McCarter & English, LLP, Wilmington, DE. For Audiovox Communications Corp., Counter Claimant: Matt Neiderman, Duane Morris LLP, Wilmington, DE. For Honeywell Intellectual Properties, Inc., Counter Defendant: John G. Day, Ashby & Geddes, Wilmington, DE. For Nokia Inc., Nokia Corporation, ThirdParty Plaintiffs: William J. Marsden, Jr., Fish & Richardson, P.C., Wilmington, DE. For Audiovox Communications Corp., ThirdParty Plaintiff: Matt Neiderman, Duane Morris LLP, Wilmington, DE. JUDGES: Kent A. Jordan, UNITED STATES DISTRICT JUDGE. OPINIONBY: Kent A. Jordan OPINION: MEMORANDUM ORDER Introduction & Background In these three actions, Honeywell International Inc., a Delaware corporation, and Honeywell Intellectual Properties Inc., an Arizona corporation, (collectively "Honeywell") have asserted that their rights under U.S. Patent No. 5,280,371, issued January 18, 1994, (the "'371 patent) have been infringed. The '371 patent claims a liquid crystal display ("LCD") apparatus said to provide enhanced brightness and clarity when compared with prior art LCDs. (See '371 patent, attached to C.A. [*3] No. 04-1338--KAJ Docket Item ["D.I."] 1 at Ex. 1, col. 1 lines 48-61; col. 6, lines 1-42.) In Civil Action No. 04--1337-KAJ, Honeywell asserts the '371 patent against 8 defendants. (C.A. No. 04-1337--KAJ D.I. 39.) In Civil Action No. 04--1338-KAJ, it asserts the same patent against another 27 defendants. n1 In Civil Action No. 04--1536-KAJ, Optrex America, Inc., a New York corporation, ("Optrex") has sued for a declaratory judgment that it does not infringe Honeywell's rights under the '371 patent and

that the patent is invalid. (C.A.No. 04--1536--KAJ D.I. 1.) n1 Honeywell chose to file two separate suits simultaneously because a conflict of interest of one of its law firms prevented that firm from representing Honeywell against certain of the defendants, but it now seeks consolidation of the actions. (See C.A. No. 04--1338--KAJ D.I. 135 at n. 1.) Pending before me are several motions bearing on the management of these cases. n2 Honeywell seeks consolidation of the actions. (C.A. No. 04--1338--KAJ D.I. 134; C.A. No. 04--1536--KAJ [*4] D.I. 14) A third party, Seiko Epson Corporation, a Japanese company, ("Seiko Epson") seeks to intervene because it is the original manufacturer of LCDs said to be the infringing component in some of the defendants' consumer electronics. (See C.A No. 04-1337--KAJ D.I. 50; C.A. No. 04--1338--KAJ D.I. 136 at 7-9); Opirex, another seller of allegedly infringing LCDs to defendants in the suits filed by Honeywell, seeks to have its case tried first. n3 (C.A. No. 04--1536--KAJ D.I. 23.) And several of the defendants in the actions brought by Honeywell have filed motions to stay the litigation against them while Honeywell first tries its infringement claims against the manufacturers of the LCDs. (See, e.g., C.A. No. 04--1337--KAJ D.I. 60, 63. 101, and 112; C.A. No. 04--1338--KAJ D.I. 95, 158. 161, 181, and 189.) n2 A chart listing the motions filed by the parties is appended. n3 [HN1] Federal Rule of Civil Procedure 7(b)(1) provides in pertinent part that, "an application to the court for an order shall be by motion ... ." It is the custom and expectation of this court that, unless otherwise ordered by the court, an application like Optrex's should be made by way of formal motion. That expectation was not met in this instance. Failure to abide by Rule 7 necessarily brought with it a failure to abide by Local Rule 7.1.1, respecting the certification of counsel required with all non--dispositive motions. Solely because Optrex's request, which came by way of a letter, can be readily disposed of in light of my rulings on the motions properly made, I have considered it and address it herein. [*5] On May 16, 2005, I held a consolidated pretrial conference in these cases pursuant to Federal Rule of Civil Procedure 16. At that time, I heard argument on the various motions and issued preliminary rulings. This Order confirms those rulings and provides a further explication

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for them. For the reasons staled herein, as well as those stated in open court at the Rule 16 conference, Seiko Epson's motion to jntervene is granted. Honeywell's motion to consolidate is granted in part, Optrex's request is granted to the extent stated herein, and the motions to stay submitted by defendants in the Honeywell--filed cases are granted. In short, Honeywell will be required to litigate its infringement claims in the first instance against the manufacturers of the accused LCDs, not against the many customers of those manufacturers who incorporate the LCDs into their consumer electronics. Standard of Review [HN2] Motions to intervene are entrusted to the discretion of the court. See Kleissler v. U.S. Forest Service, 157 F.3d 964, 969 (3d Cir.1996) [HN3] ("We will reverse a district court's determination on a motion to intervene as of right if [*6] the court has abused its discretion by applying an improper legal standard or reaching a conclusion we are confident is incorrect.") Intervention as of right is governed by [HN4] Federal Rule of Civil Procedure 24(a), which states in relevant part, "upon timely application anyone shall be permitted to intervene in an action ... (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties." [HN5] That rule has been interpreted to require proof of four elements from the applicant seeking intervention as of right: first, a timely application for leave to intervene; second, a sufficient interest in the litigation; third, a threat that the interest will be impaired or affected, as a practical matter, by the disposition of the action: and fourth, inadequate representation of the prospective intervenor's interest by existing parties to the litigation. Kleissler, 157 F.3d at 969. [*7] [HN6] A district court also generally has broad discretion when deciding whether to consolidate or stay proceedings. See Bechtel Corp. v. Laborers' International Union, 544 F.2d 1207, 1215 (3d Cir. 1976) ("A United States district court has broad power to stay proceedings."): Blake v. Farrell Lines, Inc., 417 F.2d 264. 266 (3d Cir. 1969) [HN7] ("the trial judge, under Rule 42(a), is given the broad authority to 'make such orders concerning proceedings therein as may tend to avoid unnecessary

