United States: It Is Impermissible To Collaterally Attack The Board’s Decision To Institute Covered Business Method Review In Opposing A District Court’s Stay Decision

In Benefit Funding Systems LLC v. Advance America Cash Advance Centers Inc., Nos. 14-1122, -1124, -1125 (Fed. Cir. Sept. 25, 2014), the Federal Circuit affirmed the district court's order staying litigation pending covered business method ("CBM") review.

Benefit Funding Systems LLC and Retirement Capital Access Management Company LLC (collectively "Appellants") sued Advance America Cash Advance Centers, Inc. et al. ("Appellees"), alleging infringement of U.S. Patent No. 6,625,582 ("the '582 patent"). About ten months into the litigation, one of the Appellees filed a petition with the Board for post-grant CBM review of the asserted claims of the '582 patent. The Board instituted CBM review on the sole basis of subject matter eligibility under 35 U.S.C. § 101. Appellees filed motions to stay the pending district court litigation, which the district court granted after finding that each of the four statutory factors identified in § 18(b) of the Leahy-Smith America Invents Act strongly favored the stay. Appellants filed an interlocutory appeal.

On appeal, the Federal Circuit affirmed the district court's stay decision. Observing that "Appellants' argument on appeal rests on the single premise that the PTAB is not authorized to conduct CBM review based on § 101 grounds," the Court held that Appellants' argument was an impermissible collateral attack on the Board's decision to institute CBM review. Slip op. at 6. The Court explained that "[a] district court, in the context of a stay determination, need not and should not analyze whether the PTAB might, at some later date, be determined to have acted outside its authority in instituting and conducting the CBM review." Id. at 7. Rather, according to the Court, a challenge concerning the Board's authority to conduct CBM review may be made "in the context of a direct appeal of the PTAB's final decision." Id. at 7-8.

The Federal Circuit then held that the district court did not abuse its discretion in granting a stay. The Court noted that if the Board finds the claims to be directed to unpatentable subject matter, such a determination will "dispose of the entire litigation: the ultimate simplification of issues." Id. at 8 (quoting VirtualAgility Inc. v. Salesforce.com, Inc., No. 14-1232, 2014 WL 3360806, at *5 (Fed. Cir. July 10, 2014)). In contrast, according to the Court, if the claims are determined to be directed to patentable subject matter, Appellees will be estopped from challenging that determination in district court. The Court thus concluded that "[i]n the context of this case, where the only real argument against a stay concerns the authority of the PTAB to conduct the CBM review, those circumstances are sufficient for the district court to conclude that the first and fourth factors favor staying the case." Id. at 8-9. The Court also noted that Appellants presented no basis for challenging the conclusion that the second or third factors also favored a stay.

Accordingly, the Federal Circuit affirmed the district court's decision staying litigation pending CBM review.

Judges: Prost (author), Lourie, Hughes

[Appealed from D. Del., Judge Stark]

This article previously appeared in Last Month at the Federal Circuit, October 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.