The Software IP Report

Initiation of CBM Review on Section 101 Grounds Justifies Stay of Patent Case

The Federal Circuit has affirmed the decision of Judge Stark in the District of Delaware to stay a lawsuit alleging infringement of U.S. Patent No. 6,625,582 following the U.S. Patent and Trademark Office’s decision to institute a Covered Business Method (CBM) review of the ’582 patent. Benefit Funding Systems, LLC v. Advance America Cash Advance Centers, Inc., Nos. 2014-1122, -1124, -1125 (Fed. Cir. Sept. 25, 2014). The district court had found that all statutory factors weighed in favor of a stay. On appeal, the patent owner argued that the PTAB did not have authority to consider, in a CBM, the question of patent-eligibility under 35 U.S.C. § 101. The Federal Circuit, in an opinion by Chief Judge Prost for a unanimous panel, while telegraphing disagreement, found that it did not need to reach this question to affirm the district court’s decision.

Procedural Background

One of the defendants, U.S. Bancorp, had filed a petition for a CBM Review with the USPTO’s Patent Trial and Appeal Board (PTAB) under the America Invents Act, Pub. L. No. 112-29, § 18, 125 Stat. 284, 329–31 (2011) (“AIA”), ten months after the plaintiff initiated litigation. The district court denied U.S. Bancorp’s initial motion for a stay, brought after the petition was filed, but before the PTAB decided whether to grant it. Then, after the PTAB instituted a CBM proceeding, stating that it was likely that the leading’ 582 patent would be held invalid under 35 U.S.C. § 101, the district court orally granted U.S. Bancorp’s renewed motion.

The district court evaluated each of the factors, listed in Section 18(b) of the AIA, and found that, in this case, all of the statutory factors favored implementing a stay pending a CBM review:

(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.

In particular, the district court found that (1) a stay would streamline the issues for trial because the Section 101 issue would be resolved, and some claims could be invalidated, (2) discovery had not been completed and a trial date was not yet set, (3) the plaintiff was a non-practicing entity and any tactical advantages for the defendants resulted from the PTAB’s decision and not the decision to stay, and (4) the outcome of the PTAB’s CBM proceeding would likely simplify the burden on both the court and the parties.

Stay Inappropriate Because Allegedly PTAB Lacks Authority to Review Section 101 Issues in CBM Review?

The Federal Circuit then turned to, and roundly rejected, the only argument that the patent owner had made on appeal: a “collateral” argument “that the PTAB is not authorized to conduct CBM review based on § 101 grounds.” While there is a risk of “a definitive legal ruling that Section 101 is not a proper basis for a CBM review,” the Federal Circuit agreed with the district court that this risk was small. Moreover, in the context of a motion to stay, the argument was “an impermissible collateral attack.” The patent owner could challenge “the PTAB’s authority to conduct CBM review” on an appeal of a final decision by the PTAB, but “simply cannot mount such a challenge as a collateral attack in opposition to a stay.” Therefore, the Federal Circuit did not need to address the underlying question of “whether § 101 is a valid ground for CBM review.”

The patent owner had presented no other arguments to dispute the district court’s findings with respect to the relevant statutory factors. Therefore, “the district court properly granted the stay pending CBM review and” the Federal Circuit affirmed the district court’s decision.

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