costs or delay'"). With respect to consolidation, [HN8] Federal Rule of Civil Procedure 42(a) provides that, "when actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay." [HN9] The power to stay proceedings "is incidental to the power inherent in every court to control the disposition of the cases on its docket with economy of time and effort for itself, for counsel, and for litigants. [*8] " Cheyney State College Faculty v. Hufstedler, 703 F.2d 732, 738 (3d cir. 1983) (quotation omitted). [HN10] When considering a motion to stay, the court considers the following factors: (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 and trial of the case; (3) whether discovery is completed; and (4) whether a trial date has been set. United Sweetener USA, Inc. v. Nutrasweet Co., 766 F. Supp. 212, 217 (D.Del. 1991). Discussion These cases are the second set of LCD technology cases to come before this court on a grand scale. The first set, in which the lead case is Commissariat A L'Energie Atomique v. Samsung, et al., C.A. No. 03--464--KAJ (consolidated), involved the plaintiff ("CEA") suing a host of manufacturers, distributors, and retailers of LCDs or products containing them. After sorting through the various motions to stay and to consolidate, I concluded that consolidation of cases against the manufacturer defendants was appropriate because those cases involved common questions of law and fact pertaining to infringement. See id., May 13, 2004 Mem. [*9] Order at 56. However, I declined to consolidate the cases involving non--manufacturer defendants because no sound reason was given for immediately addressing what could only be the derivative liability of those defendants. See id. For that same reason, I stayed the cases against the non-manufacturer defendants, observing, "litigation against or brought by the manufacturer of infringing goods takes precedence over a suit by the patent owner against customers of the manufacturer." Id. at 7 (quoting Katz v. Lear Siegler, Inc., 909 F.2d 1459. 1464 (Fed. Cir. 1990), I was persuaded then and remain persuaded that large-scale litigation like this requires the business and strategic legal interests of the plaintiff to cede some ground to case management imperatives. It is impracticable to try an infringement case against 40 some defendants or third--party

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defendants with many different accused devices, and it is unwise to attempt any such thing when liability depends exclusively upon infringement being found as to an LCD component that the defendants do not manufacture and when at least some of the manufacturers of the LCDs are before the court and are willing to stand [*10] behind their products in this litigation. n4 Cf. Kahn v. General Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989) (noting that [HN11] the "customer suit exception" to the preference for allowing a first-filed action to proceed first is based on "the manufacturer's presumed greater interest in defending its actions against charges of patent infringement"). n4 Optrex and Seiko Epson are before the court already. Other LCD manufacturers identified as "Curitel, Philips, Wintek, and Samsung SDI" have been named in a third party complaint (see C.A. No. 04-1338--KAJ D.I. 167 at 5), and LCD manufacturers identified as "Arima Display, AU Optronics, CPT, Hannstar, Hitachi, Primeview, Quanta Display, Inc., ST-LCD, TM Display, and Tottori Sanyo" have not been named or appeared in any of the cases to date. (See id.) Honeywell has been frank to say that it deliberately avoided suing the manufacturers to avoid "the complications faced by this Court in the French government's LCD action, C.A. No. 03-484 [i. [*11] e., the CEA suit]." (C.A. No. 04-1338--KAJ D.I. 147 at 3, P 2.) Honeywell also accurately assesses the several motions to stay and the motion to intervene as an effort by the movants to "recast [Honeywell's lawsuits] as a case against LCD suppliers ... ." (C.A. No. 04-1338--KAJ D.I. 167 at 5.) What Honeywell fails to appreciate is that, from the perspective of the host of defendants Honeywell has chosen to sue, and in the interest of judicial economy, dealing with the manufacturers first is the fairest and most efficient way to proceed. It is not a complication to be resisted. Thus, Honeywell's motions to consolidate will be granted because the cases certainly do involve common questions of law and fact which make sense to handle for certain purposes on a consolidated basis. See Fed.R.Civ.P. 42(a). Whether a single trial against all the non-manufacturer defendants makes sense is a question for another day. For now it is sufficient to order that trial and pretrial activities with respect to the dispute between Honeywell and those manufacturer defendants presently before the court will be handled on a consolidated basis. Any pretrial activities [*12] with respect to Honeywell's claims against the non-manufacturer defendants will also be handled, for the time being, on a consolidated basis. It is likely that the claims against and by the manufacturer defendants will later be separated out for pretrial proceed-

ings as well as a separate trial. As further noted herein, however, there will be some discovery permitted of the non--manufacturer defendants, so all will remain in the case for the time being. The motion to intervene filed by Seiko Epson will also be granted, because it puts a willing manufacturer defendant in the forefront of litigation aimed squarely at its product. Seiko Epson correctly claims that it has met the test for intervention as of right under Rule 24(a). Its motion is timely; discovery has not even begun in the case and case management issues are only now being addressed. It has a sufficient interest in the litigation; indeed, as a manufacturer of the product component which is at the heart of these cases, it has a compelling interest. It can rightly claim that its interests will be impaired or affected, as a practical matter, by the disposition of the action, unless it is involved in the case directly and able [*13] to make its positions known. Finally, because it is uniquely situated to understand and defend its own product, its interests are not adequately represented by existing parties to the litigation. For evidently similar reasons, Optrex has taken affirmative steps to insert itself in this litigation and to have the opportunity to have the dispute over its LCDs heard before the suits against the non--manufacturer defendants are permitted to go forward. As stated at the May 16 conference, I agree that the dispute between Honeywell and the manufacturers should go forward first. To that extent, Optrex's request to proceed with its claims on a priority basis will be granted. As to the several motions to stay, they too are granted to the extent stated in open court. The non--manufacturer defendants will not be given a complete and immediate stay of all proceedings involving them, because I will permit Honeywell certain limited discovery to learn who the suppliers of LCDs are for the various devices that Honeywell must now specifically identify as accused products. n5 I will otherwise stay the litigation against the non--manufacturer defendants, however, since a stay would not unduly prejudice [*14] Honeywell. it will vastly simplify the issues and trial of the case against the manufacturer defendants, and it comes at time when discovery has not even begun and no trial date has been set. See United Sweetener USA, Inc. v. Nutrasweet Co., 766 F. Supp. 212, 217 (D. Del. 1991) (setting forth test for propriety of a stay). At the appropriate time, a separation of the suits against the manufacturer and non-manufacturer defendants may well be warranted, for ease of case administration. n5 At the case management conference, I granted a defense request that Honeywell be re-

