CAFC Again Finds Abuse of Discretion in Denying Stay Pending PTAB Review

Back in July, the CAFC considered an interlocutory appeal from a denial of a motion to stay pending Patent Trial & Appeal Board (PTAB) review in VirtualAgility Inc., v. Inc., et al. (EDTX). In Virtual Agility, the Court reversed the EDTX’s denial as an abuse of discretion since it seemingly held a “mini-trial” on the merits of the defendant’s CBM petition. Today, in Versata Software Inc., et al. v. Callidus Software (here), the Court considered another interlocutory appeal (unique to the CBM statute) from a decision of Judge Sue L. Robinson of the U.S. District Court for the District of Delaware.  

As in Virtual Agility, the Court side-stepped the question of whether their review should be de novo under the CBM statute by finding the denial was an abuse of discretion. Yet, notably, the Court mentioned its authority to “conduct more searching review of decisions to stay pending CBM review.”

In considering the facts of Versata, the CAFC once again found the district court’s stay analysis wrong as to all of the enumerated factors of the CBM statute. 

The Court explained the relevant inquiry as laid out by Section 18(b)(1) of the America Invents Act (AIA). That is, the 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 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;
(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

As to the first factor, the Court explained that it is not necessary for a challenger to challenge all of the claims, or raise all possible defenses, explaining:

The district court seemingly created a categorical rule that if any asserted claims are not also challenged in the CBM proceeding, this factor disfavors a stay. . . .But this type of categorical rule is inappropriate. Stays can be warranted even when a CBM proceeding does not address all asserted patents, claims, or invalidity defenses. . . .
Certainly this simplification factor weighs more strongly in favor of a stay when all of the litigated claims are undergoing CBM review. See, e.g., But there can still be a simplification of the issues when only some, but not all, of the claims asserted in litigation are challenged in a CBM review.

(internal citations omitted)

As to factor 2, the Court faulted the district court’s comparison of relative timelines of PTAB and litigation milestones without considering the efficiencies gained by discontinuing the court procedure.

As to factor 3, the Court criticized the fact finding, explaining:

Although not clear, it appears that the district court may have also found that Callidus’s motions to transfer and dismiss for failure to state a claim amounted to improper tactics. But if this was a consideration in the district court’s analysis, the opinion fails to explain why such motions were improper. For example, Versata does not claim that the motions were frivolous. Litigants are within their rights to seek a proper forum or to dismiss a claim, and these motions by themselves are not improper,without some basis to find otherwise. This record does not suggest any undue prejudice to Versata or clear tactical advantage to Callidus. The district court clearly erred, and we conclude that this factor strongly favors a stay.

The court acknowledged factor 4 is often satisfied together with factor 1:

As in VirtualAgility, we note that the simplification analysis under the first factor often points in the same direction as reducing the burden of litigation under the fourth factor.

The legislative history of Secton 18 of the AIA is quite clear as to the intent of the stay provision. The drafters emphaiszed that they could not imagine a litigation where a stay pending CBM review would not be appropriate. District courts may soon fall in line given the track record of CAFC appeals to date (which practically provide a stay once interlocutory appeal is taken in any event). Moreover, as both Versata and Virtual Agility have taken judicial notice of CBM progress transpiring during the appeal, one is left wondering why any district court judge would stick their neck out in this regard.

Note: Another Versata CBM dispute (Versata Development Group v. SAP America, Inc, on appeal from PTAB) will be heard at the CAFC on December 3rd. In this dispute the applicability of 101 in CBM proceedings will be considered along with the PTAB’s definition of a covered business method.