UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`CAPELLA PHOTONICS, INC.,
`Plaintiff,
`
`v.
`CISCO SYSTEMS, INC., et al.
`Defendants.
`___________________________________/
`
`No. C-14-3348 EMC
`CONSOLIDATED CASES
`C-14-3349 EMC
`C-14-3350 EMC
`C-14-3351 EMC
`
`ORDER GRANTING CISCO’S MOTION
`TO STAY CONSOLIDATED CASES
`PENDING INTER PARTES REVIEW OF
`PATENTS-IN-SUIT
`(Docket No. 161)
`
`On February 12, 2015, Defendant Cisco Systems, Inc., filed a motion to stay this litigation
`pending the final resolution of the Patent and Trademark Office’s (PTO) inter partes review (IPR) of
`all the asserted claims of both patents-in-suit. Docket No. 161 (Mot. to Stay); see also Docket Nos.
`161-2 (notice of institution of IPR proceedings regarding ’368 patent); 164 (notice of institution of
`IPR proceedings regarding ’678 patent). Given this development, as well as the agreement of
`Cisco’s co-defendants1 to be bound by the estoppel applicable to Cisco’s IPRs as set forth in 35
`U.S.C. § 315(e)(2), this Court will order these consolidated cases stayed in their entirety pending
`final resolution of the relevant IPR proceedings, including any appeals.2
`
`1 Cisco’s co-defendants are Fujitsu Network Communications, Inc. (No. 14-cv-3349 EMC);
`Tellabs Operations, Inc. and Coriant (USA) Inc. (No. 14-cv-3350 EMC); and Ciena Corporation
`(No. 14-cv-3351 EMC).
`
`2 The Court previously vacated the hearing set for this matter, Docket No. 170, and
`concludes that this matter is ripe for adjudication on the papers without oral argument.
`
`Capella 2005
`Fujitsu v. Capella
`IPR2015-00727
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`I. BACKGROUND
`Plaintiff Capella Photonics filed this patent infringement lawsuit against Defendants on
`February 12, 2014. See Docket No. 1. The operative complaint alleges infringement of two U.S.
`patents, U.S. Patent No. RE42,678 (the ’678 patent) and U.S. Patent No. RE42,368 (the ’368 patent).
`See Docket No. 30. Cisco filed an IPR petition regarding the ’368 patent on July 15, 2014. Docket
`No. 113-3. It filed an IPR petition regarding the ’678 patent on August 12, 2014. Docket No. 113-
`4. The PTO has now instituted IPR proceedings on all of the asserted claims of both patents-in-suit.
`See Docket Nos. 161-2; 164.
`
`II. DISCUSSION
`
`A.
`
`Legal Standard
`Courts have inherent power to manage their dockets, including the discretion to grant a stay
`pending concurrent proceedings before the PTO. Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426-27
`(Fed Cir. 1988); see also Evolutionary Intelligence, LLC v. Millenial Media, Inc., No. 5:13-CV-
`04206 EJD, 2014 WL 2738501, at *2 (N.D. Cal. Jun. 11, 2014). “A stay is particularly justified
`where the outcome of a PTO proceeding is likely to assist the court in determining patent validity or
`eliminate the need to try infringement issues.” Evolutionary Intelligence, 2014 WL 2738501 at *2
`(citing In re Cygnus Telecomm. Tech., LLC, Patent Litig., 385 F. Supp. 2d 1022, 1023 (N.D. Cal.
`2005)).
`
`Courts traditionally consider three main factors in determining whether to stay a case
`pending the conclusion of IPR proceedings: “(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 non-moving
`party.” Telemac Corp. v. Teledigital, Inc., 450 F. Supp. 2d 1107, 1111 (N.D. Cal. 2006) (citation
`omitted); see also Robert Bosch Healthcare Sys., Inc. v. Cardiocom, LLC, No. C-14-1575 EMC,
`2014 WL 3107447, at *3 (N.D. Cal. July 3, 2014). “The party seeking the stay bears the burden of
`persuading the court that a stay is appropriate.” Evolutionary Intelligence, 2014 WL 2738501, at *3
`(citing Nken v. Holder, 556 U.S. 418, 433-34 (2009)).
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`B.
