In a recent split decision, the Federal Circuit ordered the Eastern District of Texas to stay district court litigation pending a covered business method (CBM) review, reversing the district court’s decision to deny the accused infringer’s motion to stay.  The decision, VirtualAgility Inc. v. Salesforce.com, Inc., slip op. 2014-1232 (Fed. Cir. July 10, 2014), was the Federal Circuit’s first opportunity to weigh in on newly enacted statutory provisions that provide immediate interlocutory appeal from a district court’s grant or denial of a motion to stay litigation pending a CBM review. 

In the underlying district court litigation, VirtualAgility Inc. (VA) sued Salesforce.com, Inc. (SF) and several other defendants for infringement of U.S. Patent No. 8,095,413 (the ‘413 patent) in the Eastern District of Texas.  Five months after suit was filed, SF filed a petition with the PTAB seeking a CBM review of all claims of the ‘413 patent, and filed a motion to stay the district court proceedings pending the CBM review.  While SF’s motion to stay was pending, the PTAB granted SF’s petition for CBM review, finding that all claims of the ‘413 patent were more likely than not unpatentable under 35 U.S.C. §§ 101 and 102.  The district court subsequently denied SF’s motion to stay the district court proceedings based on its own analysis of the grounds upon which the PTAB had granted the CBM review. SF appealed the district court’s decision to the Federal Circuit under § 18(b)(2) of the America Invents Act.

In reversing the district court’s decision to deny the stay, the Federal Circuit sharply criticized the district court’s “review” of the PTAB’s determination to institute a CBM review, noting that “district courts have no role in reviewing the PTAB’s determination regarding the patentability of claims that are subject to CBM proceedings.”  Rather, the majority found the PTAB’s determination to institute review of the ‘413 patent weighed heavily in favor of granting a stay, particularly because the PTAB expressly found that all claims of the ‘413 patent were more likely than not unpatentable on two separate grounds. Based in large part on this factor, the majority reversed the district court’s decision.

Judge Newman penned a sharply dissenting opinion, emphasizing that the decision to stay district court proceedings is well within the district court’s discretion, and that review of the district court’s decision “warrants appellate respect”.  In Judge Newman’s opinion, the majority’s ruling effectively creates a rule that stays of district court litigation pending CBM review must always be granted.

The VirtualAgility decision will likely result in more stays being granted in favor of parallel CBM proceedings. Judge Newman’s characterization of the majority’s ruling – i.e., that stays of district court litigation pending CBM review must always be granted – may very well hold true for timely filed CBM petitions that are granted by the PTAB prior to a district court’s decision to stay.

Accused infringers may also try to extend the VirtualAgility decision to stay district court proceedings pending aninter partes review (IPR) or a post-grant review (PGR).  Although not subject to the same statutory scheme as CBMs, practitioners could argue that the majority’s reasoning from VirtualAgility – namely, that district courts have no role in reviewing a PTAB determination to institute a CBM review – applies equally in the context of IPRs and PGRs.  This argument, of course, carries more weight in the context of PGRs because of the common standard for instituting trial in PGRs and CBMs (i.e., at least one of the challenged claims is more likely than not unpatentable).

Another distinct possibility is that district court decisions granting or denying stays pending CBM reviews could receive disparate treatment at the Federal Circuit.  Notably, another decision in which a district court denied-in-part a stay pending CBM review (Versata Software Inc., v. Callidus Software Inc., Case No. 12-931-SLR (D. Del. May 2014)) is currently pending before the Federal Circuit.  Should any of Judge Newman’s colleagues share her dissenting views, this decision may have a different outcome than the VirtualAgility decision.  If these stay reviews depend on the makeup of the panel, this issue could be ripe for an en banc review in the near future.