The first few decisions from the Federal Circuit are starting to trickle in and are sure to bring more upheaval to Patent Office post-grant procedures. In Versata Software, Inc., et al. v. Callidus Software, Inc., the Court reversed the District of Delaware’s decision not to stay pending litigation in view of a Covered Business Method Review (CBM). A look at the Court’s analysis is instructive as a guide for successful motions to stay in CBM proceedings.
The underlying litigation was brought by Versata against Callidus on July 19, 2012, asserting infringement of three patents. Soon thereafter, Versata filed a motion to transfer and a motion to dismiss. Seven months later, in May 2013, the district court denied those motions. In response Callidus answered and counterclaimed, and also informed Versata that it would be filing a petition seeking CBM with the Patent Office. In August 2013, Callidus filed a first set of CBM petitions, challenging all of the claims of one of the patents-at-issue, and select claims of the other patents (Versata had not yet identified the asserted claims in the litigation). Simultaneously, Callidus sought a stay of the litigation.
In response, the district court ruled that it would not consider the motion until the PTAB made its decision whether to institute CBM review. In March 2014, the PTAB instituted CBM review finding all challenged claims more likely than not directed to unpatentable subject matter under 35 USC § 101. Callidus renewed its motion to stay, but the court only granted that motion relative to the one patent against which Callidus had challenged all claims, denying the petition relative to the other two patents where only select claims were challenged. Callidus filed a motion for interlocutory appeal.
The Federal Circuit began its analysis by addressing Section 18 of the AIA, wherein four factors are listed that a district court should consider in 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 the denial thereof, will reduce the burden of litigation on the parties and on the court.
The Court then noted that, while district court decisions on motions to stay are usually reviewed for an abuse of discretion, the AIA provides the Federal Circuit with authority “to conduct more searching review of decisions to stay pending CBM review.” Decision at 4. In conducting that “more searching review,” the Court considered all four factors listed above:
Simplification: The Court disagreed with the district court’s seeming categorical rule that if any asserted claims are not also challenged in the CBM, the factor weighs against a stay. It is not necessary, however, for the CBM to simplify all issues to warrant a stay. Instead, the Court held that “a proper simplification analysis would look to what would be resolved by CBM review versus what would remain.” Decision at 7.
Discovery: Given that discovery was not complete and the trial date was scheduled for seven months after the PTAB was expected to rule, the Court held that this factor “strongly favors a stay.”
Undue Prejudice: The Court quickly dispatched with the district court’s ruling that Versata would suffer undue prejudice because of Calldus’ “improper tactics.” The Court did not find a basis for a conclusion that the filing of a motion to dismiss and transfer was improper and, further, given that Callidus was willing to stay the entire litigation, including its claims against Versata, there was no undue prejudice.
Reduced Burden of Litigation: While the district court found that Callidus’ filing of preliminary motions increased the burden of litigation, the Court found that this was clear error. “The correct test is one that focuses prospectively on the impact of the stay on the litigation, not on the past actions of the parties.” Decision at 13 (emphasis in original).
In the end, the Federal Circuit reversed the decision not to stay and, at the same time, continued the early flow of valuable guidance regarding post-grant proceedings.