MEMORANDUM OPINION & ORDER
Before the Court is Defendants’ Joint Motion to Stay. ECF No. 43. Plaintiffs developed, own, and employ a patented real estate settlement fraud prevention software system. Eight months after Plaintiffs filed this suit against Defendants for patent infringement and breach of contract, Defendants filed a petition for a review of the patent at issue with the Patent Trial and Appeal Board of the United States Patent and Trademark Office. Shortly thereafter. Defendants filed the instant motion asking the Court to stay this action pending that review pursuant to section 18(b) of the America Invents Act. For the reasons stated below, Defendants’ Joint Motion is DENIED WITHOUT PREJUDICE to renew it.
I. FACTUAL AND PROCEDURAL HISTORY
On April 24, 2012. the U.S. Patent and Trademark Office (“PTO”) issued a patent to Plaintiff Segin Software entitled “Method of Settling a Real Estate Transaction and System Implementing the Method.” Compl. ¶ 50. Plaintiff Segin Systems had designed the patented software system as a method of combating and detecting fraud in the real estate settlement field. Compl. ¶¶ 10-11. It launched the system, called Rynoh Live, in early 2009. Compl. ¶ 12. Plaintiff Segin Software, LLC is a subsidiary of Plaintiff Segin Systems and now
When this software system was in its early development stages in 2004, one of the founders of Segin Systems communicated with Defendant Stewart Title Guaranty Company (“Stewart Title”) about the project. Compl. ¶ 22. Shortly thereafter, the parties entered into Nondisclosure Agreements to restrict the disclosure of information about the project. Compl. ¶¶ 23-24. The parties continued to meet and discuss the prospect of Defendant Stewart Title purchasing the rights to use RynohLwe. Compl. ¶¶ 30-31. Stewart Title made an offer in 2008, which Segin Systems rejected. Compl. ¶¶ 32-33. In late 2009, Stewart Title launched its own real estate settlement technology system developed by Defendant First Banking Services (“FBS”). Compl. ¶ 37. Plaintiffs now contend that system is an infringing “clone” of Rynoh Live that directly competes with it, and that Stewart Title passed on the information it learned about Plaintiffs’ patented system to FBS so that FBS could develop the competing system. Compl. ¶¶ 36-38.
On April 12, 2013, Segin Systems and Segin Software filed a complaint against Stewart Title, Propertylnfo Corporation, and FBS for patent infringement and breach of contract. Defendants were served with the complaint on or about July 25, 2013. Joint Mot. to Stay 3. Plaintiffs „ allege that all three Defendants have infringed and continue to infringe the patent. They also raise a breach of contract claim against Stewart Title and its affiliate Propertylnfo Corporation, and allege that those two Defendants breached and continue to breach the Nondisclosure Agreements. On September 23, 2013, Defendants filed their Answers to the Complaint generally denying the allegations. Defendants Stewart Title and Propertylnfo also raised counterclaims seeking a declaration that the patent is invalid. Defendant FBS filed an Amended Answer on October 15, 2013 that raised a similar counterclaim, and on November 18, 2013, Plaintiffs filed their answer to the counterclaims.
On December 26, 2013, Defendants filed the instant Motion to Stay. They noted that on December 20, 2013, they had filed a petition with the Patent Trial and Appeal Board (“PTAB”) of the PTO challenging the validity of all claims of .the patent pursuant to 35 U.S.C. §§ 101 & 112. Joint Mot. to Stay 4. A Rule 16(b) scheduling conference was held on January 13, 2014. The Scheduling Order set the Markman hearing for July 28, 2014, the completion of discovery (except as to expert witnesses) for September 16, 2014, and the trial for October 28, 2014. ECF No. 51. The day after the scheduling conference, Plaintiffs filed their Opposition to the Motion to Stay, ECF No. 50, and Defendants filed their replies on January 17, 2014, ECF No. 52. This matter is accordingly ripe for disposition.
II. LEGAL STANDARD
As the movants seeking a stay, Defendants bear the burden of demonstrating that a stay is warranted. E.g., Market-Alerts Pty. Ltd. v. Bloomberg Finance L.P.,
*480 (A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;
(B) whether discovery is complete and whether a trial date has been set;
(C) whether a stay, or the denial thereof, would unduly prejudice the nonmov-ing party or present a clear tactical advantage for the moving party; and
(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.
AIA § 18(b)(1). Parties may file an immediate interlocutory appeal of the court’s decision to grant or deny the stay motion in the United States Court of Appeals for the Federal Circuit. Id.
