On July 10, 2014, in Virtualagility v. Salesforce.com Inc. et al., 2014-1232, a divided panel of the Court of Appeals for the Federal Circuit reversed the Eastern District of Texas’ denial of a motion to stay the district court case during a transitional Covered Business Method (CBM) Review. 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 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—
- whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;
- whether discovery is complete and whether a trial date has been set;
- whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and
- whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.The statute also allows for immediate interlocutory appeal from the district court’s decision. See AIA § 18(b)(2). There is no equivalent provision for Inter Partes Review or Post Grant Review.
After the Patent Trial and Appeal Board (PTAB) granted one of the district court defendants, Salesforce.com’s, petition for CBM review, Salesforce.com filed a motion to stay the corresponding district court litigation. The district court denied the motion to stay.
The Federal Circuit reversed, holding that the district court had abused its discretion. With respect to factor (A) above, the simplification of issues, the Federal Circuit relied heavily on the fact that CBM review was granted for all of the patent’s claims, which could potentially dispose of the entire litigation, “the ultimate simplification of issues,” even though that the petitioner held back two important pieces of prior art from the CBM Review, saving the prior art for the litigation in view of the lesser estoppel for CBM Review. See Pages 13-15. With respect to factor (B), the timing of the motion, the Federal Circuit found that this factor also supported granting the stay because the motion to stay was filed only four months after the case had been filed. See pages 17-19. With respect to factor (C), whether the motion would unduly prejudice the moving party, the Federal Circuit concluded that the stay would not unduly prejudice the patent owner because (1) the patent owner and petitioner are not direct competitors, the petitioner being too large to bid for the patent owner’s government contracts (see page 21); (2) the patent owner did not file a motion for a preliminary injunction (see page 22), and (3) witnesses in their 60s and 70s were not considered to be at “risk of witness loss” without evidence of ill health (see page 23).
Judge Newman dissented, arguing that the district court had not abused its discretion and that the Federal Circuit should have deferred to the district court. See dissent at pages 2-3.
This decision shows how valuable a CBM proceeding can be for defendants accused of infringing a business method patent. Congress has provided factors that will generally weigh heavily toward the granting of the stay and allowed for immediate review of a court’s decision to grant or deny the stay.