Patent infringement lawsuit put on hold while Patent Office decides whether there were any patents to infringe

Mission Abstract Data (previously, now, and always, to us: “MAD”) has been dealt another setback. MAD is the company trying to hold pretty much the entire radio broadcast industry accountable for alleged patent infringement. Now, less than a month after the United States Patent and Trademark Office (PTO) rejected several of the claims underlying MAD’s patents (those would be Nos. 5,629,867 (the 867 patent) and 5,809,246 (the 246 patent), the U.S. District Court for the District of Delaware has granted a stay sought by radio broadcasters who are on the wrong end of MAD’s patent infringement suit. As a result, that case is now on hold pending final resolution of the PTO’s reexamination.

But broadcasters might want to hold off on the celebrations just yet.

While many figured that a stay in the Delaware infringement action would effectively resolve that litigation in favor of the defendant broadcasters (and secondarily kill off MAD’s efforts to extract licensing fees from the rest of the industry), we’re not convinced that you can read that much into the court’s opinion. Sure, it’s a blow to MAD, which could have used a victory to put further pressure on the defendants and potential licensees to settle rather than litigate.  But it’s not the slam dunk that many expected.

In assessing the parties’ arguments for and against a stay, the court focused on three factors:

  • Whether a stay would simplify the issues and trial of the case;
  • Whether discovery is complete and a trial date has been set; and
  • Whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party (MAD, in this case).

Obviously, the court could address all of these without tipping its hand about the ultimate merits of the case . . . and that’s just what the court did.

The closest the court came to addressing the merits of the case occurred in its analysis of the first factor. The court noted that five of the six patent claims that form the core of MAD’s lawsuit have been have been rejected by the PTO. If these rejections stand, the lawsuit will certainly be simplified, since MAD will then be left with only one claim. (That would be Claim No. 5 under the 867 patent, covering situations “wherein said disk array storage comprises a dual-port RAID disk array”.) The court even suggested that the litigation might be “mooted” if all MAD’s claims were tossed by the PTO.  So that factor seems to weigh in favor of a stay.

There was also the possibility that MAD’s claims might be modified as a result of the PTO proceeding. That, too, seems to favor of a stay – why push ahead with litigation of claims that might get revamped?

The second factor was a no-brainer. The discovery process has just begun, and no court date has been set – so it’s not like the parties have already invested much in the development of facts and issues. Meanwhile, the PTO has moved quickly in the reexamination process, giving rise to at least a hope that the remainder of the PTO’s deliberations will be similarly quick.

Finally, the court concluded that a stay would not unduly prejudice MAD or give the broadcasters a clear tactical advantage. MAD still gets to litigate its case – it just might take a little longer. And while MAD will first have to successfully navigate the PTA process, that’s not the defendants’ fault: the PTO reexamination process was initiated by Broadcast Electronics, a manufacturer, and not any of the broadcast licensees who are parties to the Delaware litigation.

The court’s analysis of this last factor included an interesting observation.  The court suggested that, if MAD were in fact competing in the marketplace with the broadcast defendants, then the court might be less inclined to delay MAD’s litigation. But MAD is not a real competitor. Rather, in the words of the court, it’s a “non-practicing entity, which does not manufacture or sell the products covered by the patents in suit and seeks to collect licensing fees”. (While the court didn’t use the term “patent troll”, that’s probably what it meant by “non-practicing entity”.)

So what are the larger implications?

Obviously, the ongoing PTO reexamination remains crucially important (arguably even more so now that the broadcast defendants have agreed to abide by the result of the PTO’s final decision).  If the initial PTO rejection of the majority of MAD’s claims stands, MAD will have only one claim from the 867 patent on which to base its entire lawsuit, leaving the defendants in a good position. Not rock solid (because MAD could theoretically still prevail on that one remaining claim), but certainly favorable. On the other hand, if MAD can convince the PTO to reverse the initial rejection (which happens often enough to be a realistic possibility here), the broadcast defendants will have painted themselves into a corner. 

Any such reversal by the PTO is still conservatively months away, though, and would be subject to further appeals that could tie it up for years. In the meantime, the initial PTO rejection of MAD’s patent claims looms like a big dark cloud over any claim that MAD could advance – in the Delaware litigation or in efforts to cajole broadcasters into signing license agreements now (in order, theoretically, to avoid getting sued by MAD). MAD itself argued in opposing the stay request that its patents “have essentially been stripped of their licensing value” by the PTO action.

The fact that time is working against MAD brings us to the second point: licensing. We reiterate our earlier observation that any outreach from MAD should be viewed seriously but with considerable skepticism and caution.  As noted above, MAD itself has implied that there’s no reason for a broadcaster to sign a licensing agreement at this point.