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quired to identify the products it is accusing of infringement. To date, it has only stated that "at least some of the LCD screen--containing products manufactured, imported, offered for sale, and/or sold by [the named defendants] infringe the '371 patent literally and/or under the doctrine of equivalents ... ." (C.A, No. 04-1338--KAJ D.I. 1 at P 53.) At the close of the case management conference, I instructed the parties to confer [*15] and provide me with proposed language respecting permissible discovery activities directed at the non--manufacturer defendants during the stay. A further and separate order will be entered following the parties' filing or filings in that regard. Conclusion For the reasons stated in open court on May 16, 2005 and herein, it is hereby ORDERED that (1) Honeywell's motions to consolidate (C.A. No. 04-1338--KAJ D.I. 134; C.A. No. 04-1536--KAJ D.I. 14) are GRANTED to the extent that Civil Action Nos. 04--1337-KAJ, 04-1338--KAJ and 04-1536--KAJ are consolidated

for the present for all purposes, with a consolidated case caption to be suggested by the parties by June 17, 2005; (2) Seiko Epson's motions to intervene (C.A. No. 04-1337--KAJ D.I. 50 and C.A. No. 04--1338--KAJ D.I. 136) are GRANTED; (3) Optrex's request to proceed with its dispute in advance of Honeywell being permitted to proceed with its litigation against the non--manufacturer defendants (C.A. No. 04--1536--KAJ D.I 23) is GRANTED to the extent described herein; and (4) the several motions to stay (C.A. No. 04--1337-KAJ D.I. 60, 63, 101 and 112; C.A, No. 04--1338 D.I. 95, 158, 161, 181 and 189) are GRANTED to the extent described [*16] herein, with a further order regarding the stay to be proposed by the parties no later than June 17, 2005. May 18, 2005 Wilmington, Delaware Kent A. Jordan UNITED STATES DISTRICT JUDGE

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LEXSEE 1993 US DIST LEXIS 14601 TERADYNE, INC., Plaintiff, v. HEWLETT--PACKARD COMPANY, Defendant. No. C--91--0344 MHP UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA 1993 U.S. Dist. LEXIS 14601 January 7, 1993, Decided January 7, 1993, Filed, Entered CASE SUMMARY: PROCEDURAL POSTURE: Plaintiff filed an action charging defendant with patent infringement and defendant counterclaimed that plaintiff had infringed upon three of defendant's patents. Plaintiff sought summary judgment of one counterclaim and filed a motion for reconsideration of a temporary stay of the litigation of a second counterclaim, and defendant filed a motion to stay litigation of the remaining counterclaim pending a reexamination by the Patent Office. OVERVIEW: The court determined that one of plaintiff's prior art references satisfied the literal terms of one claim of defendant's patent that was the subject of the summary judgment motion. Although defendant argued that the circuit tester's patent did not explicitly provide that a computer instruction was explicitly used to facilitate initialization and that deposition testimony could not be used to fill gaps in a patent claim's disclosure, the court found as a matter of law that initialization was covered by the claim in plaintiff's prior art and that the deposition testimony was uncontradicted that the tester's manual listed initialization as one of the iteration program's functions. The court determined that the litigation regarding defendant's remaining counterclaims should be stayed pending completion of the U.S. Patent Office's reexamination process. The court found that the reexamination might narrow or eliminate issues concerning the patents' validity and the reexamination process was intended for use in this situation where defendant discovered evidence of prior art during discovery that was not considered during the initial examination of the patent application. OUTCOME: The court granted plaintiff's motion for summary judgment, denied plaintiff's motion for reconsideration of the temporary stay of litigation involving one of defendant's counterclaims, and granted defendant's motion for the stay of litigation regarding defendant's remaining counterclaim pending reexamination by the U.S. Patent Office. LexisNexis(R) Headnotes Civil Procedure > Summary Judgment > Summary Judgment Standard [HN1] Under Fed. R. Civ. P. 56, summary judgment shall be granted against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial. Civil Procedure > Summary Judgment > Burdens of Production & Proof [HN2] The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. The burden then shifts to the nonmoving party to go beyond the pleadings, and by its own affidavits, or by depositions, answers to interrogatories, or admissions on file designate specific facts showing that there is a genuine issue for trial. Civil Procedure > Summary Judgment > Summary Judgment Standard [HN3] The court's function on a motion for summary judgment is not to make credibility determinations. The inferences to be drawn from the facts must be viewed in a light most favorable to the party opposing the motion. Patent Law > Anticipation & Novelty > Elements Patent Law > Infringement Actions > Summary Judgment > General Overview [HN4] Summary judgment is as appropriate in a patent case as in any other. Patent Law > Infringement Actions > Defenses > Patent

