Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-01486/USCOURTS-cand-4_04-cv-01486-5/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 28:1338 Patent Infringement

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

TELEMAC CORPORATION, a Delaware

corporation,

 Plaintiff,

 v.

TELEDIGITAL, INC., a Delaware

corporation; TELEDIGITAL

DEVELOPMENT, INC., a Minnesota

corporation; and DOES 1 though 20,

inclusive,

 Defendants.

 /

TELEMAC CORPORATION, a Delaware

corporation,

 Plaintiff,

 v.

PHONETEC, LP, a Texas limited

partnership; PHONETEC PCS, LCC, a

Texas limited liability corporation;

and DOES 1 though 20, inclusive,

 Defendants.

 /

No. C 04-1486 CW

No. C 04-4696 CW

ORDER DENYING

DEFENDANTS' MOTION

TO STAY PROCEEDINGS

PENDING

REEXAMINATION OF

PATENTS

Defendants Teledigital, Inc., and Teledigital Development,

Inc. (collectively, Teledigital) and Defendants Phonetec LP and

Phonetec PCS, LLC (collectively, Phonetec) separately move for a

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stay of preceedings in Plaintiff Telemac Corporation’s related

lawsuits against them pending reexamination of Telemac’s patents

by the United States Patent and Trademark Office (PTO). Telemac

opposes the motions. The matters were taken under submission on

the papers. Having considered all of the papers filed by the

parties, the Court denies Defendants’ motions for a stay.

BACKGROUND

Telemac is the owner of five patents involving technology

that enables customers to pre-pay for cellular phone service, U.S.

Patent Nos. 5,577,100, 6,198,915B1, 6,650,887B2, 6,480,710B1 and

6,625,439B2 (collectively, the patents). Telemac filed a patent

infringement lawsuit against Phonetec on April 15, 2004 and

against Teledigital on November 5, 2004. In addition, Telemac

alleges that Phonetec is liable as the successor to defendants who

this Court found, in earlier, related action, had infringed

Telemac’s patents. See Telemac Corp. v. US/Intelicom, Inc., 185

F. Supp. 2d 1084 (N.D. Cal. 2001) (finding certain patents

infringed). 

Both of the cases have progressed slowly thus far. The Court

denied Teledigital’s and Phonetec’s motions to dismiss on March

25, 2005. On October 5, 2005, the parties participated in courtordered mediation. Prior to participating in the mediation,

Teledigital informed Telemac that if the case did not settle,

Teledigital would seek reexamination of Telemac’s patents as well

as a stay of the proceedings in this Court. Schultz Decl. ¶ 9. 

Based on the mediation, the parties agreed on October 18, 2005 not

to engage in further discovery or other litigation activity,

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1Phonetec objects to this statement on grounds that it is

“irrelevant, contains hearsay, and is not based on personal

knowledge,” but the extent of discovery is relevant to Phonetec’s

motion for a stay, and Mr. Chambers declares that he personally

reviewed “many” of the 1300 documents and approved their

production. Phonetec’s objection is therefore overruled. 

Phonetec’s other objections to the Chambers Declaration are

overruled as moot. 

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including reexamination of Telemac’s patents. Settlement

negotiations between Phonetec and Telemac lasted until Feburary,

2006, after which Phonetec changed counsel. Wood Decl. ¶ 3-4. 

Between Telemac and Teledigital, the mutual agreement to forbear

from litigation activity was extended through mid-May, 2006, when

settlement negotiations broke down. Schultz Decl. ¶ 10. 

 Telemac served its first sets of interrogatories and document

requests on Teledigital on July 8, 2005, and its requests for

admissions on September 2, 2005. Teledigital, in turn, served its

first sets of interrogatories and document requests on September 9

and 13, 2005, and Telemac responded on May 30, 2006. So far,

Telemac has produced over 3,000 documents to Teledigital.1

Chambers Decl. ¶ 9. Telemac disclosed the identity of its

infringement and damages experts on July 7, 2006, but did not

disclose any expert reports. Telemac and Teledigital currently

dispute the responsiveness and completeness of each other’s

discovery responses. In its September 9, 2005 answers to

Telemac’s first set of interrogatories, Teledigital disclosed that

it has lost more than one million dollars per year since 2000. 

