Between September 16, 2012, when new forms of patent validity review became available at the U.S. Patent and Trademark Office ("USPTO") under the Leahy-Smith America Invents Act ("AIA"), and July 16, 2015, patent challengers filed 3,610 petitions for review at the USPTO.1

Many of these petitions challenged patents subject to pending litigation, which accused infringers sought to stay during the USPTO's review. The majority of these stay motions have been successful, particularly where the USPTO has issued an initial decision instituting trial on at least one patent claim by the time of the decision on the stay motion.

The new reality for patent litigation thus often involves the patentee being forced to defend the validity of the patent at the USPTO – frequently against long odds – before pursuing claims for infringement in district court.

This article discusses: (i) the factors courts consider when evaluating stay motions pending AIA review; (ii) how particular districts have decided stay motions, with a focus on how institution of trial on at least one patent claim affects outcome; and (iii) practical tips relating to stays for both patent challengers and patent owners.2

USPTO Reviews Under the America Invents Act

The AIA3 establishes three new types of USPTO review of issued patents:

  1. Inter partes review ("IPR");
  2. Post-grant review ("PGR"); and
  3. Covered business method patent review ("CBMPR").4

While there are many differences between these three new types of AIA patent review, all three share the same overall framework and strict statutory time limits. For each, a party seeking to challenge the validity of an issued U.S. patent may submit a petition to the USPTO's Patent Trial and Appeal Board ("PTAB") setting forth why particular claims of the patent are invalid.5 The PTAB is statutorily required to issue an institution decision within six months of the petition's filing.6

In the institution decision, the PTAB must determine whether the petitioner has asserted sufficient grounds to institute trial. Once instituted, the PTAB is statutorily required to issue a final decision within one year.7

Thus, by statute, all three types of AIA review must be completed within 18 months of the filing of a petition, with limited exceptions.8

District Court Litigation and AIA Patent Review

District courts must frequently determine whether to stay litigation pending the outcome of an AIA review. The AIA recites factors for courts to evaluate whether a stay of district court litigation is appropriate when a patent is subject to CBMPR. Specifically, AIA § 18(b)(1) provides that courts shall decide whether to stay an action pending CBMPR based on:

  1. whether a stay, or the denial thereof, will simplify the issues in question and streamline the trial;
  2. whether discovery is completed and whether a trial date has been set;
  3. whether a stay, or the denial thereof, would unduly prejudice the nonmoving party or present a clear tactical advantage for the moving party; and
  4. whether a stay, or the denial thereof, will reduce the burden of litigation on the parties and on the court.

As a result of statutory provisions expressly providing for immediate interlocutory appeal to the Federal Circuit for CBMPR stay decisions,9 the Federal Circuit has provided substantial guidance on how to evaluate these four factors.

The first factor concerns whether a stay will simplify the issues and streamline trial. Although this factor weighs more heavily in favor of a stay when all asserted patent claims and all invalidity defenses in the litigation are undergoing review at the USPTO, a court may stay the case even when the CBMPR does not address all asserted patents, claims or invalidity defenses.10 There is no categorical rule that all claims be challenged in a CBMPR proceeding for a stay to be warranted.

In addition, when evaluating this factor, it is improper for the district court to reevaluate the merits of PTAB's initial decision, if one exists at the time of the motion. Accordingly, this factor does not weigh against granting a stay where the district court disagrees with the PTAB's institution of trial.11

The second factor, "whether discovery is completed and whether a trial date has been set," is evaluated as of the date the motion to stay is filed – not the time of the decision on the stay motion.12 Discovery and litigation activity that occur between the filing of the stay motion and the date the motion is decided do not weigh against a stay.

The third factor requires courts to examine whether undue prejudice or tactical advantage exists. The types of prejudice asserted by parties and considered by the courts include price erosion, lost market share, direct competition by the alleged infringer, plaintiff's loss of its chosen forum, impact on the ability to license the patent-in-suit, and spoliation considerations such as the possibility of stale evidence, faded memories and lost documents.13

The fourth factor calls for consideration of whether the stay would reduce the burden of litigation on the parties and court. This factor "often points in the same direction" as the first, as the stay's potential to simplify the issues and streamline the trial is tied to litigation burden. Nonetheless, at least with respect to CBMPRs, courts must consider this fourth factor separately under the statute.14