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Invalidity > Validity Presumption Patent Law > Inequitable Conduct > General Overview [HN5] The proof of patent invalidity must be by clear and convincing evidence. Section 282 of the patent statutes, 35 U.S.C.S. § 282, explicitly provides for a presumption of patent validity. Section 282 places the initial burden of establishing a prima facie case on the party asserting invalidity; it also places the burden of persuasion on the challenging party throughout the litigation. Patent Law > Inequitable Conduct > Effect, Materiality & Scienter > General Overview Patent Law > Infringement Actions > Defenses > Patent Invalidity > Validity Presumption Patent Law > Infringement Actions > Burdens of Proof [HN6] The presumption of validity exists because the patent office is presumed to have performed its job correctly. However, if the Patent Office did not consider the asserted prior art, such deference is not warranted. It is often difficult to discern whether a certain prior art was considered by the patent office. For instance, the failure of a patent examiner to cite a prior art is not conclusive evidence that it was not considered by the patent examiner. In addition, introduction of more pertinent prior art than that considered by the patent office does not shift the basic burden of persuasion from the patent challenger. Patent Law > Inequitable Conduct > Effect, Materiality & Scienter > General Overview Patent Law > Claims & Specifications > Claim Language > Elements & Limitations Patent Law > Anticipation & Novelty > Elements [HN7] A patent claim can only be invalidated on anticipation grounds if all elements and limitations of the claim are found in a single prior art reference. Patent Law > Infringement Actions > Infringing Acts > General Overview Patent Law > Infringement Actions > Claim Interpretation > General Overview [HN8] A finding of anticipation requires that all aspects of the claimed invention were already described in a single reference, a finding that is not supportable if it is necessary to prove facts beyond those disclosed in the reference in order to meet the claim limitations. The role of extrinsic evidence is to educate the decisionmaker to what the reference meant to persons of ordinary skill in the field of the invention, not to fill in gaps in the reference. JUDGES: [*1] PATEL OPINIONBY: MARILYN HALL PATEL OPINION:

MEMORANDUM AND ORDER Plaintiff Teradyne, Inc. ("Teradyne") brought this action against defendant Hewlett--Packard ("HP") for allegedly infringing three of Teradyne's patents. HP brought a counterclaim against Teradyne for allegedly infringing five of HP's patents. The matter was last before the court on May 8, 1992 to consider Teradyne's summary judgment motion of invalidity for three of HP's patents, U.S. Patents Nos. 4,588,945 (" '945"); 4,642,561 (" '561"); and 4,598,245 (" '245"). At the hearing the court ordered that action on the '245 patent be stayed pending a reexamination by the Patent Office. The court ordered further briefing on the '561 patent and took the issue of the '945 patent under submission. The matter is presently before the court on Teradyne's motion for reconsideration of this court's decision to temporarily stay litigation of the '245 patent and HP's motion to stay litigation of the '561 patent pending a reexamination by the Patent Office. Having considered the submissions and arguments of the parties, and for the following reasons, the court GRANTS Teradyne's summary judgment motion with respect to claim 4 of the '945 patent. The [*2] court DENIES Teradyne's motion with respect to the other contested claims on the '945 patent. The court DENIES Teradyne's motion to reconsider the stay on the '245 patent. The court GRANTS HP's motion to stay litigation on the '561 patent. I. BACKGROUND A. Procedural History On February 4, 1991 Teradyne filed its original Complaint, charging HP with infringing three of Teradyne's patents, U.S. Patents Nos. 31,828, 4,339,819, and 4,500,993. On June 28, 1991 HP filed an Amended Answer and Counterclaim, raising a number of defenses to the three Teradyne patents, and charging Teradyne with infringement of five of HP's patents, the three currently under review, '945, '561, '245, as well as U.S. Patents Nos. 4,040,025; and 4,652,814. Teradyne filed a reply and counterclaimed that each of HP's five patents--in-suit was invalid and not infringed. On March 6, 1992 Teradyne filed three motions for summary judgment alleging that various claims of the '945, '561, and '245 patents were invalid as anticipated by the prior art under 35 U.S.C. § 102(b). Specifically, Teradyne sought a judgment that: (1) claims 1--5, and 7 of the '945 patent were invalid; [*3] (2) claim 1 of the '561 patent was invalid; and (3) claims 1--11 of the '245 patent were invalid. HP filed opposition to Teradyne's motions regarding the '945 and '561 patents, and sought to

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withdraw the '245 patent from this litigation, or in the alternative to stay litigation of the proceedings, because it was submitting the '245 patent for reexamination by the United States Patent and Trademark Office ("the Patent Office"). On May 6, 1992 HP filed a request for reexamination for the '245 patent in the Patent Office, pursuant to 35 U.S.C. § 301 et seq. On July 7, 1992, the Patent Office agreed to reconsider all claims of the '245 patent. Those proceedings are currently pending. At the May 8, 1992 hearing on Teradyne's summary judgment motions, this court stayed the proceedings with respect to the '245 patent pending the outcome of the Patent Office's reexamination of that patent. Teradyne now urges this court to reconsider the stay. Regarding the '561 patent, the court heard several hours of oral argument concerning Teradyne's contention that claim 1 of the '561 patent was invalid. At the end of the hearing, the court ordered that supplemental [*4] evidence be obtained from GenRad, a firm which manufactured and marketed one of the test devices which Teradyne claimed was an anticipating prior art reference. After obtaining the supplemental GenRad witness's testimony, HP recognized that the test device raised new questions of patentability never considered by the Patent Office and accordingly, on July 6, 1992, submitted the '561 patent for reexamination. HP now requests a stay of the present action with respect to the '561 patent pending the outcome of the reexamination proceedings. The court took Teradyne's summary judgment motion regarding the '945 patent under submission and that issue is presently ripe for summary adjudication. B. Factual Background HP's '945 patent relates to a relatively new method of testing PCBs, "in-circuit" testing, which tests the components that are mounted on a single PCB. n1 The circuit components are tested directly by applying test signals which have sufficient magnitude to overcome the effect of signals from other devices connected to the circuit component being tested. Joint Statement of Undisputed Facts Submitted with Teradyne's Motion for Partial Summary Judgment of Invalidity of Claims [*5] 1- and 7 of U.S. -5 Patent 4,588, '945 ("JS '945") P 13. The tester applies appropriate signals to the input of the circuit component, monitors the output signals from the circuit component, and checks these output signals for accuracy. n1 Early generations of circuit testers for printed circuit boards (PCBs) used functional testing, in which test signals were applied only at circuit inputs and output signals were monitored only