Chambers Decl., Ex. G, Resp. to Interrog. No. 5. Teledigital

answered Telemac’s first set of requests for admissions on June

21, 2006. 

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Telemac served its first sets of interrogatories and document

requests on Phonetec on July 18, 2005. Phonetec served written

responses to Telemac’s written discovery requests on April 14,

2006, and provided supplemental interrogatory responses on June

16, 2006. Wood Decl. ¶ 5. Phonetec also disclosed that it has

lost money during each year of sales of the allegedly infringing

products. Chambers Decl., Ex. G. Phonetec served its first set

of document requests on Telemac on May 15, 2006, and Telemac

served written responses on June 19, 2006, but, according to

Phonetec’s counsel, “produced no responsive documents.” Wood

Decl. ¶ 6. The only deposition taken thus far has been the June

8, 2006 telephonic deposition of Phonetec. At that deposition,

Phonetec Managing Member John Lowry testified that individual

Phonetec sales records were lost in 2003 when it switched

accounting systems, although balances and summaries were

preserved. Chambers Decl., Ex. H, Lowry Dep. 32-37. Telemac and

Phonetec currently dispute the responsiveness and completeness of

each other’s discovery responses. 

Pursuant to the parties’ stipulation, the current deadline

for the cut-off of fact discovery is September 29, 2006; the

deadline for hearing case-dispositive motions is February 16,

2007; and the trial is set for June 18, 2007. See Feburary 23,

2006 Order Granting Stipulation Amending Case Management Dates. 

Teledigital filed petitions for reexamination of the patents

on June 26, 2006. Pursuant to the statute governing reexamination

of patents, the PTO has up to three months following the filing of

a request for reexamination to determine whether a substantial new

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question of patentability is raised by the request. 35 U.S.C.

§ 303(a). If the PTO decides that reexamination is warranted,

Telemac will be given at least two months within which to file a

statement on the question of patentability, and Teledigital will

then have at least two months in which to file a reply. Id.

§ 304. “All reexamination proceedings under this section,

including any appeal to the Board of Patent Appeals and

Interferences, will be conducted with special dispatch within the

Office.” Id. § 305. 

Although the PTO does not publish the current average time

from filing to resolution of a request for reexamination,

observers have noted that the process may be lengthy. See In re

Cygnus Telecomm. Tech., LLC Patent Litig., 385 F. Supp. 2d 1022,

1023 (N.D. Cal. 2005) (finding that reexaminations generally take

from six months to three years); Xerox Corp. v. 3Com Corp., 69 F.

Supp. 2d 404, 406 n.1 (W.D. N.Y. 1999) (noting statistics showing

that the average pendency of reexamination before the PTO is 19.2

months, not including appeals). According to the PTO’s

statistics, the office granted approximately ninety-two percent of

requests for reexamination in fiscal year 2004. See United States

PTO, Performance and Accountability Rep. Fiscal Year 2004 (Table

13A), available at http://www.uspto.gov/web/offices/com/

annual/2004/060413a_table13a.html. “Statistical information

regarding reexamination indicates that the PTO confirms all claims

in approximately 24% of the cases, cancels all claims in

approximately 12% of the cases, and changes some claims in

approximately 64% of the cases.” KLA-Tencor Corp. v. Nanometrics,

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Inc., 2006 WL 708661, *4 (N.D. Cal. Mar. 16, 2006) (citing Rohm

and Haas Co. v. Brotech Corp., 24 U.S.P.Q 2d 1269, 1372 (D. Del.

1992)). 

