Centrify Corporation v. Quest Software, Inc.

Memorandum in Opposition re MOTION to Stay

N.D. Cal.December 30, 2010

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 EDWARD V. ANDERSON (SBN 83148) evanderson@sidley.com DUY D. NGUYEN (SBN 246271) ddnguyen@sidley.com SIDLEY AUSTIN LLP 1001 Page Mill Road Building 1 Palo Alto, CA 94304 Telephone: 650-565-7000 Facsimile: 650-565-7100 PHILIP W. WOO (SBN 196459) pwoo@sidley.com MARC R. ASCOLESE (SBN 251397) mascolese@sidley.com SIDLEY AUSTIN LLP 555 California Street San Francisco, CA 94104 Telephone: 415-772-1200 Facsimile: 415-772-7400 Attorneys for Plaintiff Centrify Corporation UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION CENTRIFY CORPORATION, Plaintiff, v. QUEST SOFTWARE, INC. Defendant. Case No. 10-3873-CW CENTRIFY CORPORATION'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY Date: January 20, 2011 Time: 2:00 p.m. Courtroom: 2, 4th Floor Judge: Hon. Claudia Wilken Case4:10-cv-03873-CW Document34 Filed12/30/10 Page1 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -i- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW TABLE OF CONTENTS Page I. INTRODUCTION .....................................................................................................................1 II. BACKGROUND .......................................................................................................................2 A. The '005 Patent and Its Infringement By Defendant ..................................................... 2 B. The Inter Partes Reexamination of the '005 Patent ....................................................... 2 C. Defendant's Motion to Stay and Related Proceedings Between Centrify and Defendant ...................................................................................................................... 4 III. LEGAL STANDARD ................................................................................................................5 IV. ARGUMENT .............................................................................................................................6 A. Granting Defendant's Stay Request Would Unfairly Prejudice Centrify...................... 6 1. A stay pending reexamination will substantially delay Centrify's right to relief from Defendant's ongoing infringement ............................................. 6 2. Centrify and Defendant are direct competitors and substantial delay of this action will undoubtedly harm Centrify ...................................................... 9 3. A stay would place Centrify at a tactical disadvantage .................................. 11 B. A Stay Pending Inter Partes Reexamination is Not Likely to Simplify this Action .......................................................................................................................... 12 1. Cancellation of all claims is unlikely .............................................................. 12 2. A stay pending reexamination would further complicate this action ............. 12 3. This case presents numerous issues that the inter partes reexamination will not resolve ................................................................................................ 13 C. Status of Litigation is Entitled to Little Weight .......................................................... 14 V. CONCLUSION ........................................................................................................................15 Case4:10-cv-03873-CW Document34 Filed12/30/10 Page2 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -ii- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW TABLE OF AUTHORITIES Page(s) CASES Affinity Labs of Texas v. Apple, Inc., No. 09-04436 CW, 2010 WL 1753206 (N.D. Cal. Apr. 29, 2010) ...............................8, 12, 15 BarTex Research, LLC v. FedEx Corp., 611 F.Supp. 2d 647 (E.D. Tex. 2009) ........................................................................................6 Baxter Int'l, Inc. v. Fresenius Medical Care Holdings, Inc., No. 08-C-2389, 2008 WL 4395854 (N.D. Ill. Sept. 25, 2008) ..................................................7 Cherokee Nation of Oklahoma v. United States, 124 F.3d 1413 (Fed. Cir. 1997)..................................................................................................5 Cooper Notification, Inc. v. Twitter, Inc., No. 09-865-LPS, 2010 WL 5140573 (D. Del. Dec. 13, 2010) ........................................ passim ePlus, Inc. v. Lawson Software, Inc., No. 3:09-CV-620, 2010 WL 1279092 (E.D. Va. Mar. 31, 2010) ..............................................6 Esco Corp. v. Berkeley Forge & Tool, Inc., No. C 09-1635 SBA, 2009 WL 3078463 (N.D. Cal. Sept. 28, 2009)........................................5 F5 Networks, Inc. v. A10 Networks, Inc., No. C10-654MJP, 2010 WL 5138375 (W.D. Wash. Dec. 10, 2010) ......................................15 Landis v. North Am. Co., 299 U.S. 248 (1936) .............................................................................................................5, 11 Lockyer v. Mirant Corp., 398 F.3d 1098 (9th Cir. 2005) .................................................................................................11 Network Appliance Inc. v. Sun Microsystems Inc., No. C-07-06053, 2008 WL 4821318 (N.D. Cal. Nov. 3, 2008) .......................................8,0, 12 Robbins v. H.H. Brown Shoe Co., Inc., No. 08 Civ. 6885(WHP), 2009 WL 2170174 (S.D.N.Y. June 30, 2009) ................................15 Tesco Corp. v. Weatherford Int'l Inc., No. 08-cv-2531, 2010 WL 3075568 (S.D. Tex. Aug. 5, 2010) ...........................................9, 10 Ultra Prods., Inc. v. Antec, Inc., No. 09-04255 RS, 2010 WL 1688538 ...................................................................................5, 6 Wordtech Sys., Inc. v. Microboards Mfg., LLC, No. C 09-04612 SI, 2010 WL 164510 (N.D. Cal. Apr. 22, 2010) .....................................12, 15 Case4:10-cv-03873-CW Document34 Filed12/30/10 Page3 