As multiple district courts have noted, the first three prongs of this statutory test replicate the same three factors many courts previously applied to determine whether to stay a civil action pending a review or reexamination by the PTO. E.g., VirtualAgility, Inc. v. Salesforce.com, Inc., 2:13-CV-11,
Nonetheless, although it easily could have done so, Congress, did not provide for an automatic stay in the statutory text. And the statute does not, for example, use language that directs courts to grant a stay unless a specific condition or conditions were satisfied. The Court therefore declines to rely on statements in the legislative history emphasized by Defendants that state that a stay should almost always be granted, as such sentiments are not reflected in the statutory text. See, e.g., Joint Mot. to Stay 5 (“It is congressional intent that a stay should only be denied in extremely rare circumstances.” (quoting 157 Cong. Rec. S1363 (daily ed. Mar. 8, 2011) (statement of Sen. Schumer))). In re Crescent City Estates, LLC,
III. ANALYSIS
A. Issue Simplification
The first factor is “whether a stay, or the denial thereof, will simplify the is
Nonetheless, the critical question is not whether PTAB review would simplify the issues in question, but whether a stay of this action would do so. At this stage, it is difficult to predict the impact of a stay because it is completely unknown whether or not that review will occur. See Benefit Funding Sys. LLC v. Advance Am., Cash Advance Ctrs., Inc., Civ. No. 12-801,
Not only is it unknown whether or not the PTAB will grant review, any resulting simplification of the issues would be only moderate. First, in addition to the patent infringement claim, Plaintiffs have brought a breach of "contract claim against two of the Defendants (Stewart Title and Proper-tylnfo). Defendants observe that this is a state law claim subject to supplemental jurisdiction and would likely be dismissed if the patent infringement claim were dismissed. See 28 U.S.C. § 1367(c)(3) (district court may decline to exercise supplemental-jurisdiction if it has dismissed all claims over which it has original jurisdiction). Reply Br. of FBS, ECF No. 52, at 7-8. Nonetheless, Plaintiffs’ patent infringement claim will remain viable as long as the PTAB does not invalidate every claim of the patent. Therefore, so will the breach of contract claim. Second, Plaintiffs note that Defendants raise invalidity arguments in their Answers that they have not raised in their CBM petition. Opp. 10. Accordingly, unless the PTAB finds every claim of the patent invalid, some invalidity issues will remain. When claims will or are likely to remain after PTO review, district courts have frequently found that a stay will do little to simplify the issues at stake. E.g., ePlus, Inc. v. Lawson Soft
In sum, because of the substantial uncertainties existing at this stage, the first factor weighs only slightly in favor of staying the action.
B. Progress of the Litigation
The second factor is “whether discovery is complete and whether a trial date has been set.” AIA § 18(b)(1)(B). Courts have found that a stay in the early stages of a case tends to maximize the efficient use of judicial resources and prevent duplicative or wasted efforts issues that are ultimately resolved by PTO review. E.g., Market-Alerts Pty. Ltd.,
Although Plaintiffs filed their Complaint nearly a year ago, this case is, as described above, still in its moderately early stages. Nonetheless, if the Court granted a stay now, the established trial date would undoubtedly be significantly delayed, even if the PTAB ultimately declined to review the case .and the Court lifted the stay at that point. Further, the Court concludes that declining to grant a stay at this juncture will not create undue inefficiency or waste of resources. By the time the PTAB decides whether it will take up review of the patent, discovery will still be at least three months from completion. And although preparations for the Markman hearing will have been substantially completed by then, the Court notes that the parties’ preparation and briefing for that hearing will overlap to some extent with the efforts they must undertake before the PTAB. Therefore, the Markman preparations will not be entirely duplicative if the Court were to grant a motion to stay at a later date. See Versata Software,
Balancing the early stages of discovery with the Rule 16(b) schedule and the fact that this case has been pending for nearly a year, the Court finds that the second factor is neutral.
