Parallel Track Proceedings: Determining Whether to Stay Litigation
Originally appeared in Kaye Scholer's Spring 2016 PTAB Monitor: Developments in Inter Partes Review Practice.
—by Jeffrey Miller and James Lyons
The expansion of post-grant proceedings provided by the America Invents Act (AIA) presents new considerations for parties involved in patent litigation. Parties must now consider two mechanisms for challenging the validity of patents they have been accused of infringing: (1) validity challenges in district court and (2) the new covered business method (CBM) and inter partes review (IPR) proceedings administered by the Patent Trial and Appeal Board (PTAB) of the Patent and Trademark Office (PTO).[i] One factor that should be part of the calculus when determining whether to file a CBM or IPR petition is the potential for staying the litigation pending a possible validity determination by the PTAB, which could save, or at least delay litigation expense. A party considering whether to pursue a CBM or IPR should evaluate both the likelihood a court will grant a motion to stay and when to seek the stay. Whether a party is likely to obtain an order staying litigation depends on a number of factors and varies based on the jurisdiction in which the litigation is pending and the type of proceeding before the PTAB.
Factors Governing Whether to Grant a Stay
Courts look at several factors to determine whether to stay litigation. For CBMs, these factors are governed by statute, Section 18(b) of the AIA, which states that the following “shall” be considered:
(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 contrast, the AIA does not explicitly provide a mechanism for district courts to stay litigation during IPR proceedings. However, it is universally accepted that district courts have this authority, which they apply by evaluating the traditional factors district courts use when determining whether to stay litigation during ex parte and inter partes reexamination proceedings. These traditional factors correspond to the first three factors of the statutory CBM test, while also examining the totality of the circumstances.[ii]
The fourth statutory CBM factor evaluates whether a stay will reduce the burden of litigation. Although it overlaps significantly with the first factor, courts are required to consider the first and fourth factors separately.[iii] Note, however, that this fourth factor is seen as “eas[ing] the movant’s task of demonstrating the need for a stay,” as it will usually favor the movant.[iv] This is part and parcel with Congress’ stated intent that litigation should normally be stayed while a CBM proceeding is pending. See comments of Senator Schumer (“The amendment includes a four-factor test for the granting of a stay that places a very heavy thumb on the scale in favor of the stay. Indeed, the test requires the court to ask whether a stay would reduce the burden of the litigation on the parties and the court. Since the entire purpose of the transitional program at the PTO is to reduce the burden of litigation, it is nearly impossible to imagine a scenario in which a district court would not issue a stay.”).[v]
Two additional differences between CBMs and IPRs can affect the strategy for whether and when to seek a stay. First, the AIA provides for interlocutory appeal of district court decisions regarding stays pending CBM review. No such statutory right exists for IPRs.[vi] Second, a CBM petitioner is only estopped from arguing in district court litigation that the claim is invalid on any ground that the petitioner raised during the CBM proceeding. In contrast, an IPR petitioner is estopped from asserting that the claim is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.[vii] An IPR proceeding’s broader estoppel provisions can play a role in a court’s decision whether to stay litigation.[viii]
Application of the Factors and How Each Can Affect Strategy
The first factor courts evaluate when deciding whether to stay litigation is “whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial.” In applying this factor, courts are more likely to grant a stay if all of the claims asserted in the suit are challenged in the PTO proceeding, since the PTO could resolve all of the patent issues in the litigation.[ix] In contrast, a stay is less likely if there are non-patent claims in the suit (such as trade secret or contract claims), meaning that issues would remain to be litigated even if the patent issues are resolved by the PTAB.[x] Thus, when a stay of litigation is an important reason why a CBM or IPR proceeding is sought, a party should carefully consider the likelihood it can get a CBM or IPR trial instituted on all claims asserted in the litigation. Of course, this requires that the party filing the CBM or IPR petition know which claims the patent owner will assert. If the CBM or IPR petition is filed prior to learning which claims will be asserted, the petitioner should challenge every claim where a meritorious argument can be made. While the Federal Circuit has indicated that stays can be warranted even when a CBM does not address all asserted claims,[xi] a stay is less likely when some of the asserted claims are not part of the trial at the PTAB, particularly in an IPR proceeding.
