Alert
December 1, 2014

Federal Circuit Provides Additional Guidance on Litigation Stays Pending USPTO Post-Grant Proceedings

The Federal Circuit reversed yet another denial of a motion to stay pending a USPTO post-grant trial, this time involving a case pending in the District of Delaware. In its decision,Versata Software, Inc. v. Callidus Software, Inc., the Federal Circuit held that stays may be warranted even when a post-grant proceeding does not address all of the asserted patents, claims or invalidity defenses at issue in a co-pending litigation. This decision (along with the Federal Circuit’s prior VirtualAgility decision reversing an Eastern District of Texas court’s denial of a stay pending a post-grant review) gives some actual weight to that oft-cited “heavy thumb” that rests on the scale in favor of a stay.

 

 

In July 2012, Versata Software, Inc. (Versata) sued Callidus Software, Inc. (Callidus) in the U.S. District Court of the District of Delaware (Robinson, J.) for infringement of its ‘326, ‘024, and ‘304 patents relating to managing and tracking of sales information by a financial services company. Two months later, Callidus filed a motion to transfer the case to N.D. Cal. That motion was denied in May 2013. Soon after, Callidus answered the complaint and counterclaimed for infringement of its own patents.

At that time, it also told Versata that it would file petitions at the U.S. Patent & Trademark Office’s Patent Trial and Appeal Board for Covered Business Method (CBM) Review under the America Invents Act (AIA). In August 2013, Callidus gave the district court notice that it intended to file CBM petitions and to seek a stay of the litigation pending the outcome of the CBMs.

In late August 2013, Callidus filed a first set of CBM petitions challenging all claims of the ‘326 patent and all independent claims and some dependent claims of the ‘024 and ‘304 patents, under 35 U.S.C. § 101. Callidus simultaneously moved to stay the Delaware litigation. The district court declined to consider the stay issue until the PTAB decided whether to institute the CBM reviews. It then issued a scheduling order, which set, inter alia, various discovery deadlines and a trial date.

In December 2013, for the first time, Versata identified its asserted claims. These included claims not included in the CBM reviews.

In March 2014, the PTAB instituted CBM review relating to the first set of petitions. Callidus renewed its motion to stay, and a month later, prepared another set of CBM petitions challenging the validity of the remaining claims of the ‘024 and ‘304 patents under Section 101. In May 2014, the district court granted a stay as to the ‘326 patent, but not the ‘024 and ‘304 patents. In its decision, the district court considered the four factors set forth in § 18(b) of the AIA:

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.

Regarding the ‘024 and ‘304 patents, the district court held that: (i) the first factor did not favor a stay because not all of the claims were under review; (ii) the second factor was at best neutral because a CBM decision would come within months of a district court decision; (iii) the third factor did not favor a stay because, inter alia, Callidus allegedly was seeking a tactical advantage by staying Versata’s infringement claims, but not its own; and (iv) the fourth factor did not favor a stay because Callidus’ preliminary motion practice burdened the litigation.

Following denial of the stay of the ‘024 and ‘304 patents, Callidus filed an interlocutory appeal to the Federal Circuit from the denial of the stay for these patents under Section 18(b) of the AIA. During the pending appeal, the PTAB instituted CBM review of the claims identified in the second set of petitions.

The Federal Circuit decided the appeal on the merits on November 20, 2014. Versata Software, Inc. v. Callidus Software, Inc., __ F.3d ___ (Fed. Cir. Nov. 20, 2014) (Chen*, Linn, Mayer) (D. Del., Robinson). In its decision, the Federal Circuit held that the district court had erred regarding its weighing of each of the four factors, and that each factor weighed strongly in favor of staying the litigation regarding the ‘024 and ‘304 patents.

  • Factor 1: The Federal Circuit rejected the district court’s “categorical rule” that stays should only be granted when all of an asserted patent’s claims are under post-grant review, and noted that at the time the district court denied the stay with respect to the ‘024 and ‘304 patents, all of the independent claims, and some dependent claims, of those two patents were under review. The Federal Circuit held that the district court erred by not considering how the subject matter of those claims related to the subject matter of the asserted claims. But in any event, the Federal Circuit took judicial notice that after the district court ruled on the stay, the PTAB granted CBM review of the remainder of the claims of the ‘024 and ‘304 patents. That every claim of the asserted patents was now under CBM review left little doubt that issues would be simplified.

  • Factor 2: Importantly, the Federal Circuit identified the time of filing the motion for a stay as the “stage” to decide this factor, not the time the stay is actually decided. When the request for a stay was filed in this particular case, discovery had not commenced, claim construction proceedings had not begun, and the case was in its infancy. And even in March 2014, when PTAB granted CBM review, fact discovery was underway, but there had been no depositions, and expert discovery and claim construction proceedings still had not begun.

  • Factor 3: The Federal Circuit held there was nothing in the record to suggest any undue prejudice to Versata or clear tactical advantage to Callidus. Callidus clarified to the district court it was seeking to stay the entire case, which would include its own counterclaims, at the motion hearing.

  • Factor 4: The Federal Circuit (after acknowledging this fourth factor can be satisfied by the same evidence evaluated under the first factor) explained that only a prospective analysis is appropriate, in contrast to the retrospective analysis the district court did. For the same reasons discussed regarding the first factor above, the Federal Circuit concluded this factor favors a stay.

Because the four factors taken together strongly favor a stay pending CBM review, the Federal Circuit reversed and remanded with instructions to grant Callidus’ motion to stay as to the ‘024 and ‘304 patents.

Interestingly, as it did in Virtual Agility, the Court did not really answer whether their interlocutory review should be de novo under the AIA, instead finding the district court’s denial of the stay was an abuse of discretion.

Key Takeaways:

  • Don’t wait. Because courts will consider “the stage” of the litigation in its decision whether to grant the motion, file your post-grant review petitions as early as possible and move for a stay soon after. The Federal Circuit stated that the appropriate stage to consider is when the stay is requested – no matter the status of the case when the stay decision is finally made.
  • Complete Overlap Is Not Necessary. Move for a stay even if the issues in litigation do not completely overlap with the issues in a related post-grant proceeding. Not all of the asserted claims or defenses at issue in a litigation must be involved in a post-grant review for a stay to be granted.
  • Patent Owners Have A Hard Time Showing Prejudice. That a stay will cause evidence to stale, memories to fade, or documents to be lost, are, according to the Federal Circuit, circumstances true of any stay and do not necessarily help an “undue prejudice” argument.
  • Counterclaims Are Okay. Counterclaiming for infringement of your own patents won’t jeopardize your chances for a stay as long as you ask to stay the whole case pending the outcome of a post-grant review.