Unlike CBMPRs, the factors for evaluating stay motions based on pending IPR and PGR proceedings are not codified in the AIA. However, district courts have adopted a similar set of considerations when evaluating these motions, which are based on the same pre- AIA reexamination stay decisions that formed the basis for the codified CBMPR factors.15 Specifically, the courts usually rely on three factors in the IPR and PGR context: (1) whether discovery is complete and a trial date has been set; (2) whether a stay will simplify the issues in question and trial of the case; and (3) whether a stay would unduly prejudice or present a clear tactical disadvantage to the non-moving party.16

Role of Motions to Stay Pending AIA Review

For a party sued for patent infringement, seeking PTAB review of the validity of the asserted patent claims via an IPR, PGR or CBMPR may be an attractive option for several reasons:

  • The PTAB limits discovery and only evaluates invalidity, making AIA review a less expensive option for challenging validity than district court litigation.
  • The PTAB operates under an accelerated 1.5-year schedule from petition to completion.17
  • The presumption of validity does not apply at the PTAB. Patent challengers must only prove invalidity by a preponderance of the evidence before the PTAB.18
  • The PTAB construes claims according to their broadest reasonable interpretation, which may make it easier to identify claim features in the prior art.
  • The PTAB's historical institution and cancellation rates are favorable to patent challengers. Excluding patent claims subject to dismissal of the petition (e.g., as a result of settlement), the PTAB has cancelled 61.5% of patent claims for which review was instituted.19 Another 22.5% of claims upon which the PTAB instituted review have been cancelled or disclaimed by the patentee. As of April 30, 2015, just 16% of patent claims subject to AIA review survived. Between September 2012 and March 2014, the percentage of claims surviving review was even lower – less than 5%.20 Challenging a patent before the

PTAB is particularly attractive where the district court litigation is stayed. Moving the battle to the PTAB puts the patentee on the defensive; the patentee must defend the patent's validity against unfavorable odds before even being permitted to present the case for infringement.

The power dynamic changes somewhat where the district court declines to stay litigation during an AIA review. The parties' dispute then becomes a complicated multi-front war. The accused infringer still will enjoy the advantages of the PTAB's lower burden of proof, more favorable claim construction and accelerated schedule, but without the efficiencies of a single proceeding with limited discovery and limited issues. Given this dynamic, accused infringers routinely seek stays of district court litigation when pursuing AIA review.

District Courts' Evaluation of Stay Motions

Review of decisions on stay motions in the five district courts with the highest volume of new patent suits indicates the probability of obtaining a stay varies dramatically between districts. The Northern District of California has granted, extended or renewed stays pending AIA proceedings with the greatest frequency – 75.4% of the time.21 The rates at which the District of Delaware and Central District of California opted to grant, extend or renew stays were similar at 56.9% and 56.0% respectively. The Eastern District of Texas and District of New Jersey were strikingly lower, at 38.5% and 33.3%, respectively.

It should be no surprise that a major factor in whether a court grants a stay pending AIA review is whether the PTAB has instituted trial at the time of the stay decision. In the first 2.5 years of AIA review, courts granted stay motions more frequently when the PTAB had already instituted an AIA review proceeding at the time of the stay. Of the 202 orders reviewed, courts granted, extended or renewed stays 69.5% of the time where the PTAB had instituted trial on at least one claim of one of the patents-in-suit. The rate of grants, extensions and renewals fell to 48.7% absent institution on at least one claim.

In the Eastern District of Texas in particular, the existence of a PTAB institution decision on at least one claim is a near-prerequisite for a successful stay motion. Of the 52 relevant orders reviewed in the Eastern District of Texas, movants were only successful in obtaining a stay 8% of the time where the PTAB had not yet instituted trial on any claim. By contrast, the Eastern District of Texas granted, extended or renewed 66.7% of stay requests where the PTAB had instituted on at least one claim.

Indeed, Judge Bryson, sitting by designation, commented in his decision denying a stay based on a pending IPR petition that "it is the universal practice" in the Eastern District of Texas to deny stay motions where the PTAB has not yet acted on a petition for IPR.22

Motions to stay in Delaware and the Northern District of California also have been more successful where the PTAB instituted trial on at least one claim at the time of the decision. Specifically, the District of Delaware granted, renewed or extended stays 51.7% of the time where the PTAB had not instituted trial on any claim and 63.6% of the time where the PTAB had instituted trial on at least one claim – an 11.9% difference. The Northern District of California granted, renewed, or extended stays 71.1% of the time where the PTAB had not instituted trial on any claim and 81.5% of the time where the PTAB had instituted trial on at least one claim – a 10.4% difference.23

Interestingly, the Central District of California has granted, extended or renewed stays with greater frequency (61.9%) where the PTAB has not yet instituted trial than when the PTAB has instituted trial at the time of the stay decisions (25.0%).

