Federal Circuit Again Reverses Denial of Stay, a Nod to “Thumb on Scales of Justice” in Favor of Stays

On November 20, 2014, in Versata Software, Inc. v. Callidus Software, Inc., No. 2014-1468, the Federal Circuit reversed a Delaware district court’s denial of a stay pending CBM review. The Court noted that although it had authority under AIA § 18(b)(2), to review the decision de novo, it must be reversed even under the traditional abuse of discretion standard.

The Federal Circuit considered the district court’s application of the four factors of AIA § 18(b)(1) when deciding whether to grant a stay: (A) whether a stay will simplify the issues in litigation; (B) stage of litigation; (C) undue prejudice to nonmoving party or clear tactical advantage for moving party; and (D) whether a stay will reduce the burden of litigation on the parties and the court.

The Federal Circuit found that the district court erred in not granting a stay as to two of the three asserted patents because some of the asserted dependent claims were not the subject of an instituted CBM review at the time of the filing of the motion for stay. Citing VirtualAgility Inc. v. Salesforce.com, Inc., 759 F.3d 1307 (Fed. Cir. 2014), the Court reiterated that “[s]tays can be warranted even when a CBM proceeding does not address all asserted patents, claims, or invalidity defenses.” While the Court also took judicial notice that the PTAB had since instituted CBM review on the remaining claims of the two patents, which meant that all asserted claims would be under review, the Court found the PTAB’s review of the independent claims, and some of the asserted dependent claims, would necessarily simplify the issues and thus factor (A) favored a stay.

The Court reiterated that the stage of the litigation - factor (B) - as of the date of filing of the motion is most relevant, but called it “entirely appropriate” to wait for the PTAB’s decision on institution and not “ignore advances in the litigation” up to that date. The Court found, however, that even this factor strongly favored a stay, because, although discovery had begun, “both fact and expert discovery remained ongoing, and the Markman hearing and trial date were still well over a year away.”

It was reversible error for the district court to consider Callidus’ filing of preliminary motions as weighing against a stay when evaluating factors (C) and (D). Non-frivolous motions to transfer and dismiss for failure to state a claim did not constitute “undue prejudice” or “clear tactical advantage” as litigants are “within their rights” to use these tools in litigation. Even if filing these motions had “increased the burdens of litigation, the correct test is whether a stay will “indeed reduce the future burdens of litigation.”