The Federal Circuit made it clear earlier today that district courts should freely grant stays in view of Covered Business Method ("CBM") patent reviews instituted by the Patent Trial and Appeal Board ("PTAB").  In Versata Software, Inc. v. Callidus Software, Inc., the Court reversed and remanded a United States District Court for the District of Delaware's denial of a motion to stay.  The Court determined that an analysis of the factors outlined in § 18(b) of the America Invents Act ("AIA") "strongly favor[ed]" the stay.  In fact, the Federal Circuit appeared to stop just short of mandating stays in such cases.  And, even though the AIA provides that the Federal Circuit may review such district court's decision de novo in order to "ensure consistent application and established precedent," (AIA § 18(b)(2)), the Court indicated that the outcome would have been the same if analyzed under the traditional abuse-of-discretion standard.  As a result, this case may have implications for district court stays in other post-issuance proceedings, such as Inter Partes Review ("IPR"), because despite not having the same articulated factors in the statute, the factors commonly used by district courts for analyzing such motions are similar.       

To provide a brief context, the present case stems from a July 19, 2012 action in which Versata sued Callidus in the Delaware district court alleging infringement of three patents related to the "management and tracking of sales information by a financial services company."  Callidus tried to both dismiss the case on the pleadings and transfer it to the Northern District of California.  Both motions were denied.  Callidus subsequently answered and counterclaimed, asserting its own patents.  Callidus also filed a first set of CBM petitions which challenged all of the claims of one of the patents, but only selected claims of the other two patents.  When the PTAB instituted CBM review of this first set, Delaware Judge Robinson stayed the proceedings with respect to the one patent, but denied the stay with respect to the other two.  Callidus filed an interlocutory appeal pursuant to § 18(b)(2) of the AIA.  While the appeal was pending, a second set of CBM petitions were acted upon by the PTAB, resulting in trial initiation for the remaining claims.

For those not aware, the AIA contained a section on requesting a stay of a civil action in the CBM portion of statute.  This section provides for which factors must be considered, and allows for immediate interlocutory appeal.  Specifically, the Court must look at:

(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 the denial thereof, will reduce the burden of litigation on the parties and on the court.

AIA, §18(b)(1).  Of course, this is not significantly different than the factors used by district courts in general in determining whether to grant a stay.  For example, Judge Robinson recently articulated the factors to consider in the IPR context in another case:  "(a) whether the granting of a stay would cause the non-moving party to suffer undue prejudice from any delay or allow the moving party to gain a clear tactical advantage over the non-moving party; (b) whether a stay will simplify the issues for trial; and (3) whether discovery is complete and a trial date is set."  Peschke Map Tech., LLC v. J.J. Gumberg Co., Civ. No. 12-1525-SLR (D. Del. April 24, 2014).

In the present case, Judge Robinson acknowledged "the presence of Congress' thumb on the scales of justice," but still concluded that a complete stay would "not simplify the issues or reduce the burdens of litigation."  The Federal Circuit disagreed, but in view of different facts than what the lower court was considering.  With regard to the first issue -- whether a stay would simplify the issues or streamline the trial -- Judge Robinson noted that Callidus did not include all of the claims in the CBM petition.  Therefore, with regard to the patents that only had a subset of patents being reviewed, she denied the motion.  The Federal Circuit turned this into "a categorical rule" on her part ("if any asserted claims are not also challenged in the CBM proceeding, this factor disfavors a stay"), and deemed the rule inappropriate.  But Judge Robinson never articulated such a rule, and any such extrapolation from her decision is impossible because the sample size is too small to be meaningful.  Moreover, the Federal Circuit took judicial notice of the fact that all of the patent claims are now involved in an instituted CBM review.  Using the "categorical rule," because every claim has now been instituted by the PTAB, there is "little doubt that issues will be simplified."  Nevertheless, the important take-away from the Federal Circuit regarding this factor is that a stay can be warranted even if the CBM proceedings will not simplify all of the invalidity issues at trial (whether all of the claims, or all of the invalidity defenses).

With regard to the second factor, Judge Robinson did little more than highlight that discovery was not complete, and that the trial date was within months of when the CBMs were expected to be concluded.  The Federal Circuit took issue with this, criticizing her failure to explain why the seven month difference between the anticipated conclusion of CBM review and the start of trial counseled against a stay.  The Court was also clear that the date from which this factor must be analyzed is the day the motion is filed, not the date it is considered.  A problem occurs, however, when the motion to stay is filed at the same time as the CBM petitions.  Courts are rarely going to grant stay for proceedings that may never materialize.  Therefore, instead of denying the motion outright, Judge Robinson postponed the decision until after review was instituted.  In the interim, discovery progressed.  It seems illogical to pretend that the intervening time did not occur.  This problem could be solved by encouraging lower courts to deny stay motions without prejudice, or providing leave to refile on institution of the CBM.

The factor that the lower court spent the most time highlighting was Callidus' tactical advantage in filing the stay.  Judge Robinson was influenced by the fact that Callidus asserted its own patents.  The implication was that the Callidus was using the "stay card" as a sword and a shield.  If granted, only Versata would now be at risk.  The Federal Circuit's responded by pointing out Callidus intended to stay the entire case.  However, no such indication appears in Judge Robinson's opinion.  It is possible that such a position was only adopted during appeal.   Judge Robinson does make a point of noting that Callidus is defending itself "aggressively," by filing motions to dismiss, and motions to transfer, the case.  The Appeals Court responded noted that Judge Robinson never explains why the use of such motions was "improper."  In fact, apparently Versata never alleged that they were improper either.  Without some such indication, this factor strongly favors a stay, according to the Court.

Finally, with regard to the last fact, Judge Robinson noted that "Callidus' tactics have actually increased the burdens of litigation, rather than reduced them."  The problem is that this is a retrospective analysis, but it is the prospective impact that is important.  When reviewed properly, according to the Federal Circuit, it becomes clear that a stay will reduce future burdens.  Altogether, the Court found that the factors strongly favored a stay.

The outcome of this case was similar to that in VirtualAgility Inc. v. Salesforce.com, Inc., 759 F.2d 1307, 1312-12 (Fed. Cir. 2014).  In that case, the panel majority also reversed and remanded.  The one distinction was that in VirtualAgility Inc., Judge Newman dissented.  She believed a trial judge's decision to stay an infringement action should be consigned to the judge's discretion.

An important question is whether this case will have any impact on stays in cases with corresponding IPRs, and other such proceedings before the PTAB.  On the one hand, the IPR-section of the AIA does not articulate factors, and it contains a less deferential standard of review.  On the other hand, the factors are common, and the lower courts will likely look to this case and VirtualAgility for guidance.  Even if it will be more difficult to reverse and remand a denial of stay in the IPR context, the application of the factors from these cases could be persuasive to the lower courts.  As such, the outcome of CBM decisions becomes more relevant to those that have little to no experience with the practice.  Therefore, it would behoove all patent attorneys practicing before the PTAB to pay attention to these CBM decisions, and how the Federal Circuit is interpreting the statute.

Versata Software, Inc. v. Callidus Software, Inc. (Fed. Cir. 2014)
Panel: Circuit Judges Chen, Mayer, and Linn
Opinion by Circuit Judge Chen