`
`Application
`Here, all three stay factors weigh in favor of staying this litigation pending resolution of the
`PTO’s IPR proceedings. First, the early stage of this litigation weighs in favor of a stay. This Court
`had specifically limited the scope of discovery and moderately delayed substantive hearings (e.g.,
`claim construction) pending the PTO’s determination whether to institute IPR of the asserted
`patents. See Docket No. 131. Consequently, very little substantive work has been done in this case,
`and there are no immediately pressing deadlines or trial dates. Put simply, “[c]onsidering the
`substantial amount of work that lies ahead of both parties,” the Court finds that this case is still in
`the early stages, and thus this factor “strongly favors” granting a stay. Evolutionary Intelligence,
`2014 WL 2738501, at *3 (citation omitted).
`The second factor also weighs heavily in favor of granting a stay. The PTO has agreed to
`review the validity of all of the patent claims Capella has asserted against Defendants in this action.
`Thus, IPR proceedings will almost certainly simplify the issues in this case and serve the goal of
`advancing judicial efficiency. Most obviously, if “the PTO modifies or cancels some or all of the
`claims subject to review, both the court and [the] parties benefit because the scope of this case may
`be narrowed and further proceedings will be streamlined” or even obviated entirely. Evolutionary
`Intelligence, 2014 WL 2738501, at *4. And even if the IPR proceedings do “not result in any
`cancelled or modified claims, this [C]ourt will receive the benefit of the PTO’s expertise and
`guidance on these claims.” Id. (citation omitted).
`In its opposition to Cisco’s motion to stay, Capella argues that judicial economy would not
`be served by staying this litigation because Cisco’s co-defendants, who are not parties to Cisco’s
`IPR petitions, would not be bound by the PTO’s determinations of patent validity. See 35 U.S.C.
`§315(e)(2) (statutory estoppel provision). This is a real concern. As a number of courts in this
`district have explained, the typical “benefit of a stay pending IPR is contingent in part upon the IPR
`proceeding’s estoppel effect, i.e., the prohibition that the [IPR] petitioner is precluded from
`relitigating the same issues that were raised or reasonably could have been raised during the IPR
`proceeding.” Evolutionary Intelligence, 2014 WL 2738501, at *4; see also Personalweb
`Technologies, LLC v. Google Inc., Case No. 5:13-cv-01317-EJD, 2014 WL 4100743, at *5 (N.D.
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`Cal. Aug. 20, 2014). As Judge Davila has cogently explained, in multiple defendant cases like this
`one, where certain defendants “are not parties to the pending IPRs, the fact that the patent
`infringement defendants are not automatically estopped jeopardizes the IPRs’ critical intended
`effects on any subsequent district court action.” Personalweb Technologies, 2014 WL 4100743, at
`*5. “Indeed, should any claims survive the pending IPRs . . . the expected efficiencies would be
`eviscerated should Defendants go on to bring invalidity arguments in this court that were raised or
`could have been raised before the PTAB.” Id Thus, courts in this district3 have conditioned the
`grant of stays pending IPR in multi-defendant cases on the non-party co-defendants agreeing to be
`bound by the IPR estoppel provisions of 35 U.S.C. § 315(e)(2) “as if they themselves had filed the
`relevant IPR petitions.” See id.; see also Evolutionary Intelligence, 2014 WL 2738501, at *5.
`Here, Capella stated in its opposition to Cisco’s motion that it “proposed that the parties
`enter such an estoppel agreement as part of a stipulation to not oppose Cisco’s Motion.” Docket No.
`167 at 2; see also id. at 8 (noting that “Capella proposed agreeing to a stay based on . . . an estoppel
`stipulation” similar to the one entered in Evolutionary Intelligence). At the time, however, Cisco’s
`co-defendants appeared to reject such a stipulation. See Docket No. 167-13 (February 27, 2015
`email from Chi Cheung to N. Swartzberg, et al.)
`On March 3, 2015, this Court issued an Order seeking clarification of Cisco’s co-defendants’
`position on whether they would agree to be bound by the estoppel provisions of section 315(e)(2) “if
`the Court conditions a stay in this case on such agreement.”4 Docket No. 168. The co-defendants
`filed a joint notice with the Court indicating that they do “agree to be bound to the estoppel
`applicable to Cisco for Cisco’s IPRs as set forth in 35 U.S.C. § 315(e)(2) to the extent that the Court
`conditions a stay in this case on such an agreement.” Docket No. 169. Co-defendants’ agreement to
`
`3 Courts in other districts have similarly conditioned the stay of cases involving non-parties
`to IPR proceedings on those non-parties’ agreement to be bound by the estoppel provisions of the
`IPR proceedings. See, e.g., Semiconductor Energy Laboratory Co., Ltd. v. Chimei Innolux Corp.,
`No. SACV 12-21-JST (JPRx), 2012 WL 7170593, at *2 (C.D. Cal. Dec. 19, 2012).
