In a recent decision, Versata Software, Inc. v. Callidus Software, Inc., No. 2014-1468 (Fed. Cir. Nov. 20, 2014), the Federal Circuit ordered the District of Delaware 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.  In reversing the district court’s decision, the Federal Circuit sharply criticized what it perceived as the district court’s categorical rule that a failure to challenge all asserted claims in the CBM proceeding disfavors a stay.

Section 18(b) of the American Invents Act identifies four factors that a district court should consider when deciding whether to grant a stay.  Focusing on the first factor—simplification of the issues—the district court determined that a stay was not warranted because the CBM proceeding would only address the § 101 eligibility of a subset of claims, leaving the district court to address many other issues.  Based in large part on this factor, the Federal Circuit reversed the district court’s decision.

The Federal Circuit cautioned that a proper simplification analysis should look to what issues would be resolved by CBM review and weigh that against what issues would remain.  The Court noted that while this factor weighs more strongly in favor of a stay when all litigated claims are reviewed, there still can be a simplification of issues when only some of the claims asserted in litigation are challenged.

Similarly, the fact that Callidus only sought CBM review under 35 U.S.C. § 101 was not fatal.  The Court again stated that the simplification factor would more strongly favor Callidus had it included other grounds for invalidity in its CBM petitions, but noted that by granting CBM review, the PTAB determined that every claim is more likely than not unpatentable under § 101.

Thus, the Federal Circuit held that stays may be warranted even when a CBM proceeding does not address all asserted patents, claims, or invalidity defenses.  Going forward, litigants should explicitly engage in a deductive simplification analysis and clearly present what issues would be resolved, or conversely remain, after CBM review.

This case will also have implications for other post-issuance proceedings, such as IPR. Although the inquiry of whether to stay litigation pending IPR does not embrace all the §18(b) factors, it does include the discussed simplification-of-issues factor.  Moreover, even though the Federal Circuit reviewed the district court’s decision under the stringent de novo review provided for by the AIA,the Court stated that even under the traditional abuse-of-discretion standard the denial of the stay would be reversed.