Federal Circuit orders district court to stay litigation pending CBM review

In interlocutory order, Federal Circuit reverses denial of defendants' joint motion to stay patent case pending CBM review, and remands with instructions to grant the motion.

The Federal Circuit first declined to determine the applicable standard of review. Reversal was warranted even under VirtualAgility's abuse of discretion standard.

VirtualAgility Inc. v., Inc., ___F.3d ___ (Fed. Cir. July 10, 2014) (Newman (dissenting), MOORE, Chen) (E.D. Tex.: Gilstrap) (5 of 5 stars)

On the merits, the district court erred in analyzing AIA § 18(b)(2)'s first and fourth factors for stay pending CBM review. Both factors (whether a stay would streamline issues in the case, and whether a stay would reduce the burden of litigation on the parties and the court) strongly favored a stay. On these factors, the district court erroneously reviewed the claims to assess the PTAB's likelihood of cancelling some or all claims: "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." Slip op. at 11. Permitting litigants to challenge the PTAB's CBM-initiation determinations would encourage improper collateral attacks on those decisions, and would be inconsistent with the letter and intent of the statute. With the district court's improper review removed, the remaining evidence weighed heavily in favor of a stay. All of the patent claims were at issue, so CBM proceedings could potentially dispose of the entire litigation. Though not relying on it, the Fed Cir also noted that VirtualAgility had moved to amend claims in the CBM proceedings, such that stay would avoid "moving target[s]." Salesforce's failure to place all its prior art references before the PTAB slightly weakened its arguments for simplification/streamlining, but not enough to shift the balance.

The district court correctly found that the second factor (whether discovery is complete and whether a trial date has been set) favored a stay, though the Federal Circuit found that it heavily favored a stay. While the stage of litigation is frequently measured when the motion to stay is filed, there was no error in the district court's taking into account the state of the litigation at the time the PTAB initiated CBM proceedings.

The district court erred in finding that the third factor (whether a stay would unduly prejudice the nonmoving party, or present a clear tactical advantage for the moving party) weighed heavily against a stay. At best, it was slightly against a stay.A stay would not diminish the availability of damages to VirtualAgility if it prevailed. The delay from CBM might negatively affect VirtualAgility, but VirtualAgility had not sought a preliminary injunction. The record also did not support a finding of undue prejudice from possible "witness loss." The district court also properly found that the stay would not give the defendants any clear tactical advantage.

Because three of the four factors weighed heavily in favor of a stay, and the fourth (risk of undue prejudice) was only slightly opposed, the district court abused its discretion in denying the stay.

Judge Newman (dissenting): She noted that the AIA gave district courts discretion on when and whether to stay cases for CBM, and here, the district court's decision was within its statutory and discretionary authority. She found no reversible error in the district court's analysis for any of the four factors, and set forth her reasoning.