By Scott A. McKeown
| February 8, 2013



CBM challengeTroll Assertions to be Stayed Instantly Upon Filing of CBM

The new post grant patentability trials of the America Invents Act (AIA) are designed to serve as alternatives to costly patent litigation. One of the new post grant options is the very specialized, Transitional Program for Covered Business Method Patents, or "CBM" proceeding. This proceeding, like Inter Partes Review (IPR), is conducted before the administrative patent judges of the USPTO's Patent Trial & Appeal Board.


The CBM option is noteworthy in several respects, but perhaps of greatest interest to patent challengers is the degree to which courts must defer to the USPTO. That is to say, when faced with the decision to stay or proceed to trial on a qualifying business method/e-commerce patent, the court is left with little choice but to halt proceedings.


As recently demonstrated by the district court in Markets-Alert Pty Ltd. v. Bloomberg Finance LP, et. al (DED), a stay is even warranted for CBM petitions still awaiting initial disposition by the PTAB. (here)


Assuming a petitioner can demonstrate the necessary standing to file a CBM petition, the CBM statutes are designed to virtually guarantee a stay of early stage parallel court proceedings.


First, the CBM statute mandates that a court considering a motion for stay pending a CBM proceeding apply a four-factor test. Of course, this factor based analysis is already familiar to the courts, however, courts tend to apply a three factor test, namely:



(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; and

(C) whether a stay, or the denial thereof, would unduly prejudice the non-moving party or present a clear tactical advantage for the moving party.

The CBM statutes require all courts to consider a fourth step, which almost always weighs in favor of a stay:



(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

The addition of this fourth factor is designed to tip the scales in favor of staying the district court proceeding. The legislative history of the AIA could not be clearer in this regard explaining that "[s]ince the entire purpose of the transitional program at the PTO is to reduce the burden of litigation, it is nearly impossible to imagine a scenario in which a district court would not issue a stay.” 157 Cong. Rec. S1053 (daily ed. Mar. 1, 2011) (emphasis added)

Turning back to the Markets-Alert Pty Ltd case, the court explained the impact of a an initial CBM petition filing in footnote 5:
One preliminary issue is whether the statutory stay analysis set forth in 18(b) is triggered upon a party's petition for post-grant review or only upon the Patent Trial and Appeal Board's ("PTAB's") institution of such review. (D.I. 19 at 8; D.l. 22 at 6.) The AlA states that "the court shall decide whether to enter a stay based on [the four enumerated factors]" whenever "a party seeks a stay of a civil action alleging infringement of a patent . . .relating to a transitional proceeding for that patent." 18(b)(l) (emphasis added). Since the PTO has recognized that "the proceedings begin with the filing of a petition," the court finds that the relevant stay provisions apply when the petition is first filed. Office Patent Trial Practice Guide, 77 Fed. Reg. 48757 (Aug. 14, 2012) (emphasis added)

Second, another factor that may weigh on the mind of the court is that the CBM statute also provides for interlocutory review of stay determinations; this review is also de novo. As such, even if the district court court were to refuse to stay the proceeding, the litigation is effectively derailed for the months required to await the result of the interlocutory review.

It would seem foolish for district courts to deny motions to stay pending CBM proceedings only to have the certain interlocutory review effectively provide the same relief. Indeed, the CBM proceeding will only advance further by the time the CAFC considers the matter on de novo review. The CAFC may also consider the practical implications of upholding a stay denial pending CBM, that is, ensuring that two disputes on the same patent make it on their docket in the months ahead.

With the statutory scheme weighted heavily to favor the USPTO proceeding, the contingency representation model relied upon by so many trolls is significantly degraded. As such, it may be that contingency firms will begin to think twice about asserting such patents going forward.

This case was brought to my attention by the great Docket Navigator.
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