The differing estoppel standards may also be relevant to the first factor of the test. Because an IPR petitioner is estopped from raising any arguments that could have been raised in the IPR, whereas a CBM petitioner is only estopped from raising arguments that were actually raised, some courts have emphasized that the extent the parties to a litigation will be estopped should be considered.[xii] For example, when a party seeking a stay is not the petitioner in the pending IPR or CBM proceeding, the court may require that the non-petitioner agree to be estopped to the same extent as it would if it were the petitioner.[xiii] Thus, a party considering the filing of a CBM or IPR petition who has codefendants in the litigation should determine whether the other codefendants will consider either joining the PTO proceeding or at least agreeing to whatever estoppel might arise. If a party’s codefendants will not agree to any estoppel, a stay may be less likely, and, depending on the case, may make filing of a CBM or IPR petition less advantageous.
The second factor is “whether discovery is complete and whether a trial date has been set.” The further the litigation has progressed, the less likely a stay will be granted. Thus, when deciding whether to file a CBM or IPR petition, one should consider how advanced the litigation will be when the motion to stay can be filed, as well as when the court will consider whether to stay the case. If the case is fairly well advanced by the time a party is ready to file a CBM or IPR petition, a stay may be less likely, thus eliminating one of the potential benefits of the PTAB proceedings.
The third factor is “whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party.” Where parties are direct competitors, a stay is less likely.[xiv] When evaluating prejudice, courts may also consider whether the patent owner sought a preliminary injunction or waited too long before asserting the patent.[xv] Thus, when determining whether to pursue a CBM or IPR proceeding, a party should consider whether the patent owner is a competitor or a nonpracticing entity. Likewise, a patent owner concerned about a stay should study whether the facts can support a motion for a preliminary injunction.
The fourth factor, applicable to CBM proceedings due to its inclusion in the statute, is “whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.” This factor generally favors a stay, particularly where a proceeding has been instituted, since a final decision from the Board will reduce the number of issues in the case. Note that while this fourth factor is not statutorily required for evaluating whether to stay litigation pending an IPR proceeding, some courts have found it “instructive.”[xvi] Strategically, however, one must consider this factor in view of the other factors, because they all play a part in whether a stay will in fact reduce the burden of litigation.
Application by Court and Judge
The manner in which these factors are applied varies not only by judicial district, but may also vary among judges within a district. For example, the Northern District of California has granted, in whole or in part, motions to stay pending the outcome of PTAB proceedings in 75 percent of the cases where a motion was filed.[xvii] The Central District of California is somewhat less likely to grant a motion to stay than the Northern District, as it granted 60 percent of motions filed thus far. Note also that while many courts have been hesitant to stay litigation prior to the PTAB instituting an IPR or CBM proceeding, judges in the Central District have been willing to do so.[xviii]
Judges in the Eastern District of Texas have been less likely to stay litigation while CBM or IPR proceedings are pending than their California peers (53 percent granted in whole or in part). Moreover, judges in the Eastern District have almost never granted a motion to stay litigation until after the PTAB has instituted a CBM or IPR proceeding.[xix] This might impact a decision on whether and when to file an IPR petition. Because a defendant can file an IPR petition at any time up until the one-year anniversary of being served with a lawsuit, it is possible that the PTAB will not decide whether to institute an IPR proceeding as much as one and one-half years into the case.[xx] This means that the litigation may be close to trial by the time the court considers whether to stay the litigation.[xxi] As discussed, this might make a stay less likely and thus may impact the decision of whether to file a CBM or IPR petition.
Another factor in the Eastern District of Texas is which judge is assigned to a case. Magistrate Judges Love, Mitchell and Payne, and District Court Judge Gilstrap are collectively responsible for 98 of the 130 decisions in the District. There are differences among them in grant rate. For example, Judge Mitchell has granted, in whole or in part, 37.0 percent of the motions to stay she has considered, while Judge Payne has granted 65.6 percent of the motions to stay before him. Strategy on whether to file an IPR or CBM petition may depend, therefore, on the judge handling a particular case.
Variance among judges is also seen in the District of Delaware, where Chief Judge Stark grants, in whole or in part, 46 percent of the motions to stay filed in his cases, while the district’s average is 67 percent. One factor potentially pulling up the average in Delaware is a high number of cases where parties stipulate to stays. Even Judge Robinson, who has expressed strong views against staying litigation pending IPR,[xxii] has approved a number of stays where the parties have stipulated to them.