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -iii- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW STATUTES 35 U.S.C. § 101 ..............................................................................................................................14 35 U.S.C. § 102 ..............................................................................................................................14 35 U.S.C. § 103 ..............................................................................................................................14 35 U.S.C. § 112 ..............................................................................................................................14 35 U.S.C. § 116 ..............................................................................................................................14 35 U.S.C. § 301 ..............................................................................................................................14 35 U.S.C. § 311 ..........................................................................................................................2, 14 35 U.S.C. § 312 ................................................................................................................................2 35 U.S.C. § 315 ......................................................................................................................3, 4, 11 OTHER AUTHORITIES 37 C.F.R. § 1.935 .............................................................................................................................3 37 C.F.R. § 1.945 .............................................................................................................................3 37 C.F.R. § 1.947 .......................................................................................................................3, 11 37 C.F.R. § 1.949 .............................................................................................................................3 37 C.F.R. § 1.951 .......................................................................................................................3, 11 37 C.F.R. § 1.953 .............................................................................................................................3 37 C.F.R. § 41.61 .......................................................................................................................4, 11 37 C.F.R. § 41.77 .......................................................................................................................4, 11 Fed. R. Civ. P. 45 .....................................................................................................................12, 13 MPEP § 2601 ...................................................................................................................................4 MPEP § 2616 ...................................................................................................................................2 MPEP § 2633 ...................................................................................................................................3 MPEP § 2666 ...................................................................................................................................4 MPEP § 2671 ...................................................................................................................................3 MPEP § 2673 ...................................................................................................................................3 Case4:10-cv-03873-CW Document34 Filed12/30/10 Page4 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -1- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW I. INTRODUCTION Justice delayed is justice denied. Defendant Quest Software seeks the extraordinary relief of an indefinite stay of this action until the completion of inter partes reexamination-an interminable administrative process that courts estimate will take three to eight years to complete. Defendant's request for a stay is nothing more than a bald attempt to deny Centrify its due process in favor of Defendant's assertion of its own patent (in another case), a patent also subject to inter partes reexamination. Centrify and Defendant directly compete in the sale of enterprise security and identity management software for cross-platform systems and applications, a market noted for its fierce competition and continuous need for technical advances to keep pace with the rapidly changing technology demands of its customers. One of the critical factors of Centrify's success has been its differential technology, including the innovations claimed by the patent-in-suit. Centrify seeks to permanently enjoin Defendant, a much larger competitor, as soon as practicable, otherwise the competitive edge driven by Centrify's technology could become devalued and Centrify's market share could decline over time. If a stay is granted, Defendant will have succeeded in thwarting Centrify in preserving its rights before Centrify has had its day in court. Defendant's basis for this unjust result rests upon dubious grounds-a nascent development in the inter partes reexamination of the patent-in suit in which the United States Patent and Trademark Office ("PTO") rejected all claims. But it is well known that this preliminary finding is the PTO's perfunctory response to a request for inter partes reexamination-courts have found that the PTO almost always grants initial rejections against all claims in such proceedings, and issuance of an Office Action with a reexamination order is not, as the Defendant would have the Court believe, "unusual." The PTO's interim decision is by no means predictive of the ultimate outcome because Centrify has not yet had an opportunity to be heard. The PTO's own inter partes reexamination statistics show that at least 53% result in one or more claims confirmed despite the PTO's pro forma rejection of all claims at the outset of such proceedings. If a single claim of the