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Fisher-Price, Inc. and Mattel, Inc v. Kids Ii

December 21, 2011

FISHER-PRICE, INC. AND MATTEL, INC.,
PLAINTIFFS AND COUNTER DEFENDANTS,
v.
KIDS II, INC., DEFENDANT AND COUNTER CLAIMANT.



The opinion of the court was delivered by: Leslie G. Foschio United States Magistrate Judge

DECISION and ORDER REPORT and RECOMMENDATION

JURISDICTION

This case was referred to the undersigned by Honorable Richard J. Arcara, on January 25, 2011, for all pretrial matters including preparation of a report and recommendation on dispositive motions. The matter is presently before the court on Plaintiffs' motion for to dismiss Defendant's cross-claim for false marking (Doc. No. 32), filed October 18, 2011, and on Defendant's motion to stay (Doc. No. 35), filed November 3, 2011.*fn1

BACKGROUND and FACTS*fn2

Plaintiff Fisher-Price, Inc. ("Fisher-Price"), a wholly-owned subsidiary of Plaintiff Mattel, Inc. ("Mattel") (together, "Plaintiffs"), commenced this action on December 7, 2010, asserting a single claim for relief alleging Defendant Kids II, Inc. ("Kids II" or "Defendant"), violated United States Patent No. 5,562,548 ("the '548 patent" or the "patent-in-suit"), issued on October 8, 1996 for an invention denominated as a "Convertible Child Swing," described as child swing with a convertible seat that can be configured as a cradle to accommodate very young babies or as a chair for older babies, and that is also removable, allowing the seat to function as a car seat or car bed ("the cradle swing"). The '548 patent is owned by Mattel which has exclusively licensed it to Fisher-Price, thereby granting Fisher-Price the sole right to make, use and sell the cradle swing. Plaintiffs allege Defendant both directly and indirectly infringed upon the '548 patent by making and selling products embodying one of more claims covered by the '548 patent. For the alleged infringement, Plaintiffs seek to recover treble damages, an order permanently enjoining Defendant from the continued infringement, and the costs, expenses and attorney's fees incurred in connection with this action. On February 7, 2011, Defendant filed its answer (Doc. No. 11).

On August 16, 2011, Defendant filed a petition with the United States Patent and Trademark Office ("the Patent Office"), requesting reexamination of Claims 1-4, 6, 10, 12-13, and 15-16 of the '548 patent. On August 19, 2011, after seeking and obtaining leave from the court, Defendant filed its Amended Answer (Doc. No. 26) ("Amended Answer"), in which Defendant asserts three counterclaims including the Third Counterclaim alleging Fisher-Price engaged in false patent marking in violation of 35 U.S.C. § 292 ("Third Counterclaim"). On September 12, 2011, Plaintiffs filed Fisher-Price and Mattel's Answer to Defendant Kid II's Amended Counterclaims (Doc. No. 28) ("Answer to Counterclaims"). On October 18, 2011, Plaintiffs filed a motion to dismiss the Third Counterclaim (Doc. No. 32) ("Plaintiffs' motion"), supported by the attached Memorandum of Law in Support of Fisher-Price and Mattel's Motion to Dismiss, or Alternatively for Judgment on the Pleadings, with Respect to Kids II's False Marking Counterclaim (Doc. No. 32-1) ("Plaintiffs' Memorandum"), and exhibits A through F ("Plaintiffs' Exh(s). __").

On October 21, 2011, the Patent Office granted Defendant's request for ex parte reexamination of the '548 patent. On November 3, 2011, Defendant filed a motion to stay litigation pending the Patent Office's reexamination of the '548 patent (Doc. No. 35) ("Defendant's motion"), supported by the attached Declaration of Robert L. Lee, Esq. in Support of Motion to Stay Litigation Pending Reexamination of the Patent in Suit (Doc. No. 35-1) ("Lee Declaration"), exhibits A through D ("Defendant's Exh(s). __"), and Defendant's Memorandum of Law in Support of Its Motion to Stay Litigation Pending Reexamination of the Patent-in-Suit (Doc. No. 35-6) ("Defendant's Memorandum").