at circuit outputs. Functional testing suffered from two serious limitations. First, since each circuit was unique, it was difficult to determine the suitable test pattern for a specific circuit. Second, isolating a problem in the PCB required backtracking of the circuit and made diagnosis difficult. '651 Patent, col. 1, lines 18--28. To test a circuit component, a test signal pattern is applied. However, since circuit components are generally connected to other components, the application of a test signal pattern requires overcoming the effect of circuit components whose output signals constitute [*6] the input for the component under test. The process of overcoming the signals of these "upstream" components is known as "overdriving" or "backdriving." Id. Backdriving the output of upstream circuit components heats up the upstream components. '945 Patent, Col. 2, lines 1--28; col. 3, lines 3--43. Heating is particularly problematic since typical test signal patterns could include thousands of backdriving signals within a short period of time. In addition, since different circuit components that are tested typically have common upstream components which must be backdriven, such common components may never have the opportunity to cool down sufficiently so as not to become damaged. Claims 1--5 and 7 of the HP's '945 patent involve methods for preventing thermal damage in conjunction with the use of a digital in--circuit tester. Claims 1 and 5 are independent claims. Claim 1 involves a method for introducing between test signals applied to circuit components a predetermined variable length cool--down time predetermined from characteristics of the circuit components under test and the overall characteristics of the circuit. The cool--down time is sufficient to avoid overheating of devices [*7] in the circuit. JS ' 945 P. 15 . Claim 5 involves a means for applying the method of claim 1 in test signal use. Id. Claims 2 and 3 depend on claim 1, while claim 7 depends on Claim 5. Claim 2 requires that the variable length cool--down time interval be determined by calculating the minimum time duration necessary to avoid damaging the device under test. Id. Claim 3 requires that the variable length cool--down time interval be introduced before application of the test signals to the component for which the time interval was determined. Id. Claim 7 involves a means for introducing the interval described by claim 3. Finally, independent claim 4 involves a method of preventing overheating when test signals are applied during initialization and during the regular period by terminating the application of test signals when a predetermined count has been reached or by limiting the length of the testing

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periods themselves. Id. Teradyne asserts that claims 1- and claim 7 of -5 the '945 patent are invalid because they were anticipated by three prior art references: (1) GenRad's 2270, 2271, and 2272 testers ("GR2270"); (2) Teradyne's L200 in-circuit tester [*8] ("L200"); (3) Schlumberger/Fairchild/Faultfinders' FF303/303S in-circuit testers ("FF303"). HP contends that the claims are not invalid because it invented a novel method of calculating a predetermined variable length cool down time interval based on the characteristics of the devices and the circuit. It asserts that although the prior art may have allowed for cool-down periods, these cool-down periods were set mechanically and were not related to the actual time period necessary to avoid damage. II. DISCUSSION A. The '945 Patent 1. Legal Standards [HN1] Under Federal Rule of Civil Procedure 56, summary judgment shall be granted: against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial . . . since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial. Celotex Corp. v. Catrett, 477 U.S. 317, 322--23, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986); T.W. Elec. Serv. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987). [HN2] The [*9] moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. The burden then shifts to the nonmoving party to "go beyond the pleadings, and by [its] own affidavits, or by 'depositions, answers to interrogatories, or admissions on file' designate 'specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324; see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (a dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."). [HN3] The court's function on a motion for summary judgment is not to make credibility determinations. Anderson, 477 U.S. at 249. The inferences to be drawn from the facts must be viewed in a light most favorable to

the party opposing the motion. T.W. Elec. Serv., 809 F.2d at 631. In its motion for summary judgment, Teradyne relies upon 35 U.S.C. § 102(b) which provides that a patent is invalid if "the invention was patented or described in a printed [*10] publication in this or a foreign country or in public use or sale in this country, more than one year prior to the date of the application for patent in the United States." The federal circuit has repeatedly held that [HN4] "summary judgment is as appropriate in a patent case as in any other." Avia Group Int'l, Inc. v. L.A. Gear California, Inc., 853 F.2d 1557, 1561 (Fed. Cir. 1988) (citing cases). In addition, the federal circuit has upheld district court grants of summary judgment on the grounds of anticipation by prior art under 35 U.S.C. § 102(b). Constant v. Advanced Micro--Devices, 848 F.2d 1560, 1568--69 (Fed. Cir.), cert. denied, 488 U.S. 892, 102 L. Ed. 2d 218, 109 S. Ct. 228 (1988); Barmag Barmer Maschinenfabrik AG v. Murata Mach. Ltd., 731 F.2d 831 (Fed. Cir. 1984). [HN5] The proof of invalidity must be by clear and convincing evidence. RCA Corp. v. Applied Digital Data Systems, Inc., 730 F.2d 1440, 1444 (Fed. Cir.), cert. denied, 468 U.S. 1228 (1984). Section 282 of the patent statutes, 35 U.S.C. § 282, [*11] explicitly provides for a presumption of patent validity. Section 282 places the initial burden of establishing a prima facie case on the party asserting invalidity; it also places the burden of persuasion on the challenging party throughout the litigation. Lear Siegler Inc. v. Aeroquip Corp., 733 F.2d 881 (Fed. Cir. 1984). [HN6] The presumption of validity exists because the patent office is presumed to have performed its job correctly. American Hoist & Derrick Co. v. Sowa & Sons, Inc., 725 F.2d 1350, 1359--60 (Fed. Cir.), cert. denied, 469 U.S. 821, 83 L. Ed. 2d 41, 105 S. Ct. 95 (1984). However, if the Patent Office did not consider the asserted prior art, such deference is not warranted. American Hoist, 725 F.2d at 1359. It is often difficult to discern whether a certain prior art was considered by the patent office. For instance, the failure of a patent examiner to cite a prior art is not conclusive evidence that it was not considered by the patent examiner. Lear Siegler, 733 F.2d at 885. In addition, introduction of more pertinent prior art than that considered [*12] by the patent office does not shift the basic burden of persuasion from the patent challenger. Id. (citing Stratoflex, Inc. v. Aeroquip Corp., 713 F.2d 1530, 1534 (Fed. Cir. 1983)). [HN7] A patent claim can only be invalidated on anticipation grounds if all elements and limitations of the claim are found in a single prior art reference. Hybritech

