Virginia Lawyers Weekly VA Lawyers Weekly
Where a network security company alleged that several products from a competitor infringed 13 of the plaintiff’s patents, but the defendant had petitioned for inter partes review, or IPR, the suit was stayed pending resolution of the IPR proceedings.
Background
Plaintiff Centripetal Networks Inc. was founded as a network security company. Defendant Palo Alto Networks Inc. is also a cybersecurity company that focuses on computer network security. From January 2020 to February 2021, the United States Patent and Trademark Office issued 13 patents to plaintiff. Plaintiff alleges that several of defendant’s products have infringed on these patents.
This matter comes before the court on three motions: (1) Palo Alto’s motion to stay pending resolution of IPR proceedings; (2) Centripetal’s motion to disqualify counsel and (3) Palo Alto’s motion to dismiss.
Motion to stay
Courts typically consider three factors when determining whether to stay a case pending the outcome of administrative review of patents: (1) the stage of litigation, (2) whether the stay would simplify the issues before the court and (3) whether the stay would unduly prejudice the non-moving party.
The first factor favors issuing a stay. At the initial pretrial conference, the parties agreed that the court would review the motion to stay before issuing a scheduling order or a trial date. As such, the court has not issued a scheduling order nor set a trial date. While some discovery is underway, the court has not set a deadline for Rule 26 disclosures or a deadline for the completion of discovery.
The second factor weighs in favor of a stay. Defendant has petitioned for review of all claims in all 13 patents at issue in this action. As of the date of this opinion, the Patent Trial and Appeal Board or PTAB, has instituted review of five petitions, denied review of seven petitions and has yet to decide on two petitions. Given the complexity of this action and over 200 claims at issue, PTAB review has the potential to greatly streamline this action and reduce the expense of this litigation.
Prejudice to plaintiff is not substantial enough to overcome the two prior factors. While the parties may be direct competitors and market share may be affected, those reasons are not sufficient to outweigh the benefits of a stay. A stay would not diminish monetary damages. Therefore, the court grants the motion to stay.
Motion to disqualify
In December 2020, plaintiff and Silver Point Finance, or SPF, engaged in negotiations about a potential financing transaction. They executed a mutual non-disclosure agreement, or NDA, on Dec. 24, 2020. On the same date, SPF retained the law firm of Ropes & Gray LLP to represent it in negotiating the protentional transaction. Ropes & Gray assembled a team of attorneys, which included James Batchelder and Andrew Radsch to evaluate the potential transaction. On Dec. 30, 2020, SPF directed Ropes & Gray to stop working on the transaction.
On May 5, 2021, Batchelder and Radsch each filed a motion to appear pro hac vice on behalf of defendant in this action. Batchelder, and other Ropes & Gray attorneys, made appearances for defendant in the IPR proceedings in July 2021. On July 21, 2021, plaintiff filed a motion to disqualify counsel.
The wording of the NDA also makes it clear that no attorney-client relationship existed between plaintiff and Ropes & Gray. Moreover, this action for patent infringement is wholly unrelated to the financial transaction described in the NDA. Plaintiff misconstrues the nature of the NDA in an attempt to make that matter substantially related and to stretch the bounds of “common interest.” Plaintiff also misconstrues the purpose of the SPF transaction as a whole.
Therefore, plaintiff is not a “former client” of Ropes & Gray for purposes of the Virginia Rules of Professional Conduct. The court further finds that plaintiff has not met its burden to prove that it is a third person to which Ropes & Gray owes an obligation that would materially affect its ability to represent defendant in this action. As such, the court denies the motion to disqualify counsel.
Motion to dismiss
Given that several of the patents at issue may be invalidated by IPR process, thus simplifying the issues present in the motion to dismiss, the court will deny the motion to dismiss without prejudice. It may be refiled after the stay has been lifted.
Defendant’s motion to stay granted. Plaintiff’s motion to disqualify counsel denied. Defendant’s motion to dismiss denied without prejudice.
Centripetal Networks Inc. v. Palo Alto Networks Inc., Case No. 2:21-cv-137, March 1, 2022. EDVA at Norfolk (Young). VLW 022-3-106. 23 pp.