patent-in-suit is confirmed, an outcome that is more likely than not, the delay will have achieved nothing except to prejudice Centrify. Because a stay would harm Centrify and unlikely to simplify the issues to be decided in this action, the Court should deny Defendant's motion. Case4:10-cv-03873-CW Document34 Filed12/30/10 Page5 of 20 1 2 3 19 20 25 26 27 28 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 21 22 23 24 -2- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW II. BACKGROUND A. The '005 Patent and Its Infringement By Defendant United States Patent 7,591,005 ("the '005 Patent") is entitled "Method and Apparatus for User Log-in Name Mapping" and issued on September 15, 2009. The '005 Patent claims, among other things, computer software and methods to enable a user to log into a computer of one architecture using a local log-in name for authentication across a network of computers of heterogeneous architectures. For example, a user can log into a UNIX computer using a local log-in name for that computer and the '005 Patent teaches certain methods of mapping the local log-in name, which may or may not be unique across an entire network, to a unique network log-in name for authentication within a complex network of UNIX, Linux, Mac and/or Windows-based computers. The invention of the '005 Patent simplifies identity and access management across a diverse computer network consisting of disparate systems and applications. The innovations claimed by the '005 Patent have been critical to the success of Centrify and its products, including Centrify's suite of DirectControl products. DirectControl is one of the leading solutions of its class of software products enabling interoperability between heterogeneous computer systems and directly competes with Defendant's Quest Authentication Services ("QAS") in the same space. QAS leverages the technology claimed by the '005 Patent without Centrify's authority and stands to erode Centrify's market share unless Defendant is enjoined from infringing the '005 Patent. B. The Inter Partes Reexamination of the '005 Patent The inter partes reexamination procedure begins when a third-party requester submits a request in writing to the PTO for reexamination. 35 U.S.C. § 311. The reexamination request raises questions of patentability different from those raised in the previous examination before the PTO, and relies on prior art purportedly presenting a new, non-cumulative technological teaching that was not previously considered during prosecution. See MPEP § 2616. Upon receiving the inter partes reexamination request, the PTO has three months to decide whether it raises "a substantial new question of patentability affecting any claim of the patent," and whether to issue an order granting reexamination of any claims. See 35 U.S.C. § 312(a). An examiner consults with the Reexamination Legal Advisor ("RLA") regarding whether to grant Case4:10-cv-03873-CW Document34 Filed12/30/10 Page6 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -3- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW reexamination and then (where reexamination is granted) prepares an order granting reexamination. MPEP § 2633. Along with the order, the examiner will "usually" issue an Initial Office Action on the merits. 37 C.F.R. § 1.935.1 After the Initial Office Action, the patent owner receives its first opportunity to submit arguments and evidence supporting the validity of the claims under reexamination. 37 C.F.R. § 1.945. The requester then receives the opportunity to make counterarguments to issues raised by the Office Action or the patentee's response. 37 C.F.R. § 1.947. After the examiner considers each set of arguments, she may issue an Office Action making a "preliminary," nonfinal decision on the merits, i.e., a decision that does not close prosecution. MPEP § 2671.01 (I). The parties then make an additional round of arguments. See 37 C.F.R. §§ 1.945, 1.947. The examiner can make an unlimited number of "preliminary" decisions, with arguments by the parties following each decision. See MPEP § 2671 (I); see also MPEP § 2671.01 (I). This phase of the reexamination ends when the examiner issues a "final" decision called an Action Closing Prosecution ("ACP"). 37 C.F.R. § 1.949. The ACP, however, is not a final decision, is not appealable, and does not end the inter partes reexamination process. MPEP § 2673.01. After the ACP, the patent owner and third-party requester have yet another chance to submit comments, after which the examiner can either issue a Right of Appeal Notice ("RAN"), or reopen the entire proceeding. See 37 C.F.R. §§ 1.951, 1.953. When an examiner reopens the proceeding, a new round of Office actions and arguments begins. Once the RAN issues, both the patent owner and the requester may appeal the examiner's decision to the Board of Patent Appeals and Interferences ("Board"). A patent owner may appeal any decision adverse to the patentability of any claim. 35 U.S.C. § 315(a)(1). A third-party requester may appeal any final decision favorable to the patentability of any original or proposed amended or new claim of the patent. 35 U.S.C. § 315(b)(1). This includes any refusal by the examiner to make a rejection based upon a proposed rejection made by the third-party requester. 37 C.F.R. § 1 On its face, 37 C.F.R. § 1.935 contradicts Defendant's so-called "Relevant Facts" that purports that the PTO took the "somewhat unusual step of including a first office action on the merits with its November 15, 2010 notification that the petition for reexamination was granted." Mot. at 2:21-23. Case4:10-cv-03873-CW Document34 Filed12/30/10 Page7 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 26 27 28 24 25 -4- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW 41.61(a)(2); MPEP § 2666.05 (III). Thus, for every ground for rejection not adopted by the examiner, the third-party requester receives an opportunity for an appeal. MPEP § 2666.05 (III). The most recent Board statistics indicate that the average pendency from the Notice of Appeal, which occurs long after reexamination is ordered, to a Board decision is 29 months. See Ex. A.2 Even a decision by the Board may not end the reexamination process-the Board may remand the matter back to the examiner, restarting the entire process. And, if the Board determines that the patentee's claims should be rejected on grounds not considered by the examiner, the patentee receives yet another opportunity to comment, followed by yet another response by the third-party requester. 