October 3, 2014
By Erika Harmon Arner; J. Derek McCorquindale; Jason L. Romrell; Daniel C. Cooley
Authored by Erika H. Arner, Daniel C. Cooley, J. Derek McCorquindale, and Jason L. Romrell
On July 10, 2014, the U.S. Court of Appeals for the Federal Circuit issued its first merits decision addressing stays under the Leahy-Smith America Invents Act (AIA).1 The Federal Circuit majority in VirtualAgility Inc. v. Salesforce.com, Inc.2 reversed the trial court's denial of a stay and examined the four statutory factors pertinent to motions to stay pending covered business method (CBM)3 review at the U.S. Patent and Trademark Office.
VirtualAgility was followed on Sept. 25, 2014, by another panel opinion decided on similar grounds in Benefit Funding Systems LLC v. Advance America Cash Advance Centers. Inc.4
This article identifies lessons to be learned from these two decisions.
In creating the new CBM proceedings, the legislative history of the AIA reflects the desire to provide "a relatively inexpensive administrative alternative to litigation for addressing disputes concerning the validity of these patents."5 To truly create an "alternative" to litigation, the statute expressly provides for the possibility of obtaining a stay during CBM review by motion to the district court, with a right of immediate interlocutory review of the stay decision at the Federal Circuit.6 In particular, AIA § 18(b)(1) requires that courts weigh the following factors when deciding whether to stay in the CBM context:
(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.
VirtualAgility, a case of first impression for the Federal Circuit, analyzes the proper application of these factors. It promises to be an important decision as CBM filings only increase, with three times more to date in 2014 than in all of 2013. Through Sept. 25, 2014, the Patent Trial and Appeal Board (PTAB) had received 219 total petitions for CBM review, with an institution rate of about 75 percent.7 And many of these petitions target patents embroiled in parallel district court proceedings.
As of September 2014, about 60 district court decisions had issued on contested motions to stay pending CBM review. Of these, only 19 were denied (usually without prejudice to refile if and when CBM review is instituted). While the overall granting of contested stay motions is thus at 68 percent, the five district courts deciding this issue most frequently have had widely divergent win rates.
Against this backdrop, the VirtualAgility opinion provides valuable guidance.
One of the most significant lessons from VirtualAgility is the Federal Circuit's rejection of attempts by the district court to second guess the PTAB institution decision. In considering the first stay factor of AIA § 18—simplification of issues—the district court stated that "it was 'not convinced' by the PTAB's assessment that cancellation of some or all of the claims during CBM review was 'probable.'"8
But, according to the Federal Circuit, "Under the statutory scheme, district courts have no role in reviewing the PTAB's determinations regarding the patentability of claims that are subject to CBM proceedings."9 The Federal Circuit noted that the PTAB had expressly determined that all of the claims are more likely than not unpatentable, such that if Salesforce.com Inc. proved successful, "This CBM review could dispose of the entire litigation: the ultimate simplification of issues."10 VirtualAgility thus teaches that the PTAB's substantive determination regarding whether or not to institute CBM proceedings cannot be reviewed by "mini-trial" in the stay analysis.11
Similarly, the appellant in Benefit Funding argued that the PTAB is not authorized to conduct CBM reviews based on grounds of patent eligibility under Section 101, 35 U.S.C. § 101, so no simplification of issues was possible under the first factor.12 The Federal Circuit cited VirtualAgility and found that "questioning the PTAB's authority to conduct the CBM review is . . . an impermissible collateral attack."13 The court held that while the issue may eventually come up on direct appeal, in the context of a stay analysis the PTAB's institution decision was unreviewable.14
The Federal Circuit in VirtualAgility also explored the nature of the novel fourth factor in the statutory CBM stay analysis—whether the stay will reduce the burden of litigation. This is not a traditional factor considered in a stay analysis, but rather was added by Congress to favor stays pending CBM review. Indeed, the Congressional Record indicates that the fourth factor "places a very heavy thumb on the scale in favor of [a] stay."15
In practice, however, trial courts had complained of having little guidance applying it, often conflating it with the first factor.16 The Federal Circuit clarified that the final factor must not be collapsed with other factors, notwithstanding potential overlap.17 This interpretation tracks the language and structure of the AIA provisions as drafted. The Federal Circuit further articulated possible considerations arising under this prong, "such as the number of plaintiffs and defendants, the parties' and witnesses' places of residence, issues of convenience, the court's docket and in particular its potential familiarity with the patents at issue."18
Another important insight involves the second factor of the CBM stay analysis—whether discovery is complete and a trial date has been set. Some district courts had analyzed this factor as of the time the party filed its stay motion, while other district courts analyzed this factor as of the time the court considered the motion, sometimes months later.