There are other factors that may influence a court's willingness to grant a stay such as the type of AIA review involved, type of technology, and whether the patent owner is a non-practicing entity. However, the outcome of stay motions in the districts reviewed appears to have been heavily influenced by whether the PTAB instituted trial at the time the stay motion was decided.

Practical Tips for Stay Motions

Pre-Institution Denials Frequently Do Not Foreclose Stays. District courts often deny stay motions without prejudice, particularly when stays are sought prior to institution. The motion may be renewed once the PTAB makes it decision, at which time the "balance of factors bearing on the appropriateness of a stay may be very different, and issuance of a stay may be appropriate."24 An early stay motion, even if denied, may be appropriate to ensure the success of a subsequent post-institution stay motion.

File a Stay Motion Early. Although courts are more likely to grant a stay motion where the PTAB has already instituted trial, stay motions should still be filed early. As noted above, even if the motion is denied due to lack of an institution decision, such denials are frequently issued without prejudice to renewal. Moreover, many of the relevant factors are likely to weigh in favor of a stay where a motion is filed early in the case. For example, the first and fourth of the CBMPR factors, which concern whether a stay will simplify the issues and reduce the burden of litigation, are more likely to point toward a stay early in the case where significant discovery and other litigation activity may be avoided.

Movants are also likely to be best positioned with respect to the second CBMPR factor (whether discovery is completed and a trial date has been set) shortly after suit is filed. As noted previously, this factor is measured at the time of the motion – not the decision. Filing a motion to stay promptly ensures that the case is at the earliest possible stage for purposes of this factor.

An early stay motion also best positions a patent challenger with respect to the third CBMPR factor, whether a stay would unduly prejudice the nonmoving party or present a clear tactical advantage. By filing early, the petitioner minimizes the possibility of delay that may result in lost evidence. Further, an early motion makes it more difficult for the patentee to blame the petitioner for any ensuing delay.

Consider Districts' Practices with Respect to Stays Before Filing Suit. Patent owners should carefully consider the practices of various district courts with respect to stays before deciding where to file suit. The statistics reported here suggest that some courts are less inclined to grant stays pending AIA review than other districts.

Conclusion

Through the AIA's establishment of IPR, PGR and CBMPR, Congress has given accused infringers powerful tools to attack patents as invalid. Accused infringers opting to petition for review under the AIA frequently call upon the courts to decide whether to stay concurrently pending district court litigation involving the same patents. Notwithstanding the standard factors considered by courts in evaluating these motions, the top five district courts differ in their handling of these motions.

Footnotes

Progress Statistics (as of 07/16/2015), http://www.uspto.gov/sites/default/files/documents/aia_statistics_07-16-2015.pdf.

2. The author extends special thanks to James Stephens for his research assistance. James is a 2016 J.D. candidate at Northwestern University School of Law.

3. Pub.L. 112-29, 125 Stat. 284

4. 35 U.S.C. §§ 311-319 (IPR), 321-329 (PGR); AIA § 18 (CBMPR).

5. 35 U.S.C. § 311(a), 325(a); AIA § 18(a)(1).

6. 35 U.S.C. §§ 313, 314(b), 323, 324(b).

7. Id. § 316(a)(11), 326(a)(11).

8. Id. § 316(a)(11); 37 C.F.R. § 42.300(c).

9. AIA § 18(b)(2).

10. Versata Software, Inc. v. Callidus Software, Inc., 771 F.3d 1368, 1372 (Fed. Cir. 2014), vacated on jurisdictional grounds, 780 F.3d 1134 (Fed. Cir. 2015).

11. VirtualAgility Inc. v. Salesforce.com, Inc., 759 F.3d 1307, 1313-14 (Fed. Cir. 2014).

12. Versata, 771 F.3d at 1373.

13. E.g., Evolutionary Intelligence, LLC v. Apple, Inc., No. C 13-04201 WHA, 2014 WL 93954, at *3 (N.D. Cal. Jan. 9, 2014); Benefit Funding Sys. LLC v. Advance Am., Cash Advance Centers, Inc., No. 12-801-LPS, 2013 WL 3296230 (D. Del. June 28, 2013); Progressive Cas. Ins. Co. v. Safeco Ins. Co. of Illinois, No. 1:10-cv-1370, 2013 WL 1662952, at *2 (N.D. Ohio. Apr. 17, 2013).

14. VirtualAgility, 759 F.3d at 1313.

15. Progressive Cas. Ins. Co. v. Safeco Ins. Co. of Illinois, No. 1:10-cv-1370, 2013 WL 1662952, at *2 (N.D. Ohio. Apr. 17, 2013).

