The appeal to the Federal Circuit would be an option if a motion to stay pending the CBM review is denied

Sung-Hoon Kim | December 18, 2014

Versata Software, Inc. v. Callidus Software, Inc.

November 20, 2014

Panel: Chen, Mayer, and Linn. Opinion by Chen.

Summary:

Callidus appealed from the U.S. District Court for the District of Delaware’s denial of a stay pending the PTO’s CBM review of the patents-in-suit.  The Federal Circuit used a four factor test set forth in AIA §18(b) to hold that each factor strongly favors a stay, thereby reversing and remanding with instructions to grant the motion to stay.

본 사건은 피고인 Callidus가 델라웨어주 연방지방법원의 특허재심사 절차 진행 중인 특허 소송에 대한 중지청구(motion to stay) 판결에 불복하여 연방항소법원에 상고한 사건이다.  판결에서 연방항소법원은 18(b)조에 있는 4가지 요소 모두 현 소송 진행상황상 미 특허청의 특허재심사 절차 (CBM) 결과를 기다리는 것이 타당하다고 판결하였다.  따라서, 연방항소법원은 개정 특허법 18(b)조에 의거하여 연방지방법원의 중지청구 판결을 번복하였다.

Details:

Versata sued Callidus on July 12, 2012, alleging infringement of U.S. Patent Nos. 7,904,326 (the ’326 patent), 7,908,304 (the ’304 patent), and 7,958,024 (the ’024 patent), all of which are directed to the management and tracking of sales information by a financial services company.

In September 2012, Callidus filed a motion to transfer the case from the District of Delaware to the Northern District of California and to dismiss for failure to state a claim under FRCP 12(b)(6), both of which were denied by the district court.

In August 2013, Callidus filed a first set of CBM petitions challenging every claim of the ’326 patent, every independent claim and several dependent claims of the ’024 and ’304 patents, all under §101 and sought a stay of the district court proceedings.

In March 2014, the PTAB instituted the first set of CBM petitions, finding that each challenged claim more likely than not directed to unpatentable subject matter under §101.

In April 2014, Callidus filed a second set of CBM petitions to challenge the validity of all of the remaining claims of the ’024 and ’304 patents.

In May 2014, the district court granted a stay as to the ’326 patent, but denied it as to the ’024 and ’304 patents.  Thereafter, Callidus filed an interlocutory appeal from the district court’s denial of the stay in part.  During the appeal, the PTAB instituted the second set of CBM petitions, finding that every remaining claims of the ’024 and ’304 patents are more likely than not unpatentable under §101.

Rule

Section 18(b) lists four factors that a district court should consider 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 completed 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 district court considered each factor and concluded that a stay of litigation is not appropriate.

Analysis of Four Factors by the CAFC

While the CAFC reviews the district court decisions on motions to stay for abuse of discretion, the AIA gives authority to the CAFC to review such motions de novo when the justification for a stay is a CBM review.

With regard to the first factor, the CAFC held that this factor strongly favors a stay.  The CAFC noted that the district court’s categorical rule (if any asserted claims are not also challenged in the CBM proceeding, this factor disfavors a stay; recall that during the first CBM challenge, every claim of the ’326 patent and a subset of claims for the ’024 and ’304 patents are challenged) is not appropriate.  In addition, the CAFC noted that stays can be appropriate even when the CBM proceeding does not address all asserted patents, claims, or invalidity defenses because there can still be a simplification of the issues.  Finally, the CAFC took a judicial notice of the fact that the PTAB instituted CBM review (second sets of the CBM petition) on the remaining claims of the ’024 and ’304 patents, which would certainly simplify the issues.

With regard to the second factor, the CAFC held that this factor also strongly favors a stay.  The CAFC noted that the district court failed to explain why the fact that the expected date of the PTAB’s decision disfavors a stay.  In addition, the CAFC noted that the district court failed to consider how much more remains to be done in litigation prior to a trial date.  The CAFC considered the fact that when Callidus filed its first set of CBM petitions and its motion to stay, discovery had not started yet (“The litigation was still in its infancy.”).  The CAFC held that by March 2014, this case had not yet reached at a point that disfavors a stay because fact discovery was still ongoing, no fact witnesses had been deposed, the parties had not filed any expert reports or taken any export depositions, and the parties had not exchanged proposed claim terms or claim construction positions.

With regard to the third factor, the CAFC held that this factor strongly favors a stay as well.  The CAFC disagreed with the district court’s conclusion that Callidus’s motions to transfer and dismiss for failure to state a claim are considered as improper tactics.  The CAFC held that litigants have rights to seek a proper forum or to dismiss a claim, and the record does not show any undue prejudice to Versata or tactical advantage to Callidus.

With regard to the fourth and last factor, the CAFC held that this factor also strongly favors a stay.  The CAFC held that the correct test for evaluating this factor is to focus prospectively on the impact of the stay on the litigation, not on the past actions of the parties.  The CAFC noted that since the CBM proceedings will examine all asserted claims, a stay would relieve the parties and the district court to spend substantial time and resources on claim construction, noninfringement, invalidity defense issues.

Finally, the CAFC held that since the factors when considered together strong favor a stay, the decision of the district court should be reversed and remanded with instructions to grant the motion to stay as to the ’024 and ’304 patents.

Takeaway:

The party seeking a stay of the pending litigation in the district court needs to act fast as the court tends to deny the motion to stay if discovery has started, and the litigation has progressed to a later stage.

If the party’s motion to stay pending CBM review has been denied, appeal to the Federal Circuit would be an option because the AIA has given authority to the CAFC to review such a motion de novo.

Full Opinion

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