`
`4 The Court also ordered the co-defendants to state conclusively whether they sought stays of
`their respective cases pending adjudication of Cisco’s IPR petitions. Docket No. 168. Such
`clarification was necessary, because the co-defendants did not file motions to stay their own
`respective cases, nor did they formally join Cisco’s motion to stay. The co-defendants responded
`that they do seek a stay of their respective cases. Docket No. 169.
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`be bound by the IPR estoppel provisions alleviates any concerns this Court may have had regarding
`whether staying these consolidated cases would streamline these proceedings or otherwise benefit
`judicial economy. Consequently, the Court finds that the second factor weighs heavily in favor of a
`stay in this matter.
`The third factor also favors entry of a stay. Indeed, it is notable that Capella does not argue it
`will suffer any undue prejudice from the grant of a stay provided that all of the defendants in this
`case are bound by the same estoppel that will bind Cisco, as the party to the instituted IPR
`proceedings. See Docket No. 167 at 5 (arguing that any undue prejudice would result from being
`forced to litigate against three co-defendants while the action against Cisco was stayed). Because all
`of the Defendants have agreed to be so bound, and this Court’s Order granting a stay is expressly
`conditioned on such agreement, Capella correctly recognizes that it will suffer no undue prejudice
`sufficient to defeat Cisco’s motion to stay this litigation. Thus, the Court will grant Cisco’s motion
`to stay this litigation pending resolution of the IPR proceedings for the two asserted patents.
`Finally, the Court addresses an argument raised by Capella that Cisco’s IPR petitions are
`likely to be dismissed with prejudice by the PTO because Cisco failed to identify all of the real
`parties-in-interest to its petitions. See Docket No. 167 at 8-11. Essentially, Capella argues that it
`has a good faith reason to believe that Cisco’s IPR petitions may be procedurally defective, and thus
`this Court should not enter a stay until after Capella has received sufficient discovery in this Court to
`determine whether or not Cisco’s IPR petitions are likely to be dismissed.5 The Court rejects
`Capella’s argument. Discovery is available in IPR proceedings,6 and to the extent Capella believes
`that Cisco’s IPR petitions are somehow defective as filed, Capella may seek to pursue this theory
`
`5 Counsel for Capella renewed and expanded on this argument in a discovery letter brief filed
`on March 5, 2015. Docket No. 171. The Court admonishes counsel for filing this brief in clear
`violation of this Court’s standing order on discovery in civil cases. This Court requires discovery
`disputes be raised in the form of a joint discovery letter brief. Capella did not heed this instruction.
`Moreover, Capella did not (as required) meaningfully attempt to meet and confer regarding the
`dispute with opposing counsel. Indeed, Capella admits it did not even request a meet and confer
`with opposing counsel until March 3, just two days before its letter brief was filed. This is not
`acceptable. Finally, the Court questions why Capella waited until March 5 to pursue discovery it
`should have known was relevant since Cisco’s IPR petitions were first filed in July and August
`2014, respectively. Capella’s request for discovery relief is denied.
`6 See, e.g., 35 U.S.C. § 316(a)(5); 37 C.F.R. § 42.51.
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`(and discovery in support of it) before the PTO, where the actual issue(s) will be litigated. If
`Capella succeeds in getting Cisco’s IPR petitions dismissed with prejudice, it may file an
`appropriate notice with this Court seeking to reopen these actions. Until then, these consolidated
`cases shall be stayed in their entirety pending final exhaustion of the relevant review proceedings,
`including any appeals. The parties shall submit a joint status report apprising the Court of the status
`of the relevant review proceedings on November 1, 2015, and every six months thereafter. The
`parties shall further provide notice to the Court within one week of final exhaustion of all relevant
`review proceedings, including appeals. In their notice, the parties shall request that this matter be
`reopened, and that a case management conference be scheduled.
`The Clerk is hereby directed to administratively close the files in these consolidated cases.
`This order disposes of Docket Nos. 161 and 171.
`
`IT IS SO ORDERED.
`
`Dated: March 6, 2015
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`_________________________
`EDWARD M. CHEN
`United States District Judge
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