10/14/2014

Virtualagility v. Salesforce.com: Motion to Stay after Grant of CBM


 
 
 
 By: Jesus Hernandez, Blog Editor/Contributor
 
TitleVirtualagility Inc. v. Salesforce.com, Inc., No. 2014-1232 (Fed. Cir. July 10, 2014).
Issue
[Factors A and D] The district court concluded that the first factor— simplification of the issues—was “essentially neutral, if not slightly against” granting a stay because it was “not convinced” by the PTAB’s assessment that cancellation of some or all of the claims during CBM review was “probable.”
Virtualagility Inc., at *6.
[CBM Amendment] Defendants argued that the fact that VA has already filed a motion to amend claims in the CBM proceeding increased the likelihood that the CBM proceeding will simplify issues. In its decision denying the motion to stay pending appeal, the court observed that VA’s proposed amendments to the ’413 patent claims in the CBM proceeding were not a part of the record at the time of its decision on the motion now on appeal.
Id. at *7.
[Factor B] Defendants argue that the district court correctly concluded that the early stage of the litigation favors a stay. Defendants contend, however, that the district court did not weigh this factor heavily enough in favor of the stay because it erroneously considered the case’s status at the time it ruled on the motion rather than at the time when the motion was filed—seven months earlier.
Id. at *15.
[Factor C] Defendants argue that the district court erred in concluding that a stay would unduly prejudice VA. They contend that VA will not suffer undue prejudice because the timeframe for CBM review is short. They argue that, in any event, mere delay in having one’s claim adjudicated does not constitute undue prejudice. Defendants argue that VA has not identified any actual risk of fading memories or potentially unavailable evidence.
Id. at *20.
Holdings
[Factors A and D] We conclude that the district court clearly erred in finding that the first factor was neutral or slightly against a stay, and that the fourth factor weighed only slightly in favor of a stay. We hold that these factors strongly favor a stay in this case. The district court erred as a matter of law to the extent that it decided to “review” the PTAB’s determination that the claims of the ’413 patent are more likely than not invalid in the posture of a ruling on a motion to stay. 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.
Id. at *11.
[CBM Amendment] We conclude that it is proper for us to consider the fact that VA filed a Motion to Amend in our review of the district court’s decision. Defendants did not waive the arguments regarding claim amendments. They argued to the district court that claim amendments during PTAB review are a distinct possibility and, in doing so, gave VA an opportunity to respond to this argument below. […] We also conclude that we are not improperly expanding the record on appeal if we consider the Motion to Amend. […] Cognizant of the limits imposed by Rule 201(b)(2), however, we reiterate that we consider only the fact that a Motion to Amend was filed— not the impact of the proposed amendments on the parties’ claim construction and infringement arguments.
Id. at *10-11 (internal citations omitted).
[Factor B] We hold that the timing factor heavily favors a stay. We note at the outset 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. Indeed, while some district courts ruled on motions to stay before the PTAB granted the petition for post-grant review […], others have waited until post-grant review was instituted, and still others denied as premature the motion to stay without prejudice to refiling after institution of post-grant review […]. We express no opinion on which is the better practice. While a motion to stay could be granted even before the PTAB rules on a post-grant review petition, no doubt the case for a stay is stronger after post-grant review has been instituted.
Id. at *16 (internal citations omitted).
[Factor C] We conclude that the district court clearly erred in finding that the undue prejudice factor weighed heavily against a stay. At best, this factor weighs slightly against a stay. We agree with the district court that competition between parties can weigh in favor of finding undue prejudice.
Id. at 21.
 
 
 
 
Procedural HistorySalesforce.com, Inc. and other defendants (collectively, Defendants)1 appeal from the district court’s order denying their joint motion to stay VirtualAgility Inc.’s (VA) patent infringement lawsuit against Defendants pending post-grant review of the validity of VA’s asserted claims under the Transitional Program for Covered Business Method Patents (CBM program).
Virtualagility Inc., at *2.
 
 
 
