Federal Circuit Reverses Denial of Stay Pending CBM Review, Focusing on Simplification and Reduction of Burdens Instead of Categorical Rules.

Versata Software, Inc. v. Callidus Software, Inc., __ F.3d ___ (Fed. Cir. Nov. 20, 2014) (CHEN, Linn, Mayer) (D. Del.: Robinson) (3 of 5 stars)

Federal Circuit reverses denial of stay under an abuse of discretion standard after finding that all four factors supported granting a stay.

Background: Versata sued Callidus on three patents (the '326, '304, and '024 patents) covering the management and tracking of sales information by a financial services company. Callidus counterclaimed and asserted its own patents against Versata. Callidus also petitioned for CBM review of all claims in the ‘’325 patent and every independent claim in the ‘’304 and ‘’024 patents. After the PTAB granted the first CBM review, Callidus sought to stay the litigation. Callidus also filed a second CBM petition challenging the remaining claims in the ‘’304 and ‘’024 patents.

The district court granted the stay as to the ‘’326 patent, but denied it as to the ‘’304 and ‘’024 patents. Callidus appealed the denial. During the pending review, the PTAB instituted a CBM review of the remaining claims of the ‘’326 and ‘’024 patents.

Federal Circuit Holding: After finding that all four factors under AIA § 18(b)(1) support granting a stay, the Federal Circuit reversed the lower court's denial. Importantly, the court emphasized that, while it had the ability to review the denial de novo, the same result would be reached "[e]ven under the traditional abuse of discretion standard." Slip op. at 5.

Simplification of the Issues: The Federal Circuit found that, while simplification more heavily favors a stay when all claims are included, "[s]tays can be warranted even when a CBM proceeding does not address all asserted patents, claims, or invalidity defenses." Id. at 6. The panel disagreed with the lower court's categorical rule disfavoring a stay when any of the claims asserted in litigation were not also challenged in the CBM. Lastly, the court emphasized that "a proper simplification analysis would look to what would be resolved by the CBM versus what would remain." Id. at 7.

Stage of Litigation: The district court erred by analyzing specific dates and not the status of the litigation. Generally, the court should assess the status of litigation at the filing of the motion, not at the time of the court's decision. The Federal Circuit also found that the district court incorrectly focused on the date the PTAB's CBM decision would issue—only seven months before the court's scheduled trial date. Instead, the court should look to how much more work remained in the litigation before the trial date.

Undue Prejudice: The district court's findings were clearly erroneous where it suggested that Callidus sought to stay the litigation involving Versata's patents but move forward with its own counterclaims. Callidus made it clear during oral arguments that it sought to stay the entire case.

Reduced Burden of Litigation: The Federal Circuit disagreed with the lower court's finding that Callidus increased the burdens of litigation by filing multiple preliminary motions. It noted that 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." Slip op. at 13. The court also acknowledged that the first and fourth factors generally "point[] in the same direction." Id. at 14.