In Benefit Funding Systems, LLC v. Advance America Cash Advance Centers, Inc., the Federal Circuit upheld the district court’s decision to stay patent infringement litigation while the USPTO Patent Trial and Appeal Board (PTAB) conducts a Covered Business Method (CBM) review of the patent at issue. Although the Federal Circuit ultimately affirmed, it noted that the America Invents Act (AA) authorizes it to conduct a “searching review” of decisions to grant or deny stays pending CBM review. 

The Patent At Issue

The patent at issue was Benefit’s U.S. Patent 6,625,582, directed to a “system and method for enabling beneficiaries of retirement benefits to convert future benefits into current resources to meet current financial and other needs and objectives.”

Benefit sued Advance America, Regions Financial Corporation, CNU Online Holdings, and U.S. Bancorp for patent infringement, after which U.S. Bancorp challenged the patent in a CBM proceeding. According to the Federal Circuit decision, the PTAB instituted CBM review “on the sole basis of subject matter eligibility under 35 USC § 101.” Advance America and the other defendants moved the district court to stay its proceedings, and the district court granted their motions. Benefit brought an interlocutory appeal challenging the stay.

The Federal Circuit Decision

The Federal Circuit decision was authored by Chief Judge Prost and joined by Judges Lourie and Hughes.

As Judge Prost notes, § 18(b) of the AIA sets forth the “factors that a district court should consider when deciding whether to grant a stay,” and the standards by which the Federal Circuit should review decisions to grant or deny stays pending CBM review.

With regard to the former, § 18(b)(1) lists the following four factors:

  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.

With regard to the latter,  § 18(b)(2) provides that the Federal Circuit “shall review the district court’s decision to ensure consistent application of established precedent, and such review may be de novo.”

As summarized in the Federal Circuit decision, Appellants’ argument on appeal was that “the PTAB is not authorized to conduct CBM review based on § 101 grounds,” so “the district court would not be bound by the results of the CBM review,” so “the PTAB’s review of the ’582 patent cannot simplify this case.”

Without addressing the merits of their arguments, the Federal Circuit noted that they amounted to a collateral attack on the PTAB’s decision to institute the proceeding, which the court already has held is not a proper basis for denying a stay pending CBM review. (In the case cited in this decision, VirtualAgility Inc. v., Inc., No. 2014-1232 (Fed. Cir. July 10, 2014), the Federal Circuit reversed a district court decision denying a stay.) According to the Federal Circuit:

A district court, in the context of a stay determination, need not and should not analyze whether the PTAB might, at some later date, be determined to have acted outside its authority in instituting and conducting the CBM review. Such an analysis would, among other things, be antithetical to the efficiency goals of such a stay.

Although the Federal Circuit stated that the patent owner “might potentially challenge [the PTAB's] authority [to grant CBM review under § 101] in the context of a direct appeal of the PTAB’s final decision,” that dicta comes across as inconsistent with the court’s comments on factor (A) of § 18(b)(1):

It is undisputed that CBM review was instituted and that such review addresses whether the claims are directed to patentable subject matter. If the claims are ultimately determined to be directed to unpatentable subject matter, “[t]his CBM review [will] dispose of the entire litigation: the ultimate simplification of issues.”

Having rejected the Appellants’ grounds for appeal, the Federal Circuit affirmed the district court’s decision to grant a stay.