Timing Is Everything When It Comes To Interlocutory Appeals of CBMR-Related Motions To Stay

GavelThe issue of when interlocutory appellate jurisdiction vests with the Federal Circuit under Section 18 of the AIA to review a district court’s decision on a motion to stay in view of a related CBMR was recently addressed in Intellectual Ventures II LLC, v. JPMorgan Chase & Co., et al., 2014-1724.

The filing of a motion to stay federal patent litigation in view of a related IPR or CBMR is commonplace.  Generally, a district court’s decision on such a motion is not immediately appealable under the final judgment rule governing appellate jurisdiction.  However, Section 18 of the AIA carves out a statutory grant of jurisdiction to the Federal Circuit to hear immediate interlocutory appeals of decisions on motions to stay “relating to a [CBMR] proceeding for that patent [asserted in the district court]…”  In Intellectual Ventures, the Federal Circuit held that a CBMR “proceeding” does not begin when the petition is filed, but, instead, only begins once the PTAB institutes review.  Therefore, the Federal Circuit’s jurisdiction to hear an interlocutory appeal of a decision on a motion to stay a case having a related CBMR only vests once the PTAB institutes review.

The underlying case is pending in the Southern District of New York, where Intellectual Ventures has asserted multiple patents against JPMorgan and other defendants.  About a year after the case was filed, JPMorgan filed a motion to stay based on its anticipated filing of four CBMR petitions.  Shortly thereafter, JPMorgan in fact filed two CBMR petitions (but did not file the other two promised petitions).  Applying the four-factor test set forth in AIA § 18(b)(1), the district court denied JPMorgan’s motion to stay.  JPMorgan filed an interlocutory appeal to the Federal Circuit, asserting that the Federal Circuit had jurisdiction under AIA § 18(b).  JPMorgan argued that (i) a CBMR “proceeding” begins as soon as a party files a CBMR petition, and (ii) alternatively, even if a CBMR “proceeding” does not commence until the PTAB institutes such a proceeding, a petition for a proceeding (or even the anticipation of the filing of a petition) is sufficiently “related” to a proceeding to give rise to jurisdiction under § 18(b)(2).  The Federal Circuit analyzed the statutory language of the AIA as well as the congressional record and concluded that a CBMR “proceeding” commences only when the PTAB institutes review.  The Federal Circuit also dismissed JPMorgan’s second argument, concluding that the clear language of AIA §18(b) only gives the Federal Circuit jurisdiction over a decision on a motion to stay “that is related to an actual CBMR proceeding, not a decision on a motion to stay that is related to anything that relates – however remotely – to a hoped-for CBMR proceeding.”  (emphasis in original)  Though not at issue in this case, the Federal Circuit noted that its decision does not preclude district courts from deciding motions to stay prior to the institution of a CBMR proceeding.

While the timing of when to file a motion to stay in view of a related IPR or CBMR is always a strategic consideration, this case underscores that the immediate interlocutory jurisdiction in the context of related CBMR “proceedings” adds an extra layer of consideration.

Federal Circuit Weighs in on Stay in View of Covered Business Method Review

14516149_sThe 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.