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Inc. v. Monoclonal Antibodies, Inc., 802 F.2d 1367, 1379 (Fed. Cir. 1986), cert. denied, 480 U.S. 947, 94 L. Ed. 2d 792, 107 S. Ct. 1606 (1987). The so-called "doctrine of inherency" provides that the prior source need not expressly anticipate the claimed invention. Prior art can challenge a patent claim if it inherently possesses the patented property. See Verdegaal Bros., Inc. v. Union Oil Co., 814 F.2d 628, 633 (Fed. Cir.), cert. denied, 484 U.S. 827, 98 L. Ed. 2d 56, 108 S. Ct. 95 (1987). The existence of the inherent qualities of the prior art is sufficient; the inventor need not recognize these inherent qualities. Id. On the other hand, extrinsic evidence is of limited applicability in proving inherency. As the Federal Circuit noted in Scripps Clinic, 927 F.2d 1565 (Fed. Cir. 1991): [*13] [HN8] a finding of anticipation requires that all aspects of the claimed invention were already described in a single reference: a finding that is not supportable if it is necessary to prove facts beyond those disclosed in the reference in order to meet the claim limitations. The role of extrinsic evidence is to educate the decisionmaker to what the reference meant to persons of ordinary skill in the field of the invention, not to fill in gaps in the reference. Id. at 1576 (citation omitted). In addition, inherency may not be established by possibilities or probabilities. The fact that a particular result may occur in a given set of circumstances is not sufficient to prove anticipation. Continental Can Co. v. Monsanto Co., 948 F.2d 1264, 1269 (Fed. Cir.), reh'g denied, 1991 U.S. LEXIS 29979 (1991) (citing cases). Finally, the question of anticipation also turns on claim interpretation. When dealing with anticipation, proper claim construction requires reference to both the specifications and to the prosecution history. See Lewmar Marine, Inc. v. Barient Inc., 827 F.2d 744, 750 (Fed. Cir. 1987), [*14] cert. denied, 484 U.S. 1007, 98 L. Ed. 2d 653, 108 S. Ct. 702 (1988); McGill v. John Zink Co., 736 F.2d 666, 673 (Fed. Cir.), cert. denied, 469 U.S. 1037, 83 L. Ed. 2d 404, 105 S. Ct. 514 (1984). The purpose of referring to the specification and prosecution history is to ascertain the scope and meaning of the claims. Id. However, extraneous limitation cannot be added to the claim through the use of specification language. Sjolund v. Musland, 847 F.2d 1573 (Fed. Cir. 1988). With these standards in mind, the court considers Teradyne's summary judgment motion.

2. Only Claim 4 of the '945 Patent is Invalid as Anticipated By the Prior Art Teradyne claims that claims 1--5 and claim 7 of the '945 patent are invalid because they were anticipated by three prior art references, GenRad's GR2270 in--circuit tester, Teradyne's L200 tester, and Schlumberger/Fairchild/Faultfinders' FF303 in--circuit testers. a. The Three Prior Art References The GR2270 in--circuit tester and user manual were commercially available more than a year prior to the grant of the '945 patent. JS ' 945 P. 32 . The GR2270 had features [*15] which controlled the timing of test signals. One of the commands in the GR2270 test language was the BURST/END BURST command pair construct. The BURST command included the control parameter MAXTIME, which gave the user control of the maximum time that a burst test sequence could last. The user could specify 10, 40, 160 or 640 milliseconds. If no time was specified for MAXTIME, the GR2270 system would automatically select 640 milliseconds. Husser Dep. at 101:17--104:3. The test burst would be terminated when the actual elapse time reached the MAXTIME parameter. Id. 94:11--98:5. One of the purposes for the MAXTIME parameter was to protect the circuit under test from overheating due to backdriving during the test period. Id. at 99:1--19. The GR2270 system also included the LOOP/END LOOP instruction pair. Id. at 119:4--14. In the LOOP/ENDLOOP command pair, a loop count could be specified such that if a count were given, the loop would run until the count was met. If no count were given, the loop would run continuously until either a conditional exit condition was satisfied or the MAXTIME limit was reached. Id. at 108:10--110:4. [*16] The L200 Board Test system was commercially available by 1981, more than a year before the grant of the '945 patent. Wrinn Dec. P 5. The L200 provided for a test language that contained instructions for generating loop sequences to repeat a set of test patterns. The L200 system incorporated a LOOP/ENDLOOP instruction pair construct, which terminated the loop when a user--specified maximum count was used. Wrinn Dec. PP 17--19; Hansen Dec., PP 3--5 and 7. The FF303 existed more than one year before the filing of the HP '945 patent. Bish Dep. at 9:8--12. The FF303 had a CYCLE(N) command that was used for initializing sequential devices. The CYCLE command provided for a specified number of iterations N through the programmed test pattern for the cycle. The CYCLE command allowed test patterns for initializing a device to be repeated a spec-

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ified number of times while looking for the starting state of the device before continuing on with the test. Id. at 56:13--60:9; 66:17--67:23. The FF303 also provided for cool--down time between bursts of test patterns. A cool-down time was programmable by the user. If the user failed to program an inter--test time interval, the system would choose one automatically. [*17] Id. at 47:5-14; 50:25-51; 146:13-148:1. To adjust the cool-down time interval, a user would select a command called LDELAY. The user would specify the number of milliseconds that the tester should wait between each test sequence. b. Claim 4 and the Prior Art References Teradyne claims that every limitation of Claim 4 is met by each of the prior art references, the GR 2270, the L200, and the FF303. Claim 4 states: A method for preventing the overheating of an electronic device under test with initialization test signals during an initialization period or regular test signals during a testing period, the method comprising: counting the number of times the initialization test signals are applied to the electronic device under test, measuring the duration of the testing period, and terminating the application of test signals when a predetermined count or a predetermined period has been reached. Teradyne admits that of the three prior art references provided by Teradyne, only the GR2270 satisfies the literal terms of claim 4. GR2270 is the only one which sets time limits through iteration loops and time limits through predetermined periods. The other two references do [*18] not perform both limiting conditions. Teradyne argues, however, that the claim should be read in the alternative, to encompass any device which either sets time limits through iteration loops or sets time limits through predetermined periods. Teradyne's construction is clearly contrary to the plain language of claim 4, which says that the method must set time limits through a predetermined number of iterations and through a predetermined time period. HP asserts that the GR2270 system does not anticipate Claim 4 of the '945 patent. According to HP, it is not clear whether the LOOP/ENDLOOP computer instruction was explicitly used to facilitate initialization. HP notes that GenRad's Dean Hussar merely stated that the instruction "could" be used to facilitate initialization of a circuit under test. Husser Dep. at 108:14--19. However, in his deposition testimony, Husser repeatedly agreed that initialization testing was a valid use of

