In Intellectual Ventures II LLC v. JPMorgan Chase & Co., No. 14-1724 (Fed. Cir. Apr. 1, 2015), the Federal Circuit dismissed an interlocutory appeal from a decision denying a motion to stay pending covered business method review ("CBMR"), holding that the Court lacked jurisdiction until the Board instituted a proceeding.

Intellectual Ventures II LLC ("IV") sued JPMorgan Chase & Co.; JPMorgan Chase Bank, National Association; Chase Bank USA, National Association; Chase Paymentech Solutions, LLC; and Paymentech LLC (collectively "JPMC"), alleging infringement of U.S. Patent Nos. 6,715,084 ("the '084 patent"); 6,314,409 ("the '409 patent"); 5,745,574 ("the '574 patent"); 6,826,694 ("the '694 patent"); and 7,634,666 ("the '666 patent") (collectively "the patents-in-suit").  JPMC moved to stay the case pending the result of four CBMR petitions of the patents-in-suit that it intended to file.   JPMC subsequently filed two CBMR petitions for the '409 and '574 patents, but never filed the other two petitions.  The district court denied JPMC's motion to stay, finding it "inappropriate to stay the entire litigation" while awaiting the Board's decision whether to initiate review of only two of the asserted patents.  Slip op. at 4.  JPMC appealed, asserting that the Federal Circuit had jurisdiction to hear an interlocutory appeal under § 18 of the AIA.

On appeal, the Federal Circuit held that they did not have jurisdiction to review JPMC's interlocutory appeal.  The Court explained that exceptions to the final judgment rule for appellate review, whether the exceptions are statutory or arise from common law, should be narrowly construed.  Noting that the AIA's authorization for immediate appellate review of stay rulings relating to CBMR proceedings is a statutory grant of jurisdiction, the Court concluded that the grant "must be construed narrowly."  Id. at 6-7. 

"It was mainly for those rare circumstances where a stay is denied even after the [Board] has acted to institute a proceeding premised on a showing of likely invalidity that Congress crafted an exception to the final judgment rule and altered the permissible standard of review."  Slip op. at 11.

The Court then considered "whether the proper interpretation of CBMR 'proceeding' in § 18(b)(2) encompasses pending CBMR petitions on which the [Board] has not yet acted."  Id. at 7-8.  Looking first at the language of the AIA, the Court explained that the AIA distinguishes between a petition for a CBMR proceeding and the institution of a proceeding.  In particular, the Court stated that the statutory language "suggest[s] that the petition is a request that a proceeding be instituted, not that the petition itself institutes a proceeding."  Id. at 8.  The Court supported its interpretation by noting that "the Director decides whether to 'institute or order' a proceeding based on a party's 'petition or request.'"  Id. at 9 (quoting 35 U.S.C. § 325(d)).  The Court also stated that the use of "proceeding" in the derivation proceedings statute was also consistent with its interpretation.

The Court then considered the AIA's legislative history.  Although noting that the congressional record was "not terribly illuminating," the Court found the legislative history suggests that a CBMR "proceeding" does "not begin until the [Board] institutes the proceedings" after the petition has been found to present the required showing of invalidity.  Id. at 9-10.  Noting Senator Schumer's statement that denial of a stay pending post-grant review is an "extremely rare circumstance," the Court reasoned that "[b]ecause district courts would often deny a stay in the face of a mere petition for CBMR[,] . . . that circumstance can hardly be the extraordinary and extremely rare circumstance that Senator Schumer contemplated."  Id. (quoting 157 Cong. Rec. 3416-17 (2011)).  The Court also observed that the House Report on the bill that became the AIA contemplated that "[a]ny party may request a stay of a civil action if a related post-grant proceeding is granted."  Id. at 11 (alteration in original) (quoting H.R. Rep. No. 112-98, at 54 (2011)).  Because the Court found that the statutory language and legislative history consistently defined "proceeding" as beginning when the Board institutes review, the Court adopted that interpretation.  The Court also explained that its "narrow reading of the statute" is consistent with Supreme Court precedent to "interpret narrowly exceptions to the final judgment rule that expand the scope of [the Court's] jurisdiction."  Id. at 11-12.  

The Court next considered the nonstatutory arguments presented by JPMC and amici, and found them unpersuasive.  The Court first rejected the argument that the PTO's regulations define "proceeding" more broadly, stating that the PTO's interpretation is "trumped by the clear language of the AIA."  Id. at 12.  The Court also explained that although it may give deference to the PTO with respect to procedural rules of conduct, it is not obligated to afford deference to an agency's interpretation of the scope of an Article III court's appellate jurisdiction.  The Court then observed that its interpretation does not affect the jurisdiction of the district courts, which may still exercise their discretion in deciding motions to stay at any time, including before the Board institutes a CBMR proceeding.

The Court then considered and rejected JPMC's argument that a petition for a proceeding or the anticipation of filing a petition is sufficiently related to a proceeding to give rise to jurisdiction under
§ 18(a)(2).  The Court explained that JPMC's "interpretation of 'relating to' . . . is inconsistent with the language in the AIA," which grants the Court "jurisdiction over interlocutory appeals 'from a district court's decision' '[i]f a party seeks a stay of a civil action alleging infringement of a patent . . . relating to a [CBMR] proceeding for that patent.'"  Id. at 14 (alterations in original) (quoting AIA § 18(b)(1)-(2)). 

Accordingly, the Court held that it does not have jurisdiction under § 18(b)(2) of the AIA to consider an interlocutory appeal from a decision on a motion to stay until after the Board institutes a CBMR proceeding.  The Court then dismissed the appeal.   

Judge Hughes dissented, stating that the stay provision in § 18(b)(1) should be read more broadly and that the Court's "review extends to stay decisions issued at any stage in the [CBMR] process."
Hughes Dissent at 3.  Based on the statutory language, in Judge Hughes's view, the Court should have "jurisdiction over any stay decision related to a [CBMR] proceeding, regardless of whether the stay request was filed at the petition stage or after institution."  Id. at 7. 

Judges: O'Malley (author), Bryson, Hughes (dissenting)

[Appealed from S.D.N.Y., Judge Hellerstein]

This article previously appeared in Last Month at the Federal Circuit, May, 2015.

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