Versata v. Callidus: District Court Proceeding Stayed Pending CBM review

Editor Note: This case was vacated by: Versata Soft., Inc. v. Callidus Soft., No. 2014-1468 (Fed. Cir. Feb. 27, 2015), click here to read further. 
Category: Civil Procedure 
By: Jesus Hernandez, Blog Editor/Contributor 
TitleVersata Soft., Inc. v. Callidus Soft., Inc., No. 2014-1468 (Fed. Cir. Nov. 20, 2014).
IssueThe district court considered each factor [for granting a stay pending an AIA CBM post-grant review] and concluded that “[d]espite the presence of Congress’ thumb on the scales of justice,” the balance of factors did not favor a stay [because: (A) a stay in favor of CBM would not simplify issues; (B)the trial date is scheduled within months of the PTAB decision; (C) the motion to dismiss/transfer was an improper tactical advantage; and (D) motion to dismiss/transfer increased the burden of litigation.
Versata Soft., Inc., at *5 (text added).
Holding[T]he district court’s order denying a stay pending the PTAB’s review must be reversed [because: (A) a stay may be warranted even when a CBM proceeding does not address all asserted patents, claims, or invalidity defenses; (B) the PTAB decision is schedule to issue months BEFORE the scheduled trial date and there is no articulation of any critical process prior to the scheduled trial date; (C) the district court did not article why the motion to dismiss is an improper tactic; and (D) the stay will reduce the future burdens of litigation.
Id. at *5 (text added).
Procedural HistoryVersata Software, Inc., Versata Development Group, Inc., and Versata, Inc. (collectively, Versata) brought suit against Callidus on July 19, 2012 […] In September 2012, Callidus filed a motion to transfer the case from the District of Delaware to the Northern District of California and a separate motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). In May 2013, seven months after briefing on these motions had concluded,1 the district court issued orders denying both. Shortly thereafter, Callidus answered the complaint and counterclaimed, asserting three of its own patents against Versata. It informed Versata that it would file petitions for post-grant review of Versata’s asserted patents at the Patent Office under the Transitional Program for Covered Business Method (CBM) Patents. […] In early August 2013, Callidus also informed the district court that it intended to file CBM petitions and to seek a stay of all proceedings in the litigation pending the Patent Office’s resolution of those petitions. […] The district court declined to consider a stay until the Patent Trial and Appeal Board (PTAB) had made a deci- sion to institute CBM review. […] On March 4, 2014, the PTAB instituted CBM review for each patent, finding each challenged claim more likely than not directed to unpatentable subject matter under § 101. […] In April 2014, Callidus also prepared and filed a second set of CBM petitions, […] On May 8, 2014, two months after the PTAB institut- ed CBM review for the first set of petitions, the district court granted a stay as to the ’326 patent but denied it as to the ’024 and ’304 patents. […] During the pending appeal, the PTAB instituted CBM review of Callidus’s second set of petitions […]
Versata Soft., Inc. at *2-4.
Legal Reasoning (CHEN, Mayer, Linn)
Standard for StaySection 18(b) [of the AIA] identifies 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; and
(D) whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.
AIA § 18(b)(1).
Versata Soft., Inc., at *4 (text added).
Factor (A): Simplification of the Issues
Stays when a CBM proceeding does not address all asserted patents, claims, or defenses.[A] stay will simplify the issues and streamline trial, and this factor weighs in favor of a stay. 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. For example, the district court stayed the litigation as to the ’326 patent even though the only distinction between that patent and the ’024 and ’304 patents was that Callidus challenged every claim of the ’326 patent in CBM review while only challenging a subset of claims for the ’024 and ’304 patents. 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.
Versata Soft., Inc., at *5-6.
a proper simplification analysis would look to what would be resolved by CBM review [T]here 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.3 In a situation like this one, a proper simplification analysis would look to what would be resolved by CBM review versus what would remain. […] We note, for example, that all of the independent claims of the ’024 and ’304 patents, as well as some dependent claims, are undergoing CBM review. That fact could be relevant to this analysis. The district court erred by not engaging in this inquiry.
Id. at *6-7.
Judicial Notice of Facts outside of RecordWe also take judicial notice of the fact that the PTAB has recently instituted CBM review on the remaining claims of the ’024 and ’304 patents based on the subsequent round of petitions filed by Callidus.4 Although appellate courts may consider only the record made before the district court, we may also consider, under Federal Rule of Evidence 201(b)(2), the fact that the PTAB has made a decision instituting CBM review.[…] The review of every claim of each of Versata’s asserted patents leaves little doubt that issues will be simplified.
Id. at *7.
Factor (B): Whether Discovery Is Complete and Whether a Trial Date Has Been Set
Effect of PTAB timeframe, aloneFirst, the district court failed to explain why the fact that the expected date of the PTAB’s decision, which is scheduled to issue no later than seven months before the scheduled trial date, counsels against a stay. Second, and more importantly, the district court failed to analyze how much more remains to be done in litigation before reaching the trial date. […] For these reasons, we conclude that the district court clearly erred by finding that the relative timing of the PTAB’s expected decision alone disfavors a stay.
Versata Soft., Inc., at *8-9.
Timing factor favors a stayBy March 2014, the case had not yet progressed to a point that disfavors a stay. Although many documents and discovery requests had been exchanged, fact discovery was still ongoing and no fact witnesses had been deposed. With the close of expert discovery still seven months away, the parties had not filed any expert reports or taken any expert depositions. Appellants’ Br. 26. And finally, the parties had not exchanged proposed terms or claim construction positions, for both the Markman hearing and the trial were well over a year away. While the parties have conducted some discovery, we must also be mindful of the burden on the parties and the court in completing both fact and expert discovery, resolving summary judgment motions, completing the Markman process, and preparing for trial. […] We therefore conclude that in this case, the timing factor strongly favors a stay, and the district court clearly erred by not evaluating the status of the litigation.
Id. at *10-11.
Factor (C): Undue Prejudice or Tactical Advantage
Need to articulate why motion to dismiss/transfer are improper[I]t 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.
Versata Soft., Inc., at *12.
Factor (D): Reduced Burden of Litigation
Burden of Litigation test is prospective[T]he district court concluded that “Callidus’ tactics have actually increased the burdens of litigation, rather than reduced them.” District Court Decision, 2014 WL 1868869, at *2.7 We conclude that the district court clearly erred in evaluating the burden-of-litigation factor exclusively through this backward-looking lens. The correct test is one that focuses prospectively on the impact of the stay on the litigation, not on the past actions of the parties. […] When framed appropriately, it becomes clear that a stay will indeed reduce the future burdens of litigation.
Versata Soft., Inc., at *13.
Effecto fCBM proceeding on all claimsSince the CBM proceedings will move forward on all asserted claims, if Callidus is successful, a stay will relieve the parties and the dis- trict court of having to expend substantial resources on claim construction and both noninfringement and invalidity defenses. See id. For these reasons and the same reasons identified for the first factor, we conclude that the district court clearly erred, and that this fourth factor strongly favors a stay.
Id. at *14.
Because the factors when taken together strongly fa- vor a stay pending CBM review, we reverse and remand with instructions to grant the motion to stay as to the ’024 and ’304 patents.
Versata Soft., Inc., at *14.
 Image Attribution Statement: Unknown, “Minneapolis Police 1959 traffic control,” available as a public domain image, http://commons.wikimedia.org/wiki/File:Minneapolis_Police_1959_traffic_control.jpg (image edited) (last visited Nov. 23, 2014).
© 2000-2023, Journal of the Patent & Trademark Office Society
Disclaimer & Privacy Policy