37 C.F.R. § 41.77(b). Should the Board issue a decision finally disposing of an inter partes reexamination, a losing party has the right to appeal to the Federal Circuit. 35 U.S.C. § 315(a),(b). The patent owner can appeal a decision adverse to the patentability of any claim, and the third-party requester can appeal any decision favorable to the patentability of any claim. Id. See also MPEP § 2601. Statistics indicate that an appeal to the Federal Circuit can take anywhere from 8.2 months to 9.3 months. See Ex. B. But an appeal to the Federal Circuit may not end the proceedings-the Federal Circuit may start the entire process over by remanding the case to the PTO. On August 31, 2010, Defendant filed a request for inter partes reexamination of claims 1-8 of the '005 Patent. On November 15, 2010, the PTO granted Defendant's request (Reexamination Control No. 95/000,542), and issued an Office Action rejecting claims 1-8 of the '005 Patent. This reexamination proceeding is still in a very early stage. C. Defendant's Motion to Stay and Related Proceedings Between Centrify and Defendant On August 27, 2010, Defendant, whose principal place of business is in California, filed a complaint in Utah accusing Centrify, which is based in this district and has no Utah employees or offices, of infringing U.S. Patent No. 7,617,501 ("the '501 Patent"). Ex. C. On September 30, 2010, 2 Citations to "Nguyen Decl." as used herein are citations to the Declaration of Duy D. Nguyen in Opposition to Quest Software's Motion to Stay, and citations to "Ex. __" are citations to the exhibits thereto. Case4:10-cv-03873-CW Document34 Filed12/30/10 Page8 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW Centrify filed a request for inter partes reexamination of the '501 Patent. Nguyen Decl. ¶ 4. On November 24, 2010, the PTO granted Centrify's request and agreed that all of Centrify's bases for reexamination raised substantial new questions of patentability. See Ex. D at 7-10. On December 7, 2010, Defendant sought Centrify's position with respect to staying this action pending reexamination of the '005 Patent. See Ex. E. To promote judicial economy and to preserve the limited resources of both parties, Centrify offered a counterproposal that both this action and the Utah action be stayed pending reexamination of the parties' respective patents. See Ex. F. Centrify did not make this offer lightly, but carefully weighed the significant impact on Centrify’s competitive position should this case be stayed against the high cost of simultaneously litigating two patent matters against a much larger and better funded company. However, Defendant did not agree to Centrify's counterproposal. See id. III. LEGAL STANDARD The power to stay proceedings is incidental to a court's inherent power to control its own docket. Landis v. North Am. Co., 299 U.S. 248, 254 (1936). In exercising its authority to grant a stay, a court is given broad discretion to "weigh competing interests and maintain an even balance." Id. at 255. "In deciding to stay proceedings indefinitely, a trial court must first identify a pressing need for the stay [and] then balance interests favoring a stay against interests frustrated by the action. Overarching this balancing is the court's paramount obligation to exercise jurisdiction timely in cases before it." Cherokee Nation of Oklahoma v. United States, 124 F.3d 1413, 1416 (Fed. Cir. 1997) (citing Landis, 299 U.S. at 255). In the specific context of whether to grant a stay pending reexamination, the rule of thumb is: A court is under no obligation to delay its own proceedings by yielding to ongoing PTO reexaminations, regardless of their relevancy to infringement claims which the court must analyze. There is no per se rule that patent cases should be stayed pending reexaminations, because such a 'rule would invite parties to unilaterally derail' litigation. Esco Corp. v. Berkeley Forge & Tool, Inc., No. C 09-1635 SBA, 2009 WL 3078463, at *2 (N.D. Cal. Sept. 28, 2009) (citations omitted). Instead, "[t]he decision to stay a patent case in the midst of a PTO reexamination rests with a court's discretion." Ultra Prods., Inc. v. Antec, Inc., No. 09-04255 Case4:10-cv-03873-CW Document34 Filed12/30/10 Page9 of 20 1 2 3 4 5 6 7 8 9 11 12 13 14 26 27 28 10 15 16 17 18 19 20 21 22 23 24 25 -6- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW RS, 2010 WL 1688538, at *2 (citing Viskase Corp. v. Am. Nat'l Can Co., 261 F.3d 1316, 1328 (Fed. Cir. 2001)). Three factors are considered to determine whether to suspend litigation pending reexamination: "(1) whether a stay would unduly prejudice or present a clear tactical advantage to the nonmoving party; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether discovery is complete and whether a trial date has been set." Ultra Prods., Inc. v. Antec, Inc., 2010 WL 1688538, at *2. "Ultimately, the party seeking a stay must make out a 'clear case of hardship or inequity in being required to go forward.' … If hardship or inequity cannot be shown, a stay is not merited." ePlus, Inc. v. Lawson Software, Inc., No. 3:09-CV-620, 2010 WL 1279092, at *2 (E.D. Va. Mar. 31, 2010) (citations omitted). IV. ARGUMENT A. Granting Defendant's Stay Request Would Unfairly Prejudice Centrify 1. A stay pending reexamination will substantially delay Centrify's right to relief from Defendant's ongoing infringement Courts uniformly disfavor a stay pending inter partes reexamination because of the certainty of substantial delay. One court in the Eastern