16. NuVasive, Inc. v. Neurovision Med. Prods., No. 15-286, 2015 U.S. Dist. Lexis 85894 (D. Del. June 23, 2015); Trover Grp., Inc. v. Dedicated Micros USA, No. 2:13-cv-1047, 2015 U.S. Dist. Lexis 29572 (E.D. Tex. Mar. 11, 2015); Aylus Networks, Inc. v. Apple, Inc., No. C-13- 4700, 2014 WL 5809053, at *1 (N.D. Cal. Nov. 6, 2014); Black Hills Media LLC v. Pioneer Elecs. (USA) Inc., No. 14-00471, 2014 WL 4638170, at *5 (C.D. Cal. May 8, 2014).

17. 35 U.S.C. §§ 316(a)(11), 326(a)(11); AIA § 18.

18. 35 U.S.C. §§ 282, 316(e), 326(e).

19. USPTO, "Inter Partes Review Petitions Terminated to Date (as of 4/30/2015)," http://www.uspto.gov/sites/default/files/documents/inter_partes_review_petitions_%2004%2030%202015_0.pdf.

20. Rob Sterne & Gene Quinn, PTAB Death Squads: Are All Commercially Viable Patents Invalid?, IPWatchdog (Mar. 24, 2014), available at http://www.ipwatchdog.com/2014/03/24/ptab-death-squads-are-all-commercially-viable-patents-invalid/id=48642/

21. The surveyed districts constitute the top five district courts for new patent cases between August 2014 and May 2015, with the following number of new complaints: Eastern District of Texas (1,475), District of Delaware (531), District of New Jersey (303), Northern District of California (220), and the Central District of California (213). Brian Howard, Spring 2015 Patent Case Filing Trends, Lex Machina (June 10. 2015), https://lexmachina.com/spring-2015-patent-case-filing-trends-2/. A search was conducted on Docket Navigator using the following parameters: (1) Type of court document: Motion to Stay Pending Post-Grant Review, OR Motion to Stay Pending Inter Partes Review, OR Motion to Stay Pending CBM Review; (2) Posture of motion: Motion by a Party OR Renewed Motion; (3) Court/Agency: Delaware District, OR New Jersey District, OR California Central District, OR California Northern District, OR Texas Eastern District; and (4) Order filed date: on or after January 1, 2012. The January 1, 2012 date restriction was chosen in order to capture the possibility that some stay motions may have been filed, and possibly even decided, prior to the September 16, 2012 effective date for AIA provisions governing IPR, CBMPR and PGR based on an accused infringer's plans to file a petition upon the AIA taking effect. See AIA § 6. Orders. The content of the 202 relevant orders were categorized as either: (i) granting, extending or renewing stay requests; or (ii) denying or lifting stays. Results were tallied based on the number of orders rather than by case. Thus, the E.D. Tex.'s separate orders denying stays in Smartflash LLC v. Apple, Inc., No. 6:13-cv-447, 014 WL 3366661 (E.D. Tex. July 8, 2014) and Smartflash LLC v. Samsung Elecs. Co., No. 6:13- cv-448 (E.D. Tex. May 15, 2014), were counted as two denials. However, the court's subsequent combined order denying stays as to Apple, Inc., and Samsung Electronics, Inc., but granting stays as to Google, Inc., and Amazon.com, Inc. were counted as a single grant, extension or renewal. See Smartflash LLC v. Apple, Inc. et al., No. 6:13- cv-447, 2015 WL 3453343 (E.D. Tex. May 29, 2015). As illustrated by the author's categorization of Smartflash, an order was generally categorized as a grant, extension or renewal if the court granted a stay as to any party or any aspect of the litigation. Although the statistics reported here would undoubtedly vary somewhat if results were tallied by case rather than order, the number of affected cases was relatively small and thus the general trends reported should hold true regardless of whether results are tallied by order or case.

22. Trover Grp., Inc. v. Dedicated Micros USA, No. 2:13-cv-1047, 2015 WL 106179, at *6 (E.D. Tex. Mar. 11, 2015).

23. The sample set for denials of stay motions in New Jersey and Central District of California was not sufficiently large to draw conclusions about how these denials relate to PTAB institution.

24. Trover, 2015 WL106179, at *7.

Originally published by Delaware Lawyer, Fall 2015.

This article is intended to provide information of general interest to the public and is not intended to offer legal advice about specific situations or problems. Brinks Gilson & Lione does not intend to create an attorney-client relationship by offering this information and review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have a legal matter requiring attention. For further information, please contact a Brinks Gilson & Lione lawyer.