In Verstata Software, Inc. v. Callidus Software, Inc., 2014-4682 (November 20, 2014), the Court of Appeals for the Federal Circuit reversed the District of Delaware’s denial of a motion to stay the district court case during a transitional Covered Business Method (CBM) Review.  The decision shows how valuable a CBM proceeding can be for a defendant accused of infringing a business method patent.

As discussed in a previous blog article dated July 11, 2014 regarding Virtualagility v. Salesforce.com Inc. et al., (http://www.patentofficetrials.com/?p=2179) the America Invents Act § 18(b)(1) provides factors for a district court to consider when deciding whether or not to grant a stay of a civil action involving a CBM patent.  The statute also allows for immediate interlocutory appeal from the district court’s decision. See AIA § 18(b)(2).  The statute recites:

If a party seeks a stay of a civil action alleging infringement of a patent under section 281 of title 35, United States Code, relating to a transitional proceeding for that patent, the court shall decide whether to enter a stay based on—

  1. whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;
  2. whether discovery is complete and whether a trial date has been set;
  3. whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and
  4. whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

There is no equivalent provision for Inter Partes Review or Post Grant Review.

In August 2013, the defendant Callidus filed several Petitions for CBM review and filed a motion to stay the litigation based on the CBM review.  Callidus’ Petitions challenged 1) every claim of the ‘326 patent and 2) every independent claim and several dependent claims of the ‘024 and ‘304 patents solely under 35 U.S.C. § 101 (unpatentable subject matter).  After the Patent Trial and Appeal Board (PTAB) instituted CBM review in March 2014, Callidus renewed its motion to stay and filed a second set of CBM Petitions challenging the other claims of the ‘024 and ‘304 patents solely under 35 U.S.C. § 101.  The district court granted the stay with respect to the ‘326 patent but denied the stay with respect to the ‘024 and ‘304 patents.  Verstata Software at pages 2 and 3.

On interlocutory appeal, the Federal Circuit reversed, holding that the district court had abused its discretion.  During the pendency of the appeal, the Patent Trial and Appeal Board (PTAB) instituted CBM review of the remaining claims of the ‘024 and ‘304 patents.

With respect to factor (A) above, the simplification of issues, the Federal Circuit first noted that there can be some simplification even if all claims are not subject to CBM review.  Versata at page 6.  And the Federal Circuit took judicial notice that the CBM review now involved all claims of the patens.  Although the claims were not challenged based on §102 or §103 prior art grounds, the Federal Circuit held that it is not necessary for a CBM proceeding to simplify all invalidity issues.  Unlike Inter Partes Review or Post Grant Review, the CBM statute explicitly allows a petitioner to raise only one invalidity defense without invoking estoppel as to other defenses.  Versata at page 8.

With respect to factor (B), the timing of the motion, the Federal Circuit looked to the day that the motion was filed and found that fact discovery was still ongoing and that no fact witnesses had been deposed.  Versata at page 10.

With respect to factor (C), whether the motion would unduly prejudice the nonmoving party, the district court had found that Callidus had moved forward by asserting its own patents against Versata while at the same time requesting a stay.  The Federal Circuit concluded that the stay would not unduly prejudice the patent owner because the defendant Callidus has requested that the entire case be stayed.  Versata at page 12.

With respect to factor (D), reducing the burden of litigation on the parties and on the court, the district court had found that the filing of the stays had actually increased the burden of the court.  The Federal Circuit disagreed, noting that the correct test focusses on the impact that the stays would have on the litigation in the future, which would clearly be reduced by a stay.  The Federal Circuit also noted that factor (D) and factor (A), the simplification of issues, often point in the same direction.

In view of this decision and the Virtualagility decision, it is clear that the Federal Circuit has interpreted the AIA as strongly favoring stays when a CBM patent office trial has been instituted.