District of Virginia estimates the pendency of inter partes reexamination to be six years or more. See id. at *3 ("staying this action for an indefinite period of time, possibly lasting six years or more, prejudices [the patentee] and does not serve the efficient administration of justice or the public interest"). Relying on older reexamination statistics, courts in the Eastern District of Texas report that inter partes reexamination, including appeals to the Board and Federal Circuit, can take upward to "78.4 months" or 6.53 years. See BarTex Research, LLC v. FedEx Corp., 611 F.Supp. 2d 647, 651 (E.D. Tex. 2009) (citation omitted). Courts in the District of Delaware similarly have found that "''[R]eexaminations … are likely to take 6.5 to 8 years to reach a final decision.'" Cooper Notification, Inc. v. Twitter, Inc., No. 09-865-LPS, 2010 WL 5140573, at *3 (D. Del. Dec. 13, 2010) (citation omitted). In view of this considerable delay, courts are generally loath to granting stay: the Court finds that a delay that is not merely lengthy but potentially indefinite is prejudicial to the non-moving party. Furthermore, the potential efficiency of having some or all of the issues in this case resolved by the PTO must be heavily discounted in light of the fact that it is uncertain when, if ever, this resolution would come. For these Case4:10-cv-03873-CW Document34 Filed12/30/10 Page10 of 20 -7- reasons, the Court finds that a stay pending resolution of the inter partes reexamination of the patents in suit would be inappropriate. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Baxter Int'l, Inc. v. Fresenius Medical Care Holdings, Inc., No. 08-C-2389, 2008 WL 4395854, at *5 (N.D. Ill. Sept. 25, 2008). Defendant's contention that the inter partes reexamination of the '005 Patent is likely to conclude within a short time is without merit. Defendant suggests that "recently-filed reexaminations will require even less time to complete than in the past" because "the average time to a first office action on the merits has dropped consistently every year over the past three years." Mot. at 5:12-14. Arguing that the average time from filing to the first office action on the merits is indicative of the overall pendency of an inter partes reexamination is much like a casual baseball fan who surmises that if the first inning concludes in ten minutes then the entire game will surely be completed in an hour and a half. To the extent the PTO's reexamination operational statistics are relevant to determine the likely pendency of the reexamination of the '005 Patent, the appropriate figures to examine are the average months from filing to issuance of the reexamination certificate: CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW Case4:10-cv-03873-CW Document34 Filed12/30/10 Page11 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -8- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW See Ex. G. See also Def.'s Decl. Exs. 5, 8, 9 (accord).3 To divine any trend from these figures seems beyond the capability of even the most mathematically astute patent attorney. The only reasonable conclusions that can be made from the PTO's reexamination statistics are that: (1) from Quarter 4 of 2007 through Quarter 3 of 2010 the average inter partes reexamination took anywhere from 27.1 months to 41.7 months (see id.); and (2) the overall average pendency of inter partes reexamination as of Quarter 3 of 2010 is 36.1 months. See Ex. H; see also Def's Ex. 7 (same). But the relevant average pendency is probably longer because the PTO's calculated average pendency include inter partes reexaminations of patents abandoned by the patentee at the beginning of the proceedings. See Network Appliance, 2008 WL 4821318, at *2 ("in many cases, the patent holder abandoned its defense of the patent by failing to respond to office actions and the like"). And contrary to Defendant's baseless speculation that "leading indicators suggest that recently-filed reexaminations will require even less time to complete than in the past (Mot. at 5:11-12)," the average pendency has in fact only decreased incrementally between 2009 and Quarter 3 of 2010 from 36.2 months to 36.1 months, and has actually risen since 2008 and 2007, when the average pendency was 34.9 months and 28.5 months, respectively. Exs. H-K. See also Def.'s Exs. 6-7 (accord). If anything, the PTO's statistics suggest that inter partes reexaminations are likely to take longer to complete each year. See also Affinity Labs of Texas v. Apple, Inc., No. 09-04436 CW, 2010 WL 1753206, at *1 (N.D. Cal. Apr. 29, 2010) ("The average length of delay is likely to increase considering the steady rise in the number of reexaminations filed in the past several years"). Defendant also makes much of the purported "accelerated schedule" of the reexamination of the '005 Patent because the PTO issued a first office action on the merits in 2.5 months, the technology is of "'low to moderate complexity,'" and the small number of claims at issue. Mot. at 5:19-6:15. This argument simply does not hold water because the PTO has taken more than 4 years to complete inter partes reexaminations under substantially similar circumstances. See, e.g., Exs. L- 3 Citations to "Def.'s Ex. __" as used herein are citations to the exhibits to the Declaration of Orion Armon in Support of Defendant Quest Software, Inc.'s Motion to Stay. Case4:10-cv-03873-CW Document34 Filed12/30/10 Page12 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -9- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW N (Reexamination Control No. 95/000,012, requesting reexamination of 16 claims of patent relating to a bicycle gear with a first office action on the merits within 2.5 months and having a 6.25-year pendency); Exs. O-Q (Reexamination Control No. 95/000,013, requesting reexamination of 4 claims of patent relating to method of making cheese with a first office action on the merits within 2.5 months and having a 4.20-year pendency); Exs. R-T (Reexamination Control No. 95/000,103, requesting