First published in LES Insights

Abstract

A California court recently granted a motion to stay a patent infringement litigation pending CBM review of the patent-in-suit. The court emphasized that a stay would not unduly prejudice the plaintiff, a nonpracticing entity, because it did not compete with the defendant or seek preliminary injunctive relief, indicating that the plaintiff had no stake in the case other than alleged money damages. This finding combined with the early stage of litigation and the potential to reduce the burden of litigation on the parties tipped the scale in favor of imposing the stay pending CBM review.

The recently implemented America Invents Act created several procedures at the U.S. Patent and Trademark Office (PTO) for challenging the validity of patents before the Patent Trial and Appeal Board (PTAB). One is the Transitional Program for Covered Business Method Patents, which provides for Covered Business Method Reviews (CBM reviews), allowing accused infringers to challenge the validity of "covered business method patents" on any ground of patentability. To institute a CBM review, the challenger must show that it is "more likely than not" that at least one challenged claim is unpatentable.

CBM review has developed into an important defense strategy, as accused infringers seek to shift the forum for deciding validity from district courts to the PTO. Often, accused infringers will file a motion to stay litigation pending the outcome of CBM review at the PTO. In deciding whether to impose a stay, courts examine, among other factors, whether the stay is likely to unduly prejudice the plaintiff. A recent decision, Xilidev, Inc. v. Boku, Inc.,1 from the U.S. District Court for the Southern District of California shows the challenges nonpracticing entity (NPE) plaintiffs face in seeking to establish undue prejudice, and, on the flip side, indicates that petitioning for CBM review and moving for a stay can be a formidable strategy, particularly against NPE plaintiffs.

Background

Six months after Xilidev, Inc. filed its Complaint against Boku, Inc. accusing it of patent infringement, Boku filed a petition for CBM review, challenging the validity of every claim of the patent-in-suit. Boku immediately filed a motion to stay the litigation pending CBM review.

The District Court's Decision

Considering the statutory factors outlined in Section 18(b) of the America Invents Act, the court found that three of the four factors weighed in favor of staying the case. First, the court considered whether a stay would simplify the issues of the case and streamline the trial. Because the PTAB had not yet decided whether to institute CBM review, the court could only speculate about whether a stay would simplify issues in the litigation. The first factor therefore weighed against imposing a stay. Should the PTAB institute CBM review, the court noted, this factor would favor a stay because the petition involved the sole patent at issue and CBM review would at least simplify issues related to claim construction and invalidity defenses, even if no claims were found unpatentable.

Second, the court looked to the stage of litigation, particularly whether discovery was complete and whether the trial date had been set, which if true would tend to favor denial of a stay. None of those circumstances, however, applied here, as the parties had only begun serving preliminary contentions at the time of the stay motion. Thus, the second factor favored a stay.

Third, the court considered whether a stay would unduly prejudice plaintiff Xilidev or would present a clear tactical advantage to Boku. The court initially observed no dilatory tactics on Boku's part, as it timely filed its CBM petition after settlement negotiations failed and promptly submitted its stay motion just hours later.

Xilidev's most substantive arguments opposing a stay centered on alleged undue prejudice. On that basis, Xilidev argued that a stay would disrupt its ability to monetize its patent and that Boku intended to continue selling its accused product during any CBM review. Xilidev further contended that a stay will prejudice its potential market share. As the court emphasized, however, two factors undermined these arguments: as a nonpracticing entity, Xilidev did not compete with Boku in the marketplace and, further, it did not seek preliminary injunctive relief. Xilidev thus had no "stake in th[e] case other than alleged money damages." Money damages, the court explained, would still be available even if the case proceeded after CBM review. The court also noted Xilidev's failure to present evidence of its "intended operations" and how the "monetization" of its patent would result in competition between the parties. Thus, the court found that Xilidev would not be unduly prejudiced by a stay of the litigation.

Lastly, the court considered whether imposing a stay would reduce the burden of litigation on the parties and the court. This factor, the court concluded, also favored a stay because Boku's CBM petition challenged every claim of the patent-in-suit and therefore a stay would save the parties and the court from litigating common issues in two forums.

After considering all the statutory factors, the court granted Boku's motion to stay the litigation pending CBM review, holding that the stay could be lifted after a final decision by the PTAB.

Strategy and Conclusion

This case provides an example of the hurdles NPE plaintiffs face when confronted with a motion to stay pending a postgrant review procedure at the PTO, such as CBM review. The lack of competition can suggest that an NPE plaintiff will not suffer undue prejudice during a stay, and failure to move for preliminary injunctive relief may only serve to solidify that indication. From the perspective of an accused infringer, however, this case indicates that petitioning for CBM review and moving for a stay can be a formidable strategy, particularly against NPE plaintiffs.