As parallel track proceedings are becoming the norm in patent litigation, litigators should remain aware of the factors used in determining whether to stay litigation, and the practical differences in outcomes across jurisdictions. Given current case law, defendants with meritorious patent validity challenges that want to pursue a CBM or IPR proceeding should file their petitions as early as possible. Likewise, defendants wanting to stay a parallel litigation should file their motion to stay shortly after filing their CBM or IPR petition, even though the Court may not consider the motion until after the PTO has determined whether to institute trial.
[i] IPR proceedings can be used to challenge patents that are not in litigation as well as those that are. A party can initiate CBM proceedings only if they have been sued or threatened with suit under a patent.
[ii] E.g., Universal Elecs., Inc. v. Universal Remote Control, Inc., 943 F. Supp. 2d 1028, 1035 (C.D. Cal. 2013).
[iii] VirtualAgility Inc. v. Salesforce.com, Inc., 759 F.3d 1307, 1313 (Fed. Cir. 2014).
[iv] Mkt.-Alerts Pty. Ltd. v. Bloomberg Fin. L.P., 922 F. Supp. 2d 486, 489-90 (D. Del. 2013); see also, e.g., Versata Software, Inc. v. Dorado Software, Inc., No. 2:13-cv-00920-MCE-DAD, 2014 WL 1330652, at *2 (E.D. Cal. Mar. 28, 2014).
[v] 157 CONG. REC. S1053 (daily ed. Mar. 1, 2011). Note that contrary to Senator Schumer’s remarks, a stay is not guaranteed pending a CBM proceeding. For example, Judge Gilstrap in the Eastern District of Texas, affirmed by the Federal Circuit, denied a motion to stay litigation pending a CBM trial when the motion was filed after trial. Smartflash LLC v. Apple Inc., 621 F. App’x 995, 998, 1002 (Fed. Cir. 2015). In another example, Judge Coleman of the Northern District of Illinois denied a motion to stay litigation pending a CBM trial where the case was 73 days from trial when the motion to stay was filed, substantial litigation had taken place (including claim construction and summary judgment), the case had been pending for over ten years and the defendant was not the petitioner in the CBM proceeding. Trading Techs. Int’l, Inc. v. CQG, Inc., No. 05-cv-4811, 2015 WL 161639 (N.D. Ill. Jan. 13, 2015).
[vi] Ultratec, Inc. v. CaptionCall, LLC, 611 F. App’x 720, 721 (Fed. Cir. 2015).
[vii] 35 U.S.C. § 315(e)(2). But c.f. Shaw Indus. Grp., Inc. v. Automated Creel Sys., Inc., No. 2015-1116, 2016 WL 1128083, at *5 (Fed. Cir. Mar. 23, 2016) (holding that there is no estoppel for grounds raised in a petition but denied as redundant by the PTAB).
[viii] See Universal Elecs., Inc., 943 F. Supp. 2d at 1033.
[ix] E.g., Affinity Labs of Texas LLC v. Samsung Elecs. Co., No. 14-CV-2717 YGR, 2014 WL 3845684, at *3 (N.D. Cal. Aug. 1, 2014); Semiconductor Energy Lab. Co. v. Chimei Innolux Corp., No. SACV 12-21-JST (JPRx), 2012 WL 7170593, at *2 (C.D. Cal. Dec. 19, 2012).
[x] See, e.g., VirtualAgility Inc., 759 F.3d at 1314; Intertainer, Inc. v. Hulu, LLC, No. CV 13-05499-CJC (RNBx), 2014 WL 466034, at *1 (C.D. Cal. Jan. 24, 2014) (“All the asserted patents in this infringement action are challenged in Hulu’s CBM petitions and Intertainer does not bring any non-patent claims that would be unaffected by the CBM review. Accordingly, it is likely that the result of the CBM review will simplify issues in this case or possibly resolve this matter entirely.”).
[xi] See, e.g., Versata Software, Inc. v. Callidus Software, Inc., 771 F.3d 1368, 137172 (Fed. Cir. 2014), vacated as moot, 780 F.3d 1134 (Fed. Cir. 2015).
[xii] Tire Hanger Corp. v. My Car Guy Concierge Servs. Inc., No. 5:14-cv-00549-ODW(MANx), 2015 WL 857888, at *3 (C.D. Cal. Feb. 27, 2015) (“The benefits of a stay are also contingent upon the application of IPR’s estoppel effect.”).