reexamination of 9 claims of patent relating to a mobile video system with an initial ACP within 1.97 months and having a 4.39-year pendency). A patent reexamination is not unlike a court trial, each with its attendant set of unique facts, actors, and outcomes. It is folly to conclude that the reexamination of the '005 Patent is likely to "proceed much more quickly … than is typical" simply because there is no "typical" reexamination. Mot. at 6:14-15. Indeed, given the vagaries of the inter partes reexamination proceeding, it is very likely that the inter partes reexamination of the '005 Patent will be completed much later than this Court is expected to reach a disposition of this action if there was no delay. See Scheduling Order, Dec. 27, 2010, ECF No. 33 (setting trial for September 24, 2012). See also Ex. U (median time of disposition of civil cases from filing to trial in N.D. Cal. is 24.2 months). 2. Centrify and Defendant are direct competitors and substantial delay of this action will undoubtedly harm Centrify The Court can address the extent to which Centrify can exclude Defendant from practicing the patent-in-suit. Reexamination cannot address this question, and a stay would only impede resolution of this issue. Centrify and Defendant are direct competitors, and legal remedies will not be sufficient to compensate Centrify for the irreparable harm caused by Defendant's infringement. Courts recognize that direct competition adds another consideration to the calculus of whether to grant stay and regularly deny the request in such instances: Where the parties are direct competitors, a stay would likely prejudice the non-movant … In the instant case, [Plaintiff] and the Defendants are direct competitors. As a result, a stay would prejudice [Plaintiff's] rights to exclusive use of technology on which it holds a valid patent. The potential prejudice to [Plaintiff] is exacerbated by the lengthy and uncertain amount of time required to complete the re-examination process." Case4:10-cv-03873-CW Document34 Filed12/30/10 Page13 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -10- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW Tesco Corp. v. Weatherford Int'l Inc., No. 08-cv-2531, 2010 WL 3075568, at *5 (S.D. Tex. Aug. 5, 2010). Defendant's statement that there is no "reason to conclude that Centrify will experience loss of rights due to a stay" because Centrify will not "lose its ability to seek injunctive relief due to reexamination-related delay" is a non-sequitur. Mot. at 5:2-5. If a stay is granted, Centrify will have been deprived of the right to exclude Defendant from practicing the '005 Patent for between three to eight years after Centrify ultimately prevails upon resumption of this case. Defendant suggests that Centrify's decision not to seek preliminary injunctive relief indicates that Centrify will not suffer any loss of rights due to a stay. Mot. 5:6-7. This reasoning has been soundly rejected by the courts: Defendants further contend that injunctive relief will not be appropriate here … because [Plaintiff] did not seek a preliminary injunction and a permanent injunction will not be available as long as the asserted claims remain cancelled in the reexamination. The Court disagrees. [Plaintiff] candidly acknowledged at the hearing that it did not seek a preliminary injunction because, without substantial discovery (possibly including access to Defendants' sourcecode), it cannot meet the high burden for such relief. This tells one nothing about [Plaintiff's] motivation to obtain injunctive relief, or even about the potential irreparability of any harm from any infringement (if ultimately proven). With respect to a permanent injunction, it is enough to say that Defendants' motion to stay arises well before such relief could possibly be considered by the Court, so Defendant's contention presents no reason to stay the instant litigation. Cooper Notification, 2010 WL 5140573, at *4. Defendant also claims that it will be harmed if a stay is not entered because "there is a high likelihood that Quest will be required to expend resources litigating validity and claim construction issues for claims that will be amended or canceled during reexamination." Mot. at 6:18-20. The PTO's reexamination statistics belie this conjecture, which show that 53% of the patents undergoing inter partes reexamination conclude with the issuance of a reexamination certificate confirming one or more claims. See Ex. D; see also Def.'s Ex. 7 (same). But even this figure does not accurately reflect cancellation of all claims on the merits. The 47% rate of cancellation of all claims following inter partes reexamination includes patents that have been abandoned by the patentee. See Network Appliance, 2008 WL 4821318, at *2. The patentee's failure to contest the reexamination may happen for many reasons and is not necessarily a concession as to the invalidity of the claims. For Case4:10-cv-03873-CW Document34 Filed12/30/10 Page14 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -11- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW example, costs may preclude the patentee from continuing to defend the patent. In any event, "being required to defend a suit, without more does not constitute a 'clear case of hardship or inequity' within the meaning of Landis." Lockyer v. Mirant Corp., 398 F.3d 1098, 1112 (9th Cir. 2005). 