Yesterday’s Federal Circuit decision in Smartflash LLC v. Apple illustrates the difference that even a few months can make when an accused infringer seeks to stay litigation pending covered business method (CBM) reviews of the asserted patent claims. Smartflash is asserting a series of digital rights management patents against Apple and Samsung in the Eastern District of Texas. All of Smartflash’s asserted claims are the subject of CBM reviews concerning Section 101 issues. Apple and Samsung sought to stay the litigations pending completion of the CBM process, but the district court denied these requests. On appeal, the Federal Circuit affirmed the denial of Apple’s motion, but ordered that Smartflash’s case against Samsung be stayed pending the CBM reviews.
The Federal Circuit justified these differing results given the “critical distinction” that Smartflash’s case against Apple had already gone to trial whereas the case against Samsung had not, even though the pre-trial process was complete. Yesterday’s decision emphasized that the trial itself is the “most burdensome task” of the entire litigation process, but is still “yet to come” in the Samsung case. By contrast, the Federal Circuit agreed with the district court that “the vast majority” of costs had already been incurred in the Apple case, notwithstanding that the district court recently threw out the jury’s $533 million damages verdict and ruled that Apple was entitled to a new trial on damages (although not infringement or validity).
Yesterday’s decision illustrates the importance of filing CBM petitions early enough in the litigation process to give the PTAB time to institute the reviews well before trial. It normally takes six months for the PTAB to issue institution decisions. Accused infringers must also allow for time to request the stay and appeal to the Federal Circuit if the district court denies the motion. In Apple’s case, the timeframe proved too tight. The Supreme Court issued its decision in Alice Corp v. CLS Bank in June 2014, but Apple waited until late October 2014 before filing any CBM requests raising Section 101 issues. (Apple had previously filed CBM requests relying only on prior art, but these largely failed.) Trial ultimately occurred in February 2015.
However, assuming that an accused infringer does file CBM requests early enough and receives favorable institution decisions as to all asserted claims, it is highly likely that the defendant will succeed in staying the trial if desired—even if the pretrial process is largely complete, as was true in Smartflash’s case against Samsung. District court judges will surely take note of the fact that the Federal Circuit overturned the district court’s denial of Samsung’s request despite nominally acknowledging Judge Gilstrap’s “careful consideration of the factors involved.”
This is not necessarily true of IPR requests given that (1) the relevant standard for stay requests is different and (2) it is not possible to appeal a denial to the Federal Circuit, as Samsung did here. This is a key benefit of CBMs over IPRs and thus an important point for practitioners to keep in mind when facing patents with claims that at least arguably concern “activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.” This is the standard that the PTAB applies when considering whether a patent is eligible for CBM review.