Legal Reasoning (Chen, Moore)
Background
FactsIn January 2013, VA sued Defendants alleging infringement of U.S. Patent No. 8,095,413 (’413 patent). On May 24, 2013, Salesforce filed a petition with the Patent Trial and Appeal Board (PTAB) for post-grant review of all claims of the ’413 patent under the CBM program. […] On May 29, 2013, Defendants filed a motion to stay district court proceedings pursuant to AIA § 18(b)(1). […] In early January 2014, the district court denied Defendants’ motion to stay the case pending CBM review.
Virtualagility Inc., at *2-3 (internal citations omitted).
CBMs and Motions to StayWe have jurisdiction over this appeal under AIA § 18(b)(2), which provides that “[a] party may take an immediate interlocutory appeal from a district court’s decision” granting or denying a motion to stay litigation pending CBM review. The statute instructs the district court to consider the following four factors when deciding whether to grant a stay:
(A) whether a stay, or the denial thereof, will sim- plify 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 re- duce the burden of litigation on the parties and on the court.
AIA § 18(b)(1).
Id. at *4.
[Factors A and D] Simplification of Issues and Reduced Burden of Litigation
Collateral Attack[A] challenge to the PTAB’s “more likely than not” determination at this stage amounts to an improper collateral attack on the PTAB’s decision to institute CBM review, and allowing it would create serious practical problems. As a preliminary matter, Congress made post- grant review more difficult to obtain than reexamination by raising the standard from “a substantial new question of patentability,” 35 U.S.C. § 303(a) (2012), to “more likely than not . . . unpatentable,” id. § 324(a). Congress clearly did not intend district courts to hold mini-trials reviewing the PTAB’s decision on the merits of the CBM review. To do so would overwhelm and dramatically expand the nature of the stay determination. If the district court were required to “review” the merits of the PTAB’s decision to institute a CBM proceeding as part of its stay determination, it would undermine the purpose of the stay. When the stay decision is then appealed to this court, we would be required to likewise review the PTAB’s decision to institute a CBM proceeding. This is clearly not how or when Congress intended review of the PTAB’s CBM determinations to take place.
Virtualagility Inc., at *11-12.
CBM grant weightThe district court’s decision regarding the first and fourth factors was based predominantly on its improper review of whether the PTAB was correct in its determination that the claims of the ’413 patent were more likely than not invalid. After this review is removed from the calculus, the remaining evidence of record weighs heavily in favor of a stay. We find it significant that the PTAB granted CBM review on all asserted claims of the sole asserted patent. And it determined that all of these claims were more likely than not unpatentable on two separate, alternative grounds. The statute allows for institution of post-grant review if “it is more likely than not that at least 1 of the claims challenged in the petition is unpatentable.” 35 U.S.C. § 324(a). In this case, the PTAB expressly determined that all of the claims are more likely than not unpatentable. This CBM review could dispose of the entire litigation: the ultimate simplification of issues.
Id. at *13.
[CBM Amendment]
We are mindful that “[a]n appellate court may consider only the record as it was made before the district court.” Ballard Med. Prods. v. Wright, 821 F.2d 642, 643 (Fed. Cir. 1987); see also Sage Prods., Inc. v. Devon Indus., Inc., 126 F.3d 1420, 1426 (Fed. Cir. 1997) (“No matter how independent an appellate court’s review of an issue may be, it is still no more than that—a review.”). Nevertheless, pursuant to Rule 201(b)(2) of the Federal Rules of Evidence, we may take judicial notice of the fact that a filing was made before the PTAB. See, e.g., Genentech, Inc. v. Chiron Corp., 112 F.3d 495, 497 n.1 (Fed. Cir. 1997) (noting that, because the “record before the Board is a public record . . . and thus capable of accurate and ready determination by resort to unquestionable sources,” judicial notice was appropriate). Cognizant of the limits imposed by Rule 201(b)(2), however, we reiterate that we consider only the fact that a Motion to Amend was filed— not the impact of the proposed amendments on the parties’ claim construction and infringement arguments. The latter cannot be “accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(2). Moreover, the district court’s ability to address the Motion to Amend in its ruling denying a stay of its proceedings pending appeal supports our consideration of the fact that VA filed proposed claim amendments because we are not faced with the uncomfortable task of doing so for the first time on appeal.
Virtualagility Inc., at *10-12.
[Factor B] Whether Discovery Is Complete and Whether a Trial Date Has Been Set
Waiting on CBM Petition DeterminationIn this case, the stay motion was filed in May 2013, almost immediately after Salesforce had filed its CBM petition with the PTAB. The PTAB granted the petition in November 2013. The district court denied the motion to stay in January 2014. As noted above, we see no error in the district court’s decision to rule on the stay motion after the PTAB rendered its decision on the CBM petition. Furthermore, a district court is not obligated to “freeze” its proceedings between the date that the motion to stay is filed and the date that the PTAB decides on the CBM petition. Of course, the court should make every effort to expeditiously resolve the stay motion after the PTAB has made its CBM review determination. To do otherwise would undermine the intent of Congress to allow for stays to prevent unnecessary duplication of proceedings.
Virtualagility Inc., at *16-17.
In Favor of Granting Stay[T]he time of the motion is the relevant time to measure the stage of litigation.[…] In this case, we see no error in the district court’s having waited until the PTAB granted the CBM review to rule upon the motion. Whether we consider the May 2013 date, when the motion to stay was filed, or the November 2013 date, when the PTAB granted CBM review, this factor heavily favors Defendants. At the time Defendants filed their motion in May 2013, the case was less than four months old. Discovery had not yet begun and no trial date had been set. 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. The litigation at either time was still at its infancy, which favors granting the stay.
Id. at *18-19.
[Factor C] Undue Prejudice or Tactical Advantage
Direct Competition[A]s to evidence of direct competition, the record establishes only that Salesforce was mentioned in a Government Services Administration (GSA) bid, which VA received, identifying Salesforce’s products as the brand name reference products. J.A. 316, 322–37. VA admitted during oral argument, however, that this GSA bid was a small business set-aside, for which Salesforce, a large business, could not compete. […] Thus, there is no evidence in this record that the two companies ever competed for the same customer or contract. We acknowledge, however, that direct evidence of such competition is not required to establish that VA and Salesforce are competitors, especially at such an early stage of the proceedings.
Virtualagility Inc., at *21.
Lack of Preliminary Injunction ProbativeAlthough this is not dispositive, we note that VA did not move for a preliminary injunction against Defendants. We acknowledge, as the district court did, that there could be a variety of reasons that a patentee does not move for a preliminary injunction. […] In this case, VA argues that it did not move for a preliminary injunction because it is a small company with limited resources and that the litigation process would move fast enough to make this unnecessary. VA’s arguments are rational reasons for not pursuing a preliminary injunction, but the fact that it was not worth the expense to ask for this remedy contradicts VA’s assertion that it needs injunctive relief as soon as possi- ble. We also note that VA, for some unexplained reason, waited nearly a year after the ’413 patent issued before it filed suit against Defendants. These facts weigh against VA’s claims that it will be unduly prejudiced by a stay.
Id. at *22-23.
No Dilatory Motive[T]he district court did not find that a stay would give Defendants a clear tactical advantage, and we agree. There is no evidence that Defendants possessed a “dilatory motive,” which would have pointed against a stay. […] In fact, Salesforce filed its CBM petition less than four months after VA instituted this infringement action and moved to stay the district court proceedings almost immediately after filing the petition. To the district court, VA argued that Salesforce “could have used but deliberately and tactically withheld from the post-grant proceeding” the so-called “Oracle Projects” prior art. VA’s Response in Opposition to Defendants’ Joint Motion To Stay Proceedings at 1. Defendants responded that Salesforce did not include Oracle Projects in the CBM petition because it is “a proprietary software system, not strictly a printed publication of the type typically considered by the PTO,” and would require testimony from “live third party witnesses at trial.”
Id. at *24.
Conclusion
We reverse the district court’s order denying Defendants’ motion for a stay of the district court proceedings pending CBM review and remand with instructions to grant the motion. This decision moots Defendants’ motion to stay district court proceedings pending appeal.
Virtualagility Inc., at *26.
 
