Versata Software, Inc. v. Callidus Software, Inc.

United States Court of Appeals
for the Federal Circuit
______________________
VERSATA SOFTWARE, INC., VERSATA
DEVELOPMENT GROUP, INC., AND
VERSATA, INC.,
Plaintiffs-Appellees,
v.
CALLIDUS SOFTWARE, INC.,
Defendant-Appellant.
______________________
2014-1468
______________________
Appeal from the United States District Court for the
District of Delaware in No. 1:12-cv-00931-SLR, Judge Sue
L. Robinson.
______________________
Decided: November 20, 2014
______________________
CONOR M. CIVINS, Bracewell & Giuliani LLP, of Aus-
tin, Texas, argued for plaintiffs-appellees. With him on
the brief were MICHAEL CHIBIB and BRIAN C. NASH.
DEBORAH E. FISHMAN, Dickstein Shapiro, LLP, of Palo
Alto, California, argued for defendant-appellant. With
her on the brief were ASSAD H. RAJANI and MICHAEL S.
TONKINSON.
______________________
2 VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC.
Before CHEN, MAYER, and LINN, Circuit Judges.
CHEN, Circuit Judge.
Callidus Software Inc. appeals from the district
court’s denial of a stay pending the United States Patent
and Trademark Office’s (Patent Office) covered business
method review of the patents-in-suit. For the reasons set
forth below, we reverse and remand with instructions to
stay the action.
BACKGROUND
Versata Software, Inc., Versata Development Group,
Inc., and Versata, Inc. (collectively, Versata) brought suit
against Callidus on July 19, 2012, alleging infringement
of U.S. Patent Nos. 7,904,326 (the ’326 patent); 7,908,304
(the ’304 patent); and 7,958,024 (the ’024 patent). The
asserted patents each concern the management and
tracking of sales information by a financial services
company.
In September 2012, Callidus filed a motion to transfer
the case from the District of Delaware to the Northern
District of California and a separate motion to dismiss for
failure to state a claim under Federal Rule of Civil Proce-
dure 12(b)(6). In May 2013, seven months after briefing
on these motions had concluded, 1 the district court issued
orders denying both.
Shortly thereafter, Callidus answered the complaint
and counterclaimed, asserting three of its own patents
against Versata. It informed Versata that it would file
petitions for post-grant review of Versata’s asserted
patents at the Patent Office under the Transitional Pro-
gram for Covered Business Method (CBM) Patents. See
America Invents Act (AIA), Pub. L. No. 112-29, § 18, 125
1 Briefing on these motions concluded in October
2012.
VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC. 3
Stat. 284, 329–31 (2011). In early August 2013, Callidus
also informed the district court that it intended to file
CBM petitions and to seek a stay of all proceedings in the
litigation pending the Patent Office’s resolution of those
petitions. Later that month, Callidus filed a first set of
CBM petitions with the Patent Office challenging every
claim of the ’326 patent, every independent claim of
the ’024 and ’304 patents, and several dependent claims of
those two patents, all under 35 U.S.C. § 101. At that
time, Versata had not yet identified its asserted claims in
the litigation. Callidus simultaneously sought a stay of
the district court proceedings.
The district court declined to consider a stay until the
Patent Trial and Appeal Board (PTAB) had made a deci-
sion to institute CBM review. It set a Markman hearing
for June 2015, and scheduled trial for October 2015. In
the interim, Versata identified its asserted claims in
December 2013, some of which were dependent claims of
the ’024 and ’304 patents that Callidus had not included
in its first set of CBM petitions.
On March 4, 2014, the PTAB instituted CBM review
for each patent, finding each challenged claim more likely
than not directed to unpatentable subject matter under
§ 101. See Callidus Software, Inc. v. Versata Software,
Inc., Nos. CBM2013-00052, CBM2013-00053, CBM2013-
00054 (P.T.A.B. Mar. 4, 2014) (decisions instituting CBM
review). Callidus renewed its motion to stay the district
court proceedings. In April 2014, Callidus also prepared
and filed a second set of CBM petitions, challenging the
validity of all of the remaining claims of the ’024 and ’304
patents under § 101 that Callidus had not raised in the
first set of CBM petitions.
On May 8, 2014, two months after the PTAB institut-
ed CBM review for the first set of petitions, the district
court granted a stay as to the ’326 patent but denied it as
to the ’024 and ’304 patents. Callidus filed an interlocuto-
4 VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC.
ry appeal from the district court’s denial of the stay in
part.
During the pending appeal, the PTAB instituted CBM
review of Callidus’s second set of petitions, finding every
remaining claim of the ’024 and ’304 patents more likely
than not unpatentable under § 101. See Callidus Soft-
ware, Inc. v. Versata Software, Inc., Nos. CBM2014-00117,
CBM2014-00117 (P.T.A.B. Oct. 2, 2014) (decisions insti-
tuting CBM review). We have jurisdiction over interlocu-
tory appeals from decisions granting or denying stays
pending CBM review under § 18(b) of the AIA.
DISCUSSION
Section 18(b) identifies four factors that a district
court should consider when deciding whether to grant a
stay:
(A) whether a stay, or the denial thereof, will sim-
plify 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 re-
duce the burden of litigation on the parties and on
the court.
AIA § 18(b)(1).
While we typically review district court decisions on
motions to stay for abuse of discretion, the AIA also
provides this court authority “to conduct more searching
review of decisions to stay pending CBM review.” Benefit
Funding Sys. LLC v. Advance Am. Cash Advance Ctrs.
VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC. 5
Inc., 767 F.3d 1383, 1385 (Fed. Cir. 2014); see also AIA
§ 18(b)(2) (providing that this court “shall review the
district court’s decision to ensure consistent application of
established precedent, and such review may be de novo”).
Even under the traditional abuse of discretion standard,
the district court’s order denying a stay pending the
PTAB’s review must be reversed.
The district court considered each factor and conclud-
ed that “[d]espite the presence of Congress’ thumb on the
scales of justice,” the balance of factors did not favor a
stay. See Versata Software, Inc. v. Callidus Software,
Inc., No. CV 12-931-SLR, 2014 WL 1868869, at *3 (D. Del.
May 8, 2014) (hereinafter, District Court Decision). We
consider each factor in turn.
Factor (A): Simplification of the Issues
The district court noted at the outset that “Callidus
chose to seek limited CBM review before the PTAB on a
subset of the patent claims at issue.” Id. at *2. In addi-
tion, because Callidus has asserted its own patent in-
fringement counterclaims against Versata, the district
court concluded that a stay will not simplify the issues.
Id.
On appeal, Callidus claims that a stay will simplify
some issues for trial, even if the CBM review does not
dispose of them all. On the other hand, Versata contends
that the PTAB will address only patentable subject mat-
ter under § 101 of a subset of claims, leaving the district
court to address many other issues, including other inva-
lidity challenges and the subset of claims that were not
challenged in the first set of CBM petitions.
We agree with Callidus, on the facts here, that a stay
will simplify the issues and streamline trial, and this
factor weighs in favor of a stay. The district court seem-
ingly created a categorical rule that if any asserted claims
are not also challenged in the CBM proceeding, this factor
6 VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC.
disfavors a stay. For example, the district court stayed
the litigation as to the ’326 patent even though the only
distinction between that patent and the ’024 and ’304
patents was that Callidus challenged every claim of the
’326 patent in CBM review while only challenging a
subset of claims for the ’024 and ’304 patents. But this
type of categorical rule is inappropriate. Stays can be
warranted even when a CBM proceeding does not address
all asserted patents, claims, or invalidity defenses. See,
e.g., VirtualAgility Inc. v. Salesforce.com, Inc., 759 F.3d
1307, 1312–13 (Fed. Cir. 2014) (staying case even though
two prior art references not asserted in CBM review);
Versata Software, Inc. v. Dorado Software, Inc., No. 2:13–
cv–00920–MCE–DAD, 2014 WL 1330652, at *3 n.2 (E.D.
Cal. Mar. 27, 2014) (staying case when CBM review
granted for only one of three asserted patents and for less
than all claims); Progressive Cas. Ins. Co. v. Safeco Ins.
Co. of Ill., No. 1:10CV01370, 2013 WL 1662952, at *5
(N.D. Ohio Apr. 17, 2013) (staying case even though
PTAB would not address every ground of invalidity and
every prior art reference). 2
Certainly this simplification factor weighs more
strongly in favor of a stay when all of the litigated claims
are undergoing CBM review. See, e.g., VirtualAgility, 759
F.3d at 1314. But there can still be a simplification of the
issues when only some, but not all, of the claims asserted
in litigation are challenged in a CBM review. 3 In a situa-
2 We also note that, here, the district court stayed
the litigation as to the ’326 patent even though the CBM
petition for that patent did not assert any §§ 102, 103, or
112 challenges.
3 This is not to say, however, that the grant of a
CBM petition on a subset of asserted claims automatically
simplifies the issues. By its very nature, the CBM process
will always simplify some issues.
VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC. 7
tion like this one, a proper simplification analysis would
look to what would be resolved by CBM review versus
what would remain. See, e.g., Versata Software, Inc. v.
Volusion, Inc., No. A-12-CA-893-SS, 2013 WL 6912688, at
*2 (W.D. Tex. June 20, 2013) (noting “strong similarities”
between claims invalidated in CBM review and asserted
claims in litigation). We note, for example, that all of the
independent claims of the ’024 and ’304 patents, as well
as some dependent claims, are undergoing CBM review.
That fact could be relevant to this analysis. The district
court erred by not engaging in this inquiry.
We also take judicial notice of the fact that the PTAB
has recently instituted CBM review on the remaining
claims of the ’024 and ’304 patents based on the subse-
quent round of petitions filed by Callidus. 4 Although
appellate courts may consider only the record made before
the district court, we may also consider, under Federal
Rule of Evidence 201(b)(2), the fact that the PTAB has
made a decision instituting CBM review. See VirtualAgil-
ity, 759 F.3d at 1312–13 (taking judicial notice under Rule
201(b)(2) of the fact that patent owner filed a motion to
amend claims in the CBM review proceeding). The review
of every claim of each of Versata’s asserted patents leaves
little doubt that issues will be simplified. See id. at 1314
(holding simplification factor weighs heavily in favor of
stay when CBM review instituted on all claims of only
asserted patent). By granting CBM review, the PTAB has
determined that every claim is more likely than not
unpatentable under § 101. If the PTAB invalidates every
4 Based on the district court’s stay of the case as to
the ’326 patent, it appears likely that Callidus would not
have been in its present position—of having to appeal the
partial denial of a stay as to the ’024 and ’304 patents—
had it originally petitioned for CBM review of all claims of
those two patents, as it had for the ’326 patent.
8 VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC.
claim, the CBM review would dispose of Versata’s entire
affirmative case. See id. at 1314 (“The CBