Strategies for Obtaining a Stay of Litigation Pending Post-Grant Proceedings

This article appeared in the January 2015 Edition of IP Today

Every day, businesses throughout the world are served with a patent infringement complaint. In nearly all cases, a question over patent validity arises. Disputing patent validity in federal court, however, can be a costly undertaking.

To balance the playing field, the America Invents Act (“AIA”) ushered in new post-grant options for accused infringers to contest the validity of patents at the Patent Office, instead of in federal court.[1] When faced with an infringement complaint, accused infringers must decide whether it makes sense to utilize these post-grant options to challenge the validity of the asserted patent before the Patent Office, factoring in cost, timing, the strength of the prior art, and other invalidity bases.

In general, post-grant proceedings will resolve validity issues quicker than if they were decided in a district court litigation and at a significantly lower cost. The benefits of speed and conservation of resources, however, will not be realized unless the district court stays the litigation pending the outcome of a post-grant proceeding.

District courts evaluate three factors in deciding whether to stay a litigation pending a post-grant proceeding: (1) whether a stay will simplify the issues before the district court; (2) the stage of the federal court litigation at the time of the stay request; and (3) undue prejudice or tactical advantage to the non-moving party.[2] For covered business method (“CBM”) reviews, the AIA includes a fourth factor: “whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.”[3] The first and fourth factors (simplification and undue burden) typically rise or fall together.[4]

In a given case, a court evaluates a request to stay a district court action by considering the totality of the circumstances. Thus, additional factors may be relevant and courts may weigh each factor differently. Nonetheless, to maximize the potential for a stay of litigation pending the outcome of a post-grant proceeding, an accused infringer should consider employing at least the following strategies.

Challenge the Validity of All Asserted Claims or Core Claims

A court is less likely to grant a stay when a post-grant challenge is made on some, but not all, asserted claims of the patents-in-suit. In VirtualAgility, Inc. v. Salesforce.com, Inc., for example, the Federal Circuit found that the Patent Trial and Appeal Board’s (“PTAB”) institution of a post-grant proceeding on all claims of a patent heavily tilted the first and fourth factors of simplification of issues and reduction in burden in favor of a stay.[5] Even though a patent challenger may be able to cite additional prior art references or raise additional invalidity grounds in a district court action, a stay is more likely if the patent challenger contests the validity of all asserted claims at the PTAB.[6]

Granted, many district courts are without local rules requiring early disclosure of infringement contentions, often leaving defendants to employ guesswork as to which claims will be asserted by the patent owner in the litigation. Addressing this concern, the Federal Circuit recently ordered a stay of litigation, even though the requester in a CBM proceeding did not raise invalidity of all the claims of the asserted patents.[7]

In Versata Software, Inc. v. Callidus Sofware, Inc., the Federal Circuit rejected the district court’s categorical rule that if any asserted claims are not also in the CBM proceeding, then there is no simplification of issues and reduction in burden on the court.[8] According to the Federal Circuit, the district court should have considered that all of the independent claims of the asserted patents and some dependent claims were undergoing CBM review when Callidus filed its motion for a stay.[9] Thus, although filing a petition on all asserted claims is more likely to persuade a district court to grant a stay, Versata leaves an opening for post-grant petitions that challenge only a subset of later asserted claims, namely core independent and dependent claims.

File the Post-Grant Proceeding Early and Promptly File the Motion to Stay

Statutorily, certain post-grant proceedings, namely inter partes review (“IPR”), must be filed within one year of being served with an infringement complaint.[10] Courts are less likely to stay a district court litigation if the accused infringer files the IPR proceeding near the end of the one-year deadline for filing an IPR and then delays even further in filing the motion to stay. Recently, the Northern District of California took a defendant to task for filing an IPR on the last day of the statutory period, and then waiting an additional two months to file the motion to stay.[11] Calling this “gamesmanship,” the court denied the request for a full stay, and ordered the parties to exchange invalidity and infringement contentions.[12]

In most cases, filing a post-grant proceeding and motion to stay no later than the very early stages of fact discovery will likely result in a stay. In Versata, for instance, the Federal Circuit found a stay warranted because even though fact discovery was ongoing, no fact witnesses had been deposed, no expert reports had been exchanged, no expert depositions were taken, and no proposed terms were exchanged for claim construction.[13] The scheduled trial date was also more than a year away.[14] Thus, the mere fact that discovery has commenced will not result in denial of a stay, particularly when a substantial amount of work remains to be done in the litigation.[15]

Carefully Assess Infringement and Other Counterclaims

Courts routinely consider the impact on the plaintiff of the defendant’s counterclaims and defenses under the third stay factor of undue prejudice or tactical advantage. Such a tactical advantage often arises where the defendant and plaintiff are competitors, and the defendant asserts counterclaims, such as infringement of the defendant’s patents or unfair competition claims. In these situations, staying the plaintiff’s case while allowing the defendant’s infringement or other counterclaims to proceed could upset the settlement balance and drastically alter the litigation dynamics.

Due to this concern, some district courts have denied a defendant’s motion to stay a district court action where the defendant levies its own counterclaims against the plaintiff. For example, the Middle District of Florida recently denied a motion to stay pending an IPR, finding that it would be inequitable for the defendant’s unfair competition counterclaim to proceed while the plaintiff’s infringement claim is stopped.[16] Similarly, in Versata, the district court found that Callidus’s intent to move forward on its patent infringement counterclaims, while staying Versata’s patent infringement allegations, disfavored a stay.[17] On appeal, the Federal Circuit did not dispute this logic.[18]

Conclusion

Post-grant proceedings are a quicker, lower cost alternative to litigating patent validity in federal court, provided the district court litigation involving the patent is stayed. To the extent feasible, parties seeking to improve the odds of a stay should consider filing a post-grant proceeding raising issues on all asserted or core claims in the litigation, filing the post-grant proceeding and motion to stay promptly, and carefully weighing the impact of any counterclaims they have raised.

Since stays must be timely requested, upon receiving an infringement complaint, as a first step, a defendant should consider conducting a prior art search to use as the basis for a post-grant proceeding. From a settlement perspective, the period between filing a petition for a post-grant proceeding and its institution is an ideal time to negotiate resolution of the infringement dispute.

The Patent Office currently imposes a fee of approximately thirty-thousand dollars per patent to cover the filing and institution of the proceeding. When a settlement is reached before institution of the proceeding and a refund request is timely filed, the institution fee can be recouped, which is over half of the cost for the post-grant proceeding.

However, where many patents are asserted in a litigation, filing a post-grant proceeding may still be cost prohibitive. Accordingly, defendants who have prior art products that are difficult for other potential infringement targets to uncover should consider disclosing these products to the patent owner in early settlement negotiations. The accused infringer can gain leverage by threatening the public disclosure of these hidden prior art products in negotiating a settlement. Although there is no one size fits all solution to dealing with an infringement complaint, an early prior art search should always be conducted with an eye towards a post-grant proceeding.

[1] The AIA replaced inter partes reexamination with three types of adversarial proceedings requiring involvement of the requester: inter partes review, covered business method review, and post grant review. All three reviews are conducted before the PTAB. Upon instituting a post-grant proceeding, the PTAB issues a final determination within one year, although this time period can be extended up to six months for good cause.

[2] See Automatic Mfg. Sys., Inc. v. Primera Tech., Inc., 2013 WL 1969247 at *1 (M.D. Fla. May 13, 2013); AIA § 18(b)(1).

[3] See AIA § 18(b)(1).

[4] See VirtualAgility, Inc. v. Salesforce.com, Inc., 759 F.3d 1307, 1313 (Fed. Cir. 2014); Versata Software, Inc. v. Callidus Software, Inc., No. 2014-1468, slip op. at 14 (Fed. Cir. Nov. 20, 2014).

[5] See VirtualAgility, 759 F.3d at 1314.

[6] See id. at 1312-13.

[7] See Versata Software, slip op. at 6.

[8] See id.

[9] See id. at 7.

[10] 35 U.S.C. § 315(b).

[11]See Evolutionary Intelligence LLC v. Apple, Inc., No. 3:13-CV-4201-WHA, slip op. at 6 (N.D. Cal. Jan. 9, 2014).

[12] See id.

[13] See Versata Software, slip op. at 10.

[14] See id.

[15] See id. at 10-11; VirtualAgility, 759 F.3d at 1317; see also Broad. Innovation, L.L.C. v. Charter Commc’n, Inc., No. 03-CV-2223-ABJ-BNB, 2006 WL 1897165 at *8 (D. Colo. July 11, 2006).

[16] See U.S. Nutraceuticals LLC v. Cyanotech Corp., No. 5:12-cv-00366-WTH-PRL, slip op. at 5 (M.D. Fla. Oct. 15, 2013).

[17] See Versata Software, slip op. at 12.

[18] See id.