[xiii] Evolutionary Intelligence, LLC v. Sprint Nextel Corp., No. C-13-4513-RMW, 2014 WL 819277, at *4 (N.D. Cal. Feb. 28, 2014) (conditioning stay on movant’s agreement to be bound by estoppel); see also Semiconductor Energy Lab. Co., 2012 WL 7170593, at *2 (finding simplification of the issues weighed more strongly in favor of granting a stay where non-petitioner defendants agreed to be bound by the estoppel provisions for the IPR).
[xiv] Compare 3rd Eye Surveillance, LLC v. City of Irving, Texas, No. 6:14-CV-535-JDL, 2015 WL 179281, at *2 (E.D. Tex. Jan. 14, 2015) (“The delay caused by a stay is especially burdensome where, like here, the parties are competitors in the marketplace.”), and Verinata Health, Inc. v. Ariosa Diagnostics, Inc., No. C 12-05501 SI, 2014 WL 121640, at *3 (N.D. Cal. Jan. 13, 2014) (holding the fact that the parties were direct competitors weighed heavily against a stay), with Princeton Digital Image Corp. v. Konami Digital Entm’t Inc., No. CV 12-1461-LPS-CJB, 2014 WL 3819458, at *6 (D. Del. Jan. 15, 2014) (granting a stay were plaintiff was a nonpracticing entity so “there is no dispute that the parties are not direct competitors”).
[xv] VirtualAgility Inc., 759 F.3d at 1319.
[xvi] Intellectual Ventures I LLC v. Toshiba Corp., No. 13-453-SLR/SRF, 2015 WL 3773779, at *1 (D. Del. May 15, 2015); accord Trover Grp., Inc. v. Dedicated Micros USA, Case No. 2:13-CV-1047-WCB, 2015 WL 1069179, at *2 (S.D. Tex. Mar. 11, 2015) (Bryson, J.). But see Mkt.-Alerts Pty. Ltd., 922 F. Supp. 2d at 489 (“The substantial difference between the test set forth in § 18(b)(1) and that employed by courts in the ordinary patent reexamination context is the inclusion of a fourth factor, which requires the court to consider ‘whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.’”).
[xvii] See, e.g., Verinata Health, Inc., 2015 WL 435457, at *2 (N.D. Cal. Feb. 2, 2015). All statistics are based on data from DocketNavigator, and include data through March 31, 2016 (data on file with authors).
[xviii] Star Envirotech, Inc. v. Redline Detection, LLC, No. SACV 12-01861 JGB (MLGx), 2013 WL 1716068, at *2 (C.D. Cal. Apr. 3, 2013) (stating that “[i]f the USPTO rejects the inter partes requests, the stay will be relatively short,” so the possibility of simplifying this issue weighs in favor of granting a stay).
[xix] Trover Grp., Inc., 2015 WL 1069179, at *6 (“This Court’s survey of cases from the Eastern District of Texas shows that when the PTAB has not yet acted on a petition for inter partes review, the courts have uniformly denied motions for a stay. . . . The situation is largely the same in the case of stays sought when the PTAB is considering whether to grant CBM review. In CBM review cases, where the PTAB has not yet determined whether to grant the petition for CBM review, courts in this district have denied stay applications in every case but one.”).
[xx] A party sued for infringement can file an IPR petition seeking institution of trial within one year of being served with a complaint for patent infringement, 35 U.S.C. § 315(a)(1). The PTAB generally has up to six months after a petition is filed to determine whether to institute a trial based on the petition. Office Patent Trial Practice Guide, 77 Fed. Reg. 48757 (Aug. 14, 2012). Thus, when a defendant files an IPR petition at the one-year anniversary of being served with a complaint, the parties will not know whether trial has been instituted until nearly one and one-half years after service of the complaint.
[xxi] Unlike IPR petitions, CBM petitions can be filed at any time, and thus can be filed more than one year after service of a complaint for patent infringement. Thus, the PTAB may not decide whether to institute trial even later in time than for IPRs.
[xxii] See, e.g., Intellectual Ventures I LLC, at *2, 4 (approaching the question “with a degree of cynicism” and stating that “when you keep both the administrative and judicial tracks moving, the competitive business world benefits from the timely presentation of both in the Federal Circuit, the final arbiter of any substantive differences.”).