Extensive Prior Examination of Patent-In-Suit Justifies Denial of Stay Pending CBM Review before Patent Office

by Jeffer Mangels Butler & Mitchell LLP

VirtualAgility, Inc. ("VirtualAgility) filed a patent infringement action against Salesforce.com, Inc. ("Salesforce") over a patent purporting to cover processes and tools that provide a common framework for communicating effectively across diverse groups within an organization and for assessing key elements of the organization's business. VirtualAgility sells cloud-based enterprise-level information technology solutions that practice the patented invention. Salesforce also provides enterprise cloud computing solutions and its products are used by the other defendants.

Salesforce filed a petition for Covered Business Method ("CBM") review of the patent-in-suit under the America Invents Act ("AIA"). After the CBM petition was filed, all Defendants jointly filed a motion seeking to stay the district court proceedings pending the PTO's final resolution of the CBM review. After the motion to stay was filed, the Patent Trial and Appeal Board ("PTAB") granted the petition and instituted a CBM review of all claims of the patent-in-suit.

After reviewing the relevant provisions of the AIA, the district court analyzed the four factor test for determining whether a stay would be appropriate. Noting that the "first statutory factor requires the Court to consider whether a stay will simply the issues in question and streamline the trial [and that] Defendants argue that the CBM review will simplify the issues in this case because the review may result in some or all of the claims being cancelled," the district court concluded that such a result was not probable.

To reach that conclusion, the district court analyzed the extensive prosecution history of the patent-in-suit, noting that it spanned "over twelve years, during which time the PTO considered more than sixty patent and non-patent prior art references before eventually granting the patent. The application was filed on May 14, 1999. After the initial examination and continued examination, the examiner rejected the patent application under 35 U.S.C. § 102 and §103, which decision was appealed to the Board of Patent Interference and Appeal ("BPIA"). In a written opinion published on June 16, 2011, the BPIA reversed the examiner's rejection under § 102 and § 103, but raised a new ground of rejection finding the claims directed at un-patentable subject matter under 35 U.S.C. § 101. Thereafter, the applicant reopened prosecution and authorized an examiner's amendment. In light of the BPIA's rejection under § 101, the examiner amended then-pending claims 197, 210 and 211, bringing those claims to, in the examiner's view, the proper scope of the statutory subject matter. With those amendments deemed acceptable by the applicant, the amended claims were subsequently allowed on September 25, 2011, which then became the claims of the '413 patent."

The district court contrasted this extensive examination history with the patents that Congress had contemplated when enacting the AIA. "Thus, unlike the more common business method patents which Congress contemplated to "have not been thoroughly reviewed at the PTO due to a lack of the best prior art," there can be little dispute here about the thoroughness of the PTO's prior examination of the '413 patent, given the various grounds of invalidity and the breadth of prior art references considered by the PTO befor issuing this patent."

As a result, the district court concluded that this factor did not favor a stay of the case. "In sum, weighing the limited benefit derived from the PTAB's prior consideration of the single prior art reference (the Ito patent) against the substantial uncertainty involved in all other aspects of the CBM review, including the § 101 determination and further in view of the two additional prior art references not before the PTAB, this Court is not convinced that granting a stay will simplify the issues in this case. This factor is essentially neutral, if not slightly against, granting a stay in this case."

Turning to the second factor, whether discovery is complete and whether a trial date has been set, the district court found that this factor did weigh in favor of granting a stay. "While jury selection in the instant case has been set to take place on November 3, 2014, the deadline to complete fact discovery is more than six months away. See Dkt. No. 91. Some discovery has been undertaken, but the parties have not filed their joint claim construction statement or proposed claim terms to be construed. Ultimately, however, the Court finds that the benefits of a stay at this relatively early stage of the proceedings are outweighed by various other considerations as discussed elsewhere herein. See Broad. Innovation, 2006 WL 1897165 at *11 ("[T]he ultimate determination is within the Court's discretion based on a weighing of the benefits of issuing a stay versus any added expenses resulting from the stay.").

With respect to the third factor, the district court explained that "VirtualAgility argues that a stay will unduly prejudice it because its direct competitor Salesforce will be given up to two additional years to compete against VirtualAgility using VirtualAgility's patented technology without permission, which may lead to VirtualAgility's loss of market share and erosion of good will. Defendants dispute that Salesforce is VirtualAgility's direct competitor and further argue that any prejudicial effect would be minimal because the CBM review occurs in an expedited 12-month time-frame."

The district court determined that VirtualAgility and Salesforce did compete in the same market and accordingly found that is factor weighed against a stay. "Having decided that VirtualAgility and Salesforce compete in the same market, the Court necessarily finds that granting a stay pending the CBM review will unduly prejudice VirtualAgility. Such a stay will leave VirtualAgility with no recourse during the intervening time against unauthorized use of its patented invention. In fact, it will be 'forced to compete against products that incorporate and infringe' its own invention."

Finally, the district court reviewed the fourth statutory factor, "whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court." "Defendants argue that a stay will spare the parties the burden of litigating the validity of the '413 Patent in this Court and before the PTAB at the same time. Defendants further argue that a stay will reduce the Court's burden by allowing the PTAB to first determine the validity of the '413 Patent in light of the prior art, and spare the Court's burden of conducting claim construction for claims that may be cancelled or amended during the CBM review process."

With these arguments in mind, the district court acknowledged that a stay will relieve the parties' burden of litigating the validity of the '413 Patent in this Court and before the PTAB at the same time. But this was not persuasive to the district court. "Such is true, however, in all cases involving CBM reviews. Had Congress deemed this burden so overwhelming as to justify a stay in and of itself, the statute would have been written differently. Absent such a different statutory provision, relief from a burden inherent to all CBM reviews cannot reasonably serve as the sole basis for tipping the fourth factor in favor of granting a stay."

Accordingly, the district court concluded that "[t]o be clear, beyond general relief from dual-track litigation which is inherent to all CBM reviews, the specific circumstances in the instant case present only a limited possibility of added reduction to the burden on the Court and the parties. The fourth factor therefore weighs only slightly in favor of a stay."

The district court therefore denied the motion to stay pending the CBM review.

VirtualAgility, Inc. v. Salesforce.com, Inc., et al., Case No. 2:13-cv-00011-JRG (E.D. Tex. Jan. 9, 2014)

Written by:

Jeffer Mangels Butler & Mitchell LLP

Jeffer Mangels Butler & Mitchell LLP on:

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