C. Prejudice to Plaintiffs and Tactical Advantage to Defendants
The third factor is “whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party.” AIA § 18(b)(1)(C). The parties vigorously dispute whether or not Plaintiffs and Defendants are direct competitors, a circumstance that courts frequently find creates undue prejudice. E.g., VirtualAgility, Inc.,
The Court initially observes that the “ordinary rule in federal courts is that an argument raised for the first time in a reply brief or memorandum will not be considered.” Clawson v. FedEx Ground Package Sys., Inc.,
Defendants’ first argument is that they do not directly compete with Plaintiffs. Parties are direct competitors if they sell similar products to similar customers or in similar markets. E.g., Sensient Techs. Corp. v. SensoryEffects Flavor Co.,
These facts alone are insufficient to show that Defendants and Plaintiffs are currently direct competitors. But Plaintiffs’ Opposition includes more information. It states that Stewart Title and/or FBS are currently marketing and licensing AgeneySecure “to Rynoh Live’s main customers (various title agencies) at a lower price than that charged for Rynoh Live.” Opp. 4. As support for this allegation, Plaintiffs attached an advertisement for AgeneySecure, offered by Stewart and copyrighted as of 2013 to Stewart. Opp., Ex. E. Defendants ignore this Exhibit in their replies, and therefore have provided the Court with little reason to question it. Accordingly, the Court concludes that Plaintiffs have sufficiently shown, for the
Stewart Title and Propertylnfo further contend that even if there is competition, it is not based on a product that is covered by Plaintiffs’ patent, and therefore granting a stay would not cause Plaintiffs undue prejudice. The rationale for finding undue prejudice where parties are direct competitors is that the delay resulting from a stay “will have outsized consequences to the party asserting infringement has occurred, including the potential for loss of market share and an erosion of goodwill.” SensoRx, Inc. v. Hologic, Inc., Civ. No. 12-173,
Especially without the benefit of Plaintiffs’ argument on this point, the Court declines to resolve at this early juncture whether Rynoh Live (or its current iteration) is “covered” by the disputed patent, a substantive issue that could have significant implications for the merits of this suit. The Court simply observes that because the first four modules as described in the patent and the Complaint appear to be identical and because the overall functioning of the product as described in the patent and the Complaint appear similar, the Court is able to conclude that a delay in the resolution of Plaintiffs’ claims poses a substantial risk of undue prejudice to Plaintiffs.
The third factor also directs an inquiry into whether the moving party would gain a clear tactical advantage by a stay. Plaintiffs contend that Defendants would because 1) Defendants have not raised all of their invalidity defenses before the PTAB, 2) witnesses and evidence will become less reliable as time passes, 3) Plaintiffs would be deprived of their chosen forum, and 4) Defendants have shown no hardship or inequity. Opp. 15-19. Plaintiffs also described the extensive review process that they have already undergone, but the Court found that more appropriate to address in the context of the first factor, as discussed above.
Only Plaintiffs’ first argument is successful. That Defendants may have two separate opportunities in two separate forums to challenge the validity of Plaintiffs’ patent does raise a concern of an unfair tactical advantage, giving them two bites of the apple as to a central defense. As to Plaintiffs’ second contention regarding witnesses and evidence, Plaintiffs provide no detail and specific examples, and do not explain how this factor would favor Defendants and not Plaintiffs. Accordingly, they have not shown how any additional delay would give Defendants a “clear” tactical advantage. The Court concludes that Plaintiffs’ last argument is irrelevant because the ALA does not mention requiring Defendants to show hardship or inequity to justify a stay. Plaintiffs’ third argument fails for the same reason, as the AIA explicitly contemplates that the nonmoving party will be deprived of their chosen fo
Because Plaintiffs are likely to suffer undue prejudice the later that their suit is resolved, and because Defendants will obtain a tactical advantage from a stay, the Court concludes that the third factor weighs strongly in favor of denying a stay.
D. Burden of Litigation
Finally, the AIA requires the Court to consider “whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.” AIA § 18(b)(1)(D). Much of the analysis conducted under the first factor is relevant here, as the streamlining of issues will generally serve to reduce the burden of litigation on the parties and on the Court. The Court will incorporate that analysis by reference here. Beyond that, however, an additional consideration is relevant in considering the burden of litigation on the Court because the Motion to Stay was filed before the PTAB indicated whether or not it would review Plaintiffs’ patent. If the Court were to stay this action now and the PTAB were to decline review, the overall effect would be to increase the burden on the Court’s resources, as it would likely have to hold another Rule 16(b) scheduling conference and rewrite the scheduling order to account for the delay in discovery, Markman hearing briefings. The trial date would also likely be substantially delayed. On the other hand, entering a stay now could reduce the burden of litigation if the PTAB did decide to review the patent. For these reasons, the Court concludes that the fourth factor weighs slightly in favor of a stay.
IV. CONCLUSION
In sum, the first and fourth factors weigh slightly in favor of a stay, the second factor is neutral, and the third factor weighs strongly against a stay. Therefore, Defendants’ Joint Motion to Stay is DENIED. Given the uncertainty surrounding whether or not the PTAB will review the disputed patent, Defendants’ Motion to Stay is simply premature. See Transunion Intelligence LLC v. Search Am., Inc., No. 11-CV-1075,
The Clerk is DIRECTED to send a copy of this Order to all parties.
IT IS SO ORDERED.