the GR2270's iteration programming. Id. at 120:9-21; 121:21--122:9. Admittedly, as HP points out, Husser responded to some leading questions. HP also points out that Husser's extrinsic testimony cannot be used to fill in gaps in the GR2270 disclosure. [*19] However, Husser's testimony is corroborated by disclosure in the 1980 manual for the GR2270, which apparently listed initialization as one of the functions of the iteration programming. Id. at 120:3--8. HP does not argue that there was no such disclosure in the GR2270 manual. HP also argues that particular specifications in the '945 patent militate against anticipation of claim 4 by the GR2270. In particular, HP contends that the tester of the '945 patent determines the exact number of iteration loops needed to initialize the circuit and exits the loop once this initialization is complete. '945 Patent, col. 7, lines 16--31. The GR2270, on the other hand, continues the iteration process until the number of iterations picked by the user is exhausted. However, reading this specification into claim 4 places an extraneous limitation on the claim which goes substantially beyond its plain language. HP's argument that the predetermined time and number of iterations selected by the tester needs to be related to the characteristics of the circuit also places extraneous limitations on claim 4. Unlike other claims made in connection with the '945 patent, claim 4 specifically does not [*20] discuss the tester's analysis of the characteristics of the circuit. In addition, contrary to HP's argument, there is no reason to believe that Claim 4 requires termination of all test signals once a predetermined count has been reached. For these reasons, the court finds that, as a matter of law, claim 4 of the '945 patent is invalid as being anticipated by a prior art. c. Claims 1--3, 5 and 7 and the Prior Art According to Teradyne, the FF303 anticipates claims 1 through 3, 5, and 7 of the '945 patent. Teradyne asserts that the FF303 provides for variable cool--down test intervals. In making this assertion, however, Teradyne completely ignores the fact that independent claims 1 and 5 of the '945 patent require a variable length cool down time interval that is predetermined from characteristics of the devices and the circuit. Teradyne makes no assertion that the FF303 makes any such calculation of cool down times. As independent claims 1 and 5 are not anticipated by the FF303, dependent claims 2--3 and 7 are likewise not anticipated. B. Litigation Involving Both the '245 and the '561 Patents is Stayed Pending the Outcome of the Patent Office's Reexamination As set [*21] forth above, Teradyne urges this court to reconsider its previous order staying the proceedings

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concerning the '245 patent to allow the Patent Office to reexamine all the patent's claims. Teradyne also opposes HP's motion to stay the '561 patent proceedings pending the outcome of reexamination. For the following reasons, Teradyne's efforts are unavailing. This circuit has held that the district court has the authority to stay actions in order to: control the disposition of the cases on its docket in a manner which will promote economy of time and effort for itself, for counsel, and for litigants. The exertion of this power calls for the exercise of a sound discretion. Where it is proposed that a pending proceeding be stayed, the competing interests which will be affected by the granting or refusal to grant a stay must be weighed. Among these competing interests are the possible damage which may result from the granting of a stay, the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay. [*22] Filtrol Corp. v. Kelleher, 467 F.2d 242, 244 (9th Cir. 1972), cert. denied, 409 U.S. 1110, 34 L. Ed. 2d 691, 93 S. Ct. 914 (1973) (citations omitted). n2 n2 Teradyne's reliance on Wayne Automation Corp v. R. A. Pearson Co., 782 F. Supp. 516 (E.D. Wash. 1991) for the proposition that the party requesting a stay must show that it would suffer hardship if the case were to go forward is not persuasive. In Wayne Automation the court refused to stay the litigation (with trial just six months away) because substantial discovery had already been completed and the stay request was the latest in a long series of the plaintiff's delaying tactics. These competing interests weigh in favor of staying the action and denying Teradyne's motion for reconsideration. The court's interest in efficiently managing its docket is served by a stay. Many, if not all, of the eleven challenged claims of the '245 patent and the single claim of the '561 patent may be modified or [*23] eliminated altogether during reexamination, thereby eliminating issues raised in Teradyne's motion for summary judgment. It has been estimated that in 77 percent of all reexamination applications, the claims are either amended or cancelled during reexamination. Output Technology Corp. v. Data

Products Corp., 22 U.S.P.Q.2d (BNA) 1072, 1074 (W.D. Wash. 1991). Moreover, counsel for both parties have suggested that at least some of the claims will be amended during reexamination. See Reporter's Transcript of May 8, 1992 Hearing at 7--9. Since the reexamination process may narrow and perhaps eliminate issues concerning the patents' validity, the court should not expend unnecessary judicial resources by trying to resolve these claims now. See Gould v. Control Laser Corp., 705 F.2d 1340, 1342 (Fed. Cir.), cert. denied, 464 U.S. 935, 78 L. Ed. 2d 310, 104 S. Ct. 343 (1983) (purpose of the reexamination procedure is to eliminate the need for a trial if the claim is canceled or to provide the district court with the expert view of the Patent Office if the claim survives reexamination); Filtrol, 467 F.2d at 244 [*24] (noting that if the decision in the pending proceeding were to go against the party claiming the patent, a trial would not be necessary). Congress has expressly stated that the reexamination process was intended for use in situations where a party discovers new evidence of prior art which was not considered during the initial examination of the patent application: The new procedure will permit any party to petition the patent office to review the efficacy of a patent, subsequent to its issuance, on the basis of new information about pre-existing technology which may have escaped review at the time of the initial examination of the patent application. Reexamination will permit efficient resolution of questions about the validity of issued patents without recourse to expensive and lengthy infringement litigation. H.R. Rep. No. 1307, 96th Cong. 2d Sess. (1980). Early versions of what became the reexamination statute, 35 U.S.C. §§ 301--307, expressly provided for a stay of court proceedings during reexamination. See 35 U.S.C. § 310 (1979). When Congress amended the reexamination statute in 1981 it determined [*25] that an express provision was unnecessary. However, as explained in the House Report: The bill does not provide for a stay of court proceedings. It is believed by the committee that stay provisions are unnecessary in that such power already resides with the Court to prevent costly pretrial maneuvering which attempts to circumvent the reexamination procedure. It is anticipated that these measures provide a useful and necessary alternative for challengers and for patent owners to test the

