Judges:  Chen (author), Mayer, Linn

[Appealed from D. Del., Judge Robinson]  

In Versata Software, Inc. v. Callidus Software, Inc., No. 14-1468 (Fed. Cir. Nov. 20, 2014), the Federal Circuit reversed the district court’s denial of a stay pending covered business method (“CBM”) review of the patents-in-suit and remanded with instructions to stay the action.

Versata Software, Inc., Versata Development Group, Inc., and Versata, Inc. (collectively “Versata”) sued Callidus Software, Inc. (“Callidus”), alleging infringement of U.S. Patent Nos. 7,904,326 (“the ’326 patent”); 7,908,304 (“the ’304 patent”); and 7,958,024 (“the ’024 patent”).  Callidus counterclaimed, asserting three of its own patents against Versata.  Callidus then filed a first set of petitions seeking post-grant review under the PTO’s Transitional Program for Covered Business Method (CBM) Patents, challenging every claim of the ’326 patent, every independent claim of the ’024 and ’304 patents, and several dependent claims of the ’024 and ’304 patents under 35 U.S.C. § 101.  Simultaneously, Callidus sought to stay the district court proceedings pending the Board’s review.  Declining to consider the stay until the Board decided whether to institute CBM review, the district court set dates for aMarkman hearing and trial.  Versata also identified its asserted claims, some of which were dependent claims not included in Callidus’s first set of CBM petitions.

The Board instituted CBM review for each challenged claim in Callidus’s first set of CBM petitions.  Callidus renewed its motion to stay the district court and also filed its second set of CBM petitions challenging all of the remaining claims of the ’024 and ’304 patents under § 101.  The district court granted a stay as to the ’326 patent, but denied it as to the ’024 and ’304 patents.  Callidus filed an interlocutory appeal of the denial of the stay in part.

“Stays can be warranted even when a CBM proceeding does not address all asserted patents, claims, or invalidity defenses.”  Slip op. at 6.

On appeal, the Federal Circuit considered each of the four statutory factors identified in § 18 of the AIA and determined that the district court’s denial of the stay should be reversed.

The Court first considered whether a stay would simplify the issues and streamline the trial.  Rejecting a categorical rule that failing to challenge all asserted claims warrants denial of a stay, the Court explained that a stay “can be warranted even when a CBM proceeding does not address all asserted patents, claims, or invalidity defenses.”  Slip op. at 6.  Under the Court’s view, a proper simplification analysis “would look to what would be resolved by CBM review versus what would remain.”  Id. at 6-7.  Turning to this analysis, the Court first noted that all of the claims were undergoing CBM review because the Board had also instituted review on both sets of Callidus’s petitions.  The Court also explained that the statute explicitly allows a petitioner to raise one invalidity defense in CBM review without invoking estoppel as to other defenses in litigation.  Balancing these interests, the Court concluded that the district court erred and that the “first factor strongly favors a stay.”  Id. at 8.

The Court then turned to the second factor of whether discovery is complete and whether a trial date has been set.  Rejecting the district court’s conclusion, the Court explained that “generally the time offiling the motion will be the relevant stage at which to measure this factor,” but also recognized that “it is entirely appropriate and within the discretion of the district court to wait for the institution decision before ruling on the motion.”  Id. at 9-10.  The Court noted that, whether analyzed at the date of the motion filing or the date of institution, fact discovery was still ongoing and no fact witnesses had been deposed, the close of expert discovery was seven months away, the parties had not filed expert reports or taken expert depositions, neither party had exchanged the proposed terms or claim construction positions, and both the Markman hearing and the trial were more than a year away.  The Court concluded, therefore, that the district court erred in its analysis and that “the timing factor strongly favors a stay.”  Id.at 10-11.

The Court then turned to the third factor of whether a stay would unduly prejudice Versata.  The Court observed that the district court did not make factual findings on whether Versata would suffer undue prejudice.  The Court rejected the district court’s conclusion that Callidus “intended to ‘move forward on its [own] interests’ while staying Versata’s case-in-chief,” explaining that Callidus had sought to stay the entire litigation, not just Versata’s case.  Id. at 12 (alteration in original).  Although the Court declined to consider whether either party would be prejudiced, it noted that “generic concerns,” such as “stale evidence, faded memories, and lost documents,” without more, do not justify a conclusion of undue prejudice.  Id. at 11 n.6.  The Court explained that the “record does not suggest any undue prejudice to Versata or clear tactical advantage to Callidus,” concluding that the district court erred and that “this factor strongly favors a stay.”  Id. at 12. 

The Court last considered whether a stay would reduce the burden of litigation and concluded that “the district court clearly erred in evaluating the burden-of-litigation factor exclusively through [a] backward-looking lens.”  Id. at 13.  According to the Court, “[t]he correct test is one that focusesprospectively on the impact of the stay on the litigation, not on the past actions of the parties.”  Id.  The Court explained that, “if Callidus is successful, a stay will relieve the parties and the district court of having to expend substantial resources” on claim construction, noninfringement, and invalidity.   Id. at 14.  Therefore, the Court concluded that this factor also “strongly favors a stay.”  Id.

The Court then held that “the factors when taken together strongly favor a stay pending CBM review.” Id.  Accordingly, the Court reversed the district court’s denial of the motion to stay and remanded with instructions to grant the stay as to the ’024 and ’304 patents.