The Federal Circuit majority in VirtualAgility noted that "[a]t the time Defendants filed their motion . . . [,d]iscovery had not yet begun and no trial date had been set," suggesting that the relevant time is the former, i.e. at the time of filing the motion.19 Still, VirtualAgility held that "it was not error for the district court to wait until the PTAB made its decision to institute CBM review before it ruled on the motion."20 Recognizing that district courts had gone both ways on the issue, the Federal Circuit expressed no opinion on which is the better practice, but stated that "no doubt the case for a stay is stronger after post-grant review has been instituted."21
Once PTAB institution occurs, however, the Federal Circuit mandates quick action: District courts "should make every effort to expeditiously resolve the stay motion after the PTAB has made its CBM review determination," lest inaction "undermine the intent of Congress to allow for stays to prevent unnecessary duplication of proceedings."22 An "expeditious" determination of stay requests following CBM institution allows the "alternative to litigation" envisioned by Congress to be a realistic option.23
An order issued the same day as the VirtualAgility opinion underscores the importance of the district court's timing in deciding motions to stay pending CBM review. In In re Fidelity Nat'l Info. Svcs., Inc., Fiserv, Inc., Jack Henry & Assocs., Inc.,24 a decision on early motions to stay had yet to issue several months after the PTAB instituted CBM proceedings. Petitioner sought mandamus relief, arguing that the district court's failure to timely rule on the motions upset its statutory right to interlocutory appeal.25 After expedited briefing, the Federal Circuit denied the writ as a procedural matter, but issued the following instruction:
We note that in VirtualAgility . . . , this court recently addressed the proper application of the factors for assessing a motion to stay district court proceedings pursuant to Section 18(a)(1)(B) of the America Invents Act after Covered Business Method Review has been invoked. We deem it the better course to deny the petition and for the district court to promptly consider the motions for a stay in light of VirtualAgility.26
The Federal Circuit thus deferred the ultimate decision to the trial court, but required "prompt[]" resolution of the undecided stay motions.27 Like the facts in VirtualAgility, "As of the date the PTAB granted CBM review, there remained eight months of fact discovery, the joint claim construction statements had yet to be filed, and jury selection was a year away."28 Given this schedule (and the other similarities with the movant in VirtualAgility), the district court stayed the case pending completion of the CBM review.29
VirtualAgility provides insight into the stay analysis required for district courts when CBM review proceedings are requested at the U.S. Patent and Trademark Office. The Federal Circuit has already found PTAB institution decisions of AIA post-grant proceedings beyond scrutiny in other contexts.30 VirtualAgility and its recent progeny suggest that the substance and timing of those PTAB institution determinations are also material to the AIA's four-factored CBM stay analysis.
Endnotes
1 Pub. L. No. 112-29, 125 Stat. 284 (2011).
2 No. 2014-1232, 2014 BL 191228, 111 U.S.P.Q.2d 1763 (Fed. Cir. July 10, 2014) (88 PTCJ 750, 7/18/14).
3 AIA § 18(d) defines the term "covered business method patent" as "a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions."
4 Benefit Funding Sys. LLC v. Advance Am. Cash Advance Ctrs. Inc., Nos. 2014-1122, -1124, -1125 (Fed. Cir. Sept. 25, 2014) (see this issue).
5 157 Cong. Rec. S1379 (daily ed. Mar. 8, 2011) (statement of Sen. Kyl).
6 See AIA § 18(b)(1)-(2).
7 U.S. Pat. & Trademark Off., AIA Progress at 1, http://www.uspto.gov/ip/boards/bpai/stats/091814_aia_stat_graph.pdf (last visited Sept. 30, 2014).