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validity of the United States patents in an efficient and relatively inexpensive manner. H.R. Rep. No. 1307 Part I, 96th Cong., 2d Sess. at 4 (1980), reprinted in 1980 U.S.C.C.A.N. 6460, 6463. In accordance with clearly expressed congressional intent, district courts often stay patent proceedings pending reexamination. See, e.g., Ingro v. Tyco Industries, Inc., 227 U.S.P.Q. (BNA) 69, 71 (N.D. 111. 1985) ("legislative history indicates Congress . . . approved of courts liberally granting stays within their discretion."); Digital Magnetic Systems, Inc. v. Ansley, 213 U.S.P.Q. (BNA) 290 (W.D. Okla. 1982) ("Congress enacted the [*26] reexamination procedure to provide an inexpensive, expedient means of determining patent validity which, if available and practical, should be deferred to by the courts."). Since a Patent Examiner who is familiar with the technology will conduct the reexamination, it is appropriate to stay the proceedings on the '245 and '561 patents so that the court can take advantage of the Patent Office's expertise. See Grayling Industries v. GPAC, Inc., 1991 U.S. Dist. LEXIS 16750, 19 U.S.P.Q.2d (BNA) 1872, 1873 (N.D. Ga. 1991); Brown v. Shimano American Corp., 18 U.S.P.Q.2d (BNA) 1496 (C.D. Cal. 1991). Teradyne argues that it has conducted extensive discovery to prepare its summary judgment motions and would be prejudiced if the stay is left in place. Clearly, a party should not be allowed to use the reexamination procedure as delaying tactic after discovery and trial preparation are well under way. See Enprotech Corp. v. Autotech Corp., 1990 U.S. Dist. LEXIS 2926, 15 U.S.P.Q.2d (BNA) 1319 (N.D. Ill. 1990); E. I. Dupont de Nemours & Co. v. Phillips Petroleum Co., 711 F. Supp. 1205 (D. Del. 1989). In this case, however, the court's [*27] order staying litigation of the '245 patent was entered in May 1992, one month before the parties agreed on a discovery schedule. According to that schedule, discovery will last through November 1993, almost a year from now, and trial is set to begin in January 1994. Discovery concerning the '561 patent is governed by the same schedule. Accordingly, both the '245 and '561 patent proceedings are still in the initial stages of litigation and the reexamination procedure should be used. See Digital Magnetic Systems, 213

U.S.P.Q. at 290. n3 n3 If the claims are invalid, the Patent Office will likely eliminate or amend them and Teradyne will suffer no prejudice at all. Finally, Teradyne contends that the stay will delay and disrupt efficient prosecution of this case. To the contrary, lifting the stay would compel the court to examine the validity of claims which are subject to modification during reexamination. As a result of the reexamination, the parties and the court may be required to [*28] revisit many of the same issues on a different record or the parties and the court may find they have engaged in this litigation effort for naught. Teradyne estimates that reexamination will take one year and be concluded by May 1993 for the '245 patent and July 1993 for the '561 patent. Therefore, the parties will have between four and six months after the Patent Office is finished reexamining the patents' claims to complete discovery. This leaves enough time for the parties to finish discovery and prepare for trial. If reexamination is protracted, the court can explore other avenues for proceeding on the remaining patents. III. CONCLUSION For the foregoing reasons it is HEREBY ORDERED THAT: 1. The court GRANTS plaintiff Teradyne's summary judgment motion with respect to claim 4 of the '945 patent. 2. The court DENIES Teradyne's motion with respect to the other contested claims on the '945 patent. 3. The court DENIES Teradyne's motion to reconsider the stay of the '245 patent. 4. The court GRANTS defendant Hewlett--Packard's motion to stay litigation of the '561 patent. IT IS SO ORDERED. Dated: January 7, 1993 MARILYN HALL PATEL United States District Judge [*29]

Case 1:04-cv-01230-GMS

Document 84-2

Filed 01/12/2006

Page 17 of 35

EXHIBIT C

Case 1:04-cv-01230-GMS

Document 84-2

Filed 01/12/2006

Page 18 of 35
Page 1

Not Reported in F.Supp. Not Reported in F.Supp., 1993 WL 625509 (E.D.Cal.), 29 U.S.P.Q.2d 1718 (Cite as: 1993 WL 625509 (E.D.Cal.))

Motions, Pleadings and Filings United States District Court, E.D. California. Captain William C. GLADISH, an individual, Plaintiff, v. TYCO TOYS, INC., a Delaware corporation; et al., Defendants. CIV. No. S-92-1666WBS/JFM. Sept. 15, 1993. Richard P. Doyle, Laura Lillian Kulhanjian, David J. Brezner, Michael L. Louie, Flehr Hohbach Test Albritton and Herbert, San Francisco, CA, for William C. Gladish. Peter F. Samuel, Samuel Shafie and Samuel, Fair Oaks, CA, Christopher Darrow, Michael B. Lachuk, Breton A. Bocchieri, Poms Smith Lande and Rose, Los Angeles, CA, for Tyco Toys Inc., Bob's Toyland/Carousel Toys. Sharon Kay Sandeen, Downey Brand Seymour and Rohwer, Bruce Edward Leonard, Caulfield Davies and Donahue, Sacramento, CA, for Toys R Us. ORDER SHUBB, District Judge. *1 Plaintiff William Gladish moves to stay this action pending reexamination of his patent by the Patent and Trademark Office ("PTO"). BACKGROUND In this action, plaintiff asserts that certain instructional toy c