3. A stay would place Centrify at a tactical disadvantage Granting Defendant's request for a stay would present Defendant with a "clear, and unwarranted, tactical advantage." Cooper Notification, 2010 WL 5140573, at *3. "Staying this litigation in favor of the PTO proceeding would grant Defendants their choice of forum-here, for no good reason." Id. Defendant's motion is a transparent attempt to frustrate Centrify in protecting its interests, while Defendant seeks to forge ahead with assertion of its own patent, a patent also subject to inter partes reexamination. See, supra, at 4:21-11:5. Defendant's request to stay this case pending reexamination is especially troubling because Defendants have substantial control over how inter partes reexamination will proceed. See, e.g., 37 C.F.R. §§ 1.947, 1.951, 41.61(a)(2), 41.77; 35 U.S.C. § 315(b). Defendant can dictate the progress of the inter partes reexamination of the '005 Patent, and whether intentional or not, can effect substantial delay while Centrify's claims languish if this Court grants Defendant's request for a stay. In addition, "the inability to conduct discovery during reexamination will deprive [Plaintiff] of the opportunity to effectively challenge the alleged prior art in the reexamination proceedings, as it could in defending against defendants' counterclaims in this Court." Wordtech Sys., Inc. v. Microboards Mfg., LLC, No. C 09-04612 SI, 2010 WL 164510, at *2 (N.D. Cal. Apr. 22, 2010). This Court should deny stay because "it will be beneficial to all parties to develop the fullest possible record in relation to the claims and counterclaims in this action." Id. Finally, the timing of Defendant's request for inter partes reexamination of the '005 Patent-one day after commencement of this suit-strongly suggests that Defendant was tactically motivated to delay this case pending reexamination. Defendant apparently had knowledge of the '005 Patent well before the Complaint was filed, yet only chose to initiate reexamination proceedings upon Centrify filing suit. See Esco, 2009 WL 3078463, at *4 (finding that Defendant used inter partes reexamination to gain tactical advantage where Defendant was aware of the patents-in-suit prior to institution of the action but "made no effort to seek reexamination of the patents-in-suit until it became apparent that Plaintiff was unwilling to license its patents and litigation was inevitable"). Case4:10-cv-03873-CW Document34 Filed12/30/10 Page15 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -12- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW B. A Stay Pending Inter Partes Reexamination is Not Likely to Simplify this Action 1. Cancellation of all claims is unlikely The PTO's initial rejection of the claims of the '005 Patent is not predictive of the ultimate outcome because an inter partes reexamination proceeding begins with an initial rejection as a matter of course. See Network Appliance Inc. v. Sun Microsystems Inc., No. C-07-06053, 2008 WL 4821318, at *2 (N.D. Cal. Nov. 3, 2008) ("the PTO almost always starts with an initial rejection in inter partes reexaminations against all claims," and "the Court gets only limited guidance from initial actions as to the ultimate outcome"). In fact, there have been several instances in which the PTO rejected all of the claims requested for inter partes reexamination initially but the PTO eventually issued a reexamination certificate confirming all claims. See, e.g., Exs. V-W (Reexamination Control No. 95/000,010); Exs. X-Y (Reexamination Control No. 95/000,015); Exs. Z-AA (Reexamination Control No. 95/001,123). And as discussed above, there is a 53% or greater chance that one or more claims of the '005 Patent will be confirmed by the PTO. See, supra, at 10:21-11:1. If even one claim survives reexamination, then a stay would not have finally resolved all issues in this litigation. See Affinity Labs, 2007 WL 3314623, at *2 ("it is also likely that not all of the issues regarding the patents in question before this Court will necessarily be resolved in the reexamination. Accordingly, this Court will likely have to adjudicate the infringement and invalidity of at least some patent claims.") (emphasis in original). 2. A stay pending reexamination would further complicate this action In most respects, a potential delay of up to eight years would only make this case more complicated. Defendant is likely to design and develop new products that infringe the '005 Patent during the period this case would be stayed. For example, QAS was initially released in 2003. Ex. BB. The latest version of this accused product appears to be version 4.0. Id. Assuming the software development lifecycle for QAS continues at this same pace, there will be anywhere from one to four additional accused products for QAS alone during the pendency of a stay, and many more if Defendants speeds up its development cycle, during the pendency of a stay. Moreover, the labor market for the software industry is notoriously volatile with 30% of employers expected to make Case4:10-cv-03873-CW Document34 Filed12/30/10 Page16 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -13- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW changes to their technical workforce in Quarter 4 2010. See Ex. CC. During any protracted period of time this case is delayed, both Centrify and Defendant's employees with knowledge relevant to this action are likely to leave their respective companies which would necessitate third party discovery with no certainty that such witnesses would be available at trial. See Fed. R. Civ. P. 45(c)(3)(A)(ii) (requiring quashing of trial subpoena to out-of-state witnesses). An indeterminately prolonged stay would further complicate this action for Centrify because of stale evidence, failed memories, and lost documents, while such inevitabilities would not affect Defendant: Much of the evidence [the patentee] must amass to prove infringement exists in the minds of witnesses, whose memories will inevitably fade, and who may be difficult to find as time passes. Infringement will also depend to some extent on how Defendants' accused products and services function today, which will be harder to prove years from now. By contrast, some of the matters on which Defendants bear the burden, such as invalidity … due to anticipation or obviousness may not grow more difficult to prove, as they are based largely on prior art references, which do not change. Cooper Notification, 2010 WL 5140573, at *4. 