 
 
NEWMAN, Circuit Judge, dissenting. Virtualagility Inc., Newman Op., at *1.
No Requirement to StayThe America Invents Act permits but does not require the district court to stay earlier-filed litigation during later-requested post-grant PTO proceedings. Such a stay is not obligatory, but is consigned to the district court’s discretion. During consideration of the proposed post- grant review legislation, there was extensive debate about the relation between concurrent infringement actions in the courts and post-grant patentability redeterminations in the PTO. After eight years of discussion, the America Invents Act adopted rules for concurrent proceedings in various circumstances. No statute or rule requires the district court to stay ongoing court proceedings after a petition for post-grant review is filed in the PTO. My colleagues’ contrary ruling today is also contrary to the legislation and its purpose.
Virtualagility Inc., Newman Op., at *1-2.
District Court DiscretionA stay is an “intrusion into the ordinary processes of administration and judicial review, and accordingly is not a matter of right, even if irreparable injury might other- wise result to the appellant.” Nken v. Holder, 556 U.S. 418, 427 (2009). Section 18(b)(1) of the America Invents Act authorizes the district court to stay the litigation of a patent for which CBM review in the PTO has been requested. Such a stay is not automatic; the statute authorizes the district court in its discretion to stay its proceedings, on taking into account certain equitable factors as may exist in the particular case. In today’s ruling the panel majority overrides the district court’s discretion, and effectively creates a rule that stays of district court litigation pending CBM review must always be granted.
Id. at *3.
More Rigor on Stay DeterminationThe panel majority has imposed greater rigor on “stay” considerations than the statute warrants. Post- grant review in the PTO is a useful tool, but the principle of post-grant review does not require elimination of judicial discretion to proceed with pending litigation. Indeed, the America Invents Act contemplates such discretion. I must, respectfully, dissent from my colleagues’ distortion of the statutory plan.
Id. at 14.
 
 
 
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