On July 24, 2006, the PTO notified Teledigital of its failure

to comply with ex parte reexamination request filing requirements,

set forth in 37 C.F.R. § 1.510(c), with respect to four of the

five patents. The PTO found that Teledigital’s requests were

missing the necessary 

statement point out each substantial new question of

patentability based on the cited patents & printed

publications, and a detailed explanation of the pertinency

and manner of applying the patents & printed publications to

every claim for which reexamination is requested.

Chambers Decl., Exs. A, B, C and D. The PTO told Teledigital that

until these deficiencies were corrected, its requests for

reexamination would not be assigned a filing date. 

DISCUSSION

As the Federal Circuit has noted, "Courts have inherent power

to manage their dockets and stay proceedings, including the

authority to order a stay pending conclusion of a PTO

examination." Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426-27

(Fed. Cir. 1988) (citation omitted). While courts are not

required to stay judicial proceedings pending re-examination of a

patent, a stay for purposes of re-examination is within the

district court's discretion. See, e.g., Patlex Corp. v.

Mossinghoff, 758 F.2d 594, 603 (Fed. Cir. 1985). One court in

this district has noted that there is "a liberal policy in favor

of granting motions to stay proceedings pending the outcome" of

re-examination or re-issuance proceedings, especially in cases

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that are still in the initial stages of litigation and where there

has been little or no discovery. ASCII Corp. v. STD Entm't USA,

Inc., 844 F. Supp. 1378, 1381 (N.D. Cal. 1994).

In determining whether to stay this case pending 

re-examination, the Court considers the following factors:

(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 nonmoving party. In re Cygnus, 385 F. Supp. 2d at 1023. On balance,

the factors here weigh against a stay. 

1. Stage of Proceedings

Teledigital and Phonetec’s requests for a stay come eighteen

and twenty-seven months, respectively, after claims were filed

against them. The cases are close to the September 29 deadline

for completion of fact discovery, and a trial date is set for

June, 2007. Although discovery should be well underway, each side

maintains that the other’s responses so far have been inadequate,

and an extension of current deadlines may be warranted. As

Defendants note, eight months of the cases’ pendency is

attributable to the parties’ mutual decision to attempt

settlement. Nevertheless, this case is not in an “early stage” of

proceedings. The Court finds that this factor weighs slightly

against a stay. 

2. Simplification

It is possible that reexamination by the PTO would simply the

issues for trial. On the other hand, it is likely that at least

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some claims and issues would remain. Because this Court is

already familiar with some of Telemac’s patents, its interest in

simplifying the proceedings by waiting for the PTO to reexamine

the patents is not as strong as it might otherwise be. This

factor also slightly favors granting a stay. 

3. Undue Prejudice or Clear Tactical Disadvantage 

Teledigital and Phonetec fail to respond to Telemac’s most

compelling showing of prejudice: as demonstrated by Defendants’

responses to Telemac’s interrogatories, Teledigital and Phonetec

may lack the resources to compensate Telemac in the event of a

finding of infringement. The fact that the PTO found that four of

Teledigital’s requests for reexamination were missing necessary

elements (a problem Defendants describe as a “mere procedural

maneuver” by the PTO to gather more information), further suggests

that Teledigital is taking tactical advantage of opportunities for

delay. Also, Phonetec’s failure to preserve individual records

suggests that further delay could lead to further loss of

information. Although the likely length of reexamination is not,

in itself, evidence of undue prejudice, in the circumstances of

this case, a possibly lengthy delay would put Telemac at a clear

tactical disadvantage. The Court finds that this favor weighs

strongly against a stay. 

CONCLUSION

For the foregoing reasons, the Court DENIES both Teledigital

and Phonetec’s motions to stay the lawsuits against them pending

reexamination by the PTO (Docket No. 72 in case No. 04-1486 and

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Docket No. 97 in case No. 04-4696). 

IT IS SO ORDERED.

Dated: 9/13/06 

CLAUDIA WILKEN

United States District Judge

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