3. This case presents numerous issues that the inter partes reexamination will not resolve The inter partes reexamination of the '005 Patent is limited to a narrow question-whether the claims are anticipated or obvious in view of prior art patents or printed publications. See 35 U.S.C. §§ 301, 311(a); MPEP § 2617. Therefore the completion of reexamination would leave all other contested issues in this action unresolved. For example, the PTO will not decide: • whether the claims of the '005 Patent are infringed by QAS and other Quest software relating to identity and access management; • whether the '005 Patent is invalid under 35 U.S.C. § 101 because the claims are allegedly inoperable and/or lack substantial utility; • whether the claims of the '005 Patent are invalid under 35 U.S.C. §§ 102(a), (b), (e), (g), 103(a) because the claims are allegedly anticipated or obvious in view of prior art not cited in Defendant's request for inter partes reexamination; • whether the claims of the '005 Patent are invalid under 35 U.S.C. §§ 102(f) for allegedly being derived from the invention of another; Case4:10-cv-03873-CW Document34 Filed12/30/10 Page17 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -14- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW • whether the '005 Patent is invalid under 35 U.S.C. § 112 ¶ 1 for allegedly failing to contain a sufficient written description of the claimed inventions, to enable the claimed inventions, and/or to describe the best mode of the claimed inventions; • whether the claims of the '005 Patent are invalid under 35 U.S.C. § 112 ¶ 2 for alleged indefiniteness; • whether the '005 Patent is invalid under 35 U.S.C. §§ 116 for alleged nonjoinder and/or misjoinder of inventors; • whether the '005 Patent is unenforceable because of Centrify's alleged unclean hands; • the damages to be awarded to Centrify, in the form of lost profits and/or a reasonable royalty; and • whether Centrify is entitled to injunctive relief. See Am. Compl. 3:15-4:2, Nov. 15, 2010, ECF No. 22; Answer to Am. Compl., Dec. 9, 2010, ECF No. 28, 7:5-8:15, 10:13-11:1. As a matter of law, staying this case could not simplify any of these issues in the likely event that at least one claim of the '005 Patent is confirmed by the PTO in the inter partes reexamination. Indeed, a stay of this action is more liable to further complicate this dispute, increase its administrative cost, and substantially delay its resolution. C. Status of Litigation is Entitled to Little Weight The progress made in litigation has little bearing on the determination of whether a stay should be granted other than to "weigh heavily" against such a request where litigation is at an advanced stage: Although the advanced nature of a case approaching trial may weigh heavily against granting a stay, the opposite inference-that a suit in the early stages should weigh heavily in favor of a stay-is not true. As a case progresses through the stages of litigation, the grant of a stay generally becomes more costly to the parties and to the court. Yet, just as the absence of a negative inference does not create a positive inference, so also the lesser cost of granting a stay early in the litigation process does not equate to a factor favoring a stay; the lower cost simply indicates the best time to grant a stay is in the early stages of litigation. Sunbeam Prods., Inc. v. Hamilton Beach Brands, No. 3:09cv791, 2010 WL 1946262, at *3 (E.D. Va. May 10, 2010). Courts in this district routinely deny requests for a stay pending reexamination even Case4:10-cv-03873-CW Document34 Filed12/30/10 Page18 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 18 19 20 21 22 23 24 25 26 27 28 17 -15- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW in instances where a case is in its "embryonic stage." Esco, 2009 WL 3078463, at *2 (denying stay where no discovery had been taken and no trial date or other pretrial deadlines had been established). See also Affinity Labs, 2010 WL 1753206, at *1 (denying stay where no discovery had taken place, no trial date had been set, and the parties had not appeared in court for their initial case management conference); Wordtech, 2010 WL 1641510, at *1 (denying stay where no discovery had been conducted, no trial date had been set, and the court had not held an initial case management conference). Similarly, courts outside of the Northern District of California have denied motions to stay where "discovery has just begun." Cooper Notification, 2010 WL 5140573, at *3 (denying stay where discovery had just begun and an initial office action in inter partes reexamination of the patent-in-suit had rejected all claims). See also F5 Networks, Inc. v. A10 Networks, Inc., No. C10- 654MJP, 2010 WL 5138375, at *2 (W.D. Wash. Dec. 10, 2010) (denying stay in a case at a "very early stage of litigation" and discovery had not yet begun); Robbins v. H.H. Brown Shoe Co., Inc., No. 08 Civ. 6885(WHP), 2009 WL 2170174, at *2 (S.D.N.Y. June 30, 2009) (denying stay where litigation was in its "early stages"). Whether or not this action is in its early stages is of no moment where inter partes reexamination is in its infancy. See Cooper Notification, 2010 WL 5140573, at *3 (denying stay "given the even earlier stage of the reexamination"). V. CONCLUSION For the foregoing reasons, the Court should deny Defendant's request for a stay pending reexamination. Case4:10-cv-03873-CW Document34 Filed12/30/10 Page19 of 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -16- CENTRIFY CORP.'S OPPOSITION TO QUEST SOFTWARE'S MOTION TO STAY CASE NO. 4:10-cv-3873-CW Respectfully submitted, Dated: December 30, 2010 By: /s/ Edward V. Anderson EDWARD V. ANDERSON ( 83148) evanderson@sidley.com DUY D. NGUYEN (SBN 246271) ddnguyen@sidleyc.om SIDLEY AUSTIN LLP 1001 Page Mill Road Building 1 Palo Alto, CA 94304 Telephone: 650-565-7000 Facsimile: 650-565-7100 PHILIP W. WOO (SBN 196459) pwoo@sidley.com MARC R. ASCOLESE (SBN 251397) mascolese@sidley.com SIDLEY AUSTIN LLP 555 California Street, Suite 2000 San Francisco, CA 94104-1715 Telephone: 415-772-1200 Facsimile: 415-772-7400 Counsel for Plaintiff Centrify Corp. Case4:10-cv-03873-CW Document34 Filed12/30/10 Page20 of 20