On November 18, 2011, Defendant filed the Declaration of Scott P. Amy, Esq., in Opposition to Plaintiffs' Motion to Dismiss or Alternatively for Judgment on the Pleadings (Doc. No. 40) ("Amy Declaration"), with attached exhibits A through E ("Defendant's Response Exh(s). __"), and Kids II's Memorandum of Law in Opposition to Fisher-Price and Mattel's Motion to Dismiss, or alternatively for Judgment on the Pleadings (Doc. No. 41) ("Defendant's Response"). On November 28, 2011, Plaintiffs filed Fisher-Price and Mattel's Opposition to Defendant's Motion to Stay Litigation Pending Reexamination of the Patent-in-Suit (Doc. No. 45) ("Plaintiffs' Response"), with the attached Declaration of K. Patrick Herman in Support of Fisher-Price and Mattel's Opposition to Defendant's Motion to Stay Litigation Pending Reexamination of the Patent-in-Suit (Doc. No. 45-1) ("Herman Declaration"), with attached exhibits A through G (Plaintiffs' Response Exh(s). __").

On November 30, 2011, Plaintiffs filed Fisher-Price and Mattel's Reply Brief in Support of Their Motion to Dismiss or Alternatively for Judgment on the Pleadings, with Respect to Kid II's False Marking Counterclaim (Doc. No. 47) ("Plaintiffs' Reply"). On December 5, 2011, Defendant filed Kids II's Reply Memorandum of Law in Support of Its Motion to Stay Litigation Pending Reexamination of the Patent-in-Suit (Doc. No. 49) ("Defendant's Reply"), and the Reply Declaration of Scott P. Amy, Esq., in Support of Kids II Motion to Stay Litigation Pending Reexamination of the Patent-in-Suit (Doc. No. 50) ("Amy Reply Declaration"), with attached exhibits A through D ("Defendant's Reply Exh(s). __"). Oral argument was deemed unnecessary.

Based on the following, Plaintiffs' motion should be GRANTED without prejudice; Defendant's motion is DENIED.

DISCUSSION

1. Motion to Stay Litigation

Defendant moves to stay litigation pending the PTO's ex parte reexamination of the '548 patent, arguing that because the PTO is reexamining a number of the '548 patent's claims including, inter alia, Claims 1 and 10 ("Claims") which are the only Claims Plaintiffs have identified as being infringed, the pending reexamination will simplify the issues before the court, thus saving both the court and the parties time and expense, and that Plaintiffs will not be prejudiced by a stay because the parties have engaged in only minimal discovery. Defendant's Memorandum at 1; Defendant's Exh. A at 3 ("Fisher-Price and Mattel's Preliminary Infringement Contentions"). In opposition, Plaintiffs assert they would be unduly prejudiced by a stay which would prevent Plaintiffs from obtaining the requested permanent injunction against Defendant, thereby dispossessing Plaintiffs of the '548 patent's value which is set to expire in less than three years, and that, contrary to Defendant's assertion, significant discovery in this action has occurred with document production complete except for those documents for which the parties have recently obtained a protective order. Plaintiffs' Response at 2-3. In further support of its motion, Defendant maintains Plaintiffs' assertions of prejudice are not supported by allegations of lost market share and sales or price erosion, and disputes Plaintiffs' asserted concerns of lost market share and sales given that Plaintiff, despite learning of Defendant's alleged infringing products in September 2009, did not file the instant action until December 7, 2010, and have not sought a preliminary injunction. Defendant's Reply at 2. Defendant further maintains that Plaintiffs have failed to diligently pursue discovery. Id. at 3.

In a reexamination procedure, the PTO reconsiders the validity of an existing patent. 35 U.S.C. §§ 301 et seq. "One purpose of the reexamination procedure is to eliminate trial of that issue (when the claim is canceled) or to facilitate trial of that issue by providing the district court with the expert view of the PTO (when a claim survives the reexamination proceeding." Gould v. Control Laser Corporation, 705 F.2d 1340, 1342 (Fed.Cir.), cert. denied, 464 U.S. 935 (1983). Because the reexamination of a patent's validity can facilitate or eliminate the need for trial of one or more issues, parties often seek to stay patent infringement actions pending the outcome of patent reexamination proceedings, especially where the litigation is at an early stage without substantial progress toward trial. See, e.g., Spread Spectrum Screening LLC v. Eastman Kodak Company, __ F.R.D. __; 2011 WL 3796182, at * 3 (W.D.N.Y. Aug. 26, 2011) (collecting cases).

A motion to stay litigation pending the PTO's reexamination of a patent-in-suit is committed to the district judge's sound discretion. K.G. Motors, Inc. v. Specialized Bicycle Components, Inc., 2009 WL 2179129, at *2 (W.D.N.Y. July 22, 2009) (citing Xerox Corp. v. 3Com Corp., 69 F.Supp.2d 404, 406 (W.D.N.Y. 1999), appeal dismissed by 243 F.3d 554 (Fed.Cir. 2000)). In determining whether to grant a stay, courts consider the following factors:

(1) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether ...


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