Federal Circuit Review (August 2014)

by Knobbe Martens
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Post Grant Review of Patent Favors Stay of Litigation

In VIRTUALAGILITY INC. v. SALESFORCE.COM, INC., Appeal No. 14-1232, the Federal Circuit reversed the district court's denial of a motion to stay pending a post grant review under the transitional program for covered business method (CBM) patents.

SalesForce filed a petition for CBM review four months after VirtualAgility (“VA”) brought suit. Immediately thereafter, SalesForce moved the district court to stay the litigation pursuant to AIA §18(b)(1) pending a decision by the Patent Trial and Appeal Board. VA opposed the CBM petition, but also filed a motion to amend its patent claims contingent on the claims’ invalidation. Six months later, the PTAB granted SalesForce’s petition. Two months after the PTAB decision, the district court denied defendants’ motion for a stay. Defendants appealed pursuant to AIA § 18(b)(2).

AIA § 18(b)(1) instructs district courts to consider the following four factors when deciding whether to grant a stay: (A) whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial; (B) whether discovery is complete and whether a trial date has been set; (C) whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and (D) whether a stay, or denial thereof, will reduce the burden of litigation on the parties and on the court.

Without deciding the proper standard of review, the Federal Circuit held that the district court’s denial of the motion to stay was incorrect even under the abuse of discretion standard. The Federal Circuit determined that the district court improperly considered the merits of the PTAB’s determination that the claims of the asserted patent were “more likely than not invalid.” The Federal Circuit determined that, once the PTAB determination was removed from the analysis, factors (A) and (D) strongly favored granting a stay because a finding of invalidity by the PTAB would dispose of the entire litigation: the ultimate simplification of issues. The Federal Circuit considered the fact that VA filed a motion to amend the claims to weigh further in favor of a stay so as to avoid unnecessary claim construction. The Federal Circuit further determined that factor (B) strongly favored a stay because the case had been in the early stages of the litigation when the motion to stay was filed. With respect to factor (C), the Federal Circuit determined that VA’s one-year delay before filing suit and its failure to seek a preliminary injunction weighed against its claim that it would suffer undue prejudice from a stay in the litigation.

Judge Newman dissented, arguing that the district court did not abuse its discretion in balancing the four-factor test for staying litigation. She noted that a stay of litigation is not available as a matter of right when a petition for post-grant review is filed in the PTO. The majority, Judge Newman argued, effectively created a rule for an automatic stay in the case of a pending PGR proceeding.

Patent Invalid Under Alice’s § 101 Test

In DIGITECH IMAGE TECHNOLOGIES v. ELECTRONICS FOR IMAGING, INC., Appeal No. 13-1600, the Federal Circuit affirmed summary judgment of invalidity under 35 U.S.C. § 101 for lack of patent-eligible subject matter.

Digitech’s patent pertained to “device profiles” and “methods of improving device profiles.” During digital photography, a capturing device can distort the color and spatial properties of a scene. Device profiles describe the color properties of both the source and output devices in order to counter the distortion. Digitech sued the defendants for infringing the “device profile” claims and methods for generating a “device profile.” The district court granted summary judgment of invalidity after finding that the subject matter of the asserted claims was ineligible under 35 U.S.C. § 101.

The Federal Circuit affirmed. The Federal Circuit found the “device profile” claims invalid because they pertained to subject matter that did not have a physical or tangible form. Instead, the “device profile” claims merely comprised “data” describing a device-dependent transformation. The Federal Circuit stated: “Data in its ethereal, non-physical form is simply information that does not fall under any [category of patent] eligible subject matter . . . .” Citing the Supreme Court decision Alice Corp v. CLS Bank International, 573 U.S. ___, No. 13-298 (June 19, 2014), the Federal Circuit determined that the patented method claimed an abstract idea “because it describes a process of organizing information through mathematical correlations and is not tied to a specific structure or machine.” The Federal Circuit held that, “[w]ithout additional limitations, a process that employs mathematical algorithms to manipulate existing information to generate additional information is not patent eligible.”

Injunction Vacated in Light of Reexamination

In EPLUS, INC. v. LAWSON SOFTWARE, INC., Appeal No. 13-1506, the Federal Circuit vacated an injunction and a contempt order because both were based on a claim cancelled in reexamination. 

The Federal Circuit had previously remanded this case to the district court for modification of a permanent injunction in light of the Federal Circuit’s holding on the invalidity and infringement of the asserted claims. On remand, the district court modified the injunction and found Lawson in civil contempt for violating the injunction. Lawson appealed the injunction again, as well as the contempt order.

The Federal Circuit vacated the injunction. It found no legal basis to enjoin Lawson’s conduct because the rights that the asserted claim previously conferred had ceased to exist as a result of the claim’s cancellation in reexamination. With regard to the civil contempt order, the Federal Circuit held that civil contempt sanctions must be set aside when the underlying injunction is reversed on appeal. The Federal Circuit stated that it had previously held that “the cancellation of a patent requires that non-final judgments be set aside because the ‘cancelled claims [a]re void ab initio.’” The Federal Circuit explained that the injunction was not considered final at the time the district court imposed civil contempt sanctions against Lawson and vacated the district court’s contempt order. 

In dissent, Judge O’Malley disagreed with the majority on the issue of finality and argued that the majority should have considered the merits of Lawson’s appeal from the trial court’s civil contempt findings.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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