8 VirtualAgility, No. 2014-1232, slip op. at 6 (quoting VirtualAgility, Inc. v. Salesforce.com, Inc., No. 13-cv-00111, 2014 BL 5580, at *3 (E.D. Tex. Jan. 9, 2014)).
9 Id. at 11.
10 Id. at 13. (On Sept. 16, 2014, a final written decision by the PTAB in the Petition for Covered Business Method Patent Review by Salesforce.com, Inc., CBM2013-00024, determined that claims 1-21 of the '413 patent are unpatentable.)
11 See VirtualAgility, No. 2014-1232, slip op. at 12-14.
12 Benefit Funding Sys., Nos. 2014-1122, -1124, -1125, slip op. at 6 (noting also that the Federal Circuit reviews the district court's CBM stay determination entirely de novo pursuant to AIA § 18(b)(2), as opposed to the traditional abuse of discretion standard).
13 Id. at 7.
14 Id. at 6-8.
15 157 Cong. Rec. S1053 (daily ed. Mar. 1, 2011) (statement of Sen. Schumer).
16 See, e.g., VirtualAgility, 2014 BL 5580, at *9 ("[T]he statute provides no further guidance on how courts should assess the fourth statutory factor.").
17 VirtualAgility, No. 2014-1232, slip op. at 11 ("[T]he simplification of the issues factor and the burden of litigation factor are listed separately in the statute. Thus, even when both factors point in the same direction—in favor of or against the stay—they continue to be separate, individual factors which must be weighed in the stay determination.").
18 Id. at 14 n.4.
19 Id. at 19.
20 VirtualAgility, No. 2014-1232, slip op. at 16; cf. Benefit Funding Sys., Nos. 2014-1122, -1124, -1125, slip op. at 3-4 (observing that the trial court initially denied the stay request, but then reconsidered and granted it once the PTAB instituted CBM review on all claims).
21 Id. (comparing Intertainer, Inc. v. Hulu, LLC, No. 13-cv-5499, slip op. at 1 (C.D. Cal. Jan. 24, 2014), with Checkfree Corp. v. Metavante Corp., No. 12-cv-15, slip op. at 1 (M.D. Fla. Jan. 17, 2014)).
22 Id. at 17.
23 See 157 Cong. Rec. S1379 (daily ed. Mar. 8, 2011) (statement of Sen. Kyl).
24 Misc. No. 2014-138 (Fed. Cir. 2014).
25 See Petition for Writ of Mandamus at 8, 16-18, In re Fidelity Nat'l Info. Servs., Inc., Misc. No. 2014-138 (Fed. Cir. May 22, 2014).
26 Order at 2, In re Fidelity Nat'l Info. Servs., Inc., Misc. No. 2014-138 (Fed. Cir. July 10, 2014) (emphasis added) (citations omitted).
27 Id.
28 Compare VirtualAgility, No. 2014-1232, slip op. at 19, with Petition for Writ of Mandamus, supra note 25, at 5-11.
29 See DataTreasury Corp. v. Fiserv, Inc., No. 2:13-cv-431-JRG-RSP (lead case), D.I. 202 (E.D. Tex. Aug. 14, 2014).
30 St. Jude Med., Cardiology Div., Inc. v. Volcano Corp., 749 F.3d 1373, 110 U.S.P.Q.2d 1777 (Fed. Cir. 2014) (88 PTCJ 18, 5/2/14) (denying appeal of PTAB's institution decision for lack of jurisdiction); In re Procter & Gamble Co., 749 F.3d 1376, 110 U.S.P.Q.2d 1782 (Fed. Cir. 2014) (88 PTCJ 18, 5/2/14) (denying writ of mandamus challenging PTAB's institution decision); In re Dominion Dealer Solutions, LLC, 749 F.3d 1379, 110 U.S.P.Q.2d 1780 (Fed. Cir. 2014) (88 PTCJ 18, 5/2/14) (denying writ of mandamus challenging PTAB's institution decision).
Reproduced with permission from BNA's Patent, Trademark & Copyright Journal, Vol. 88, No. 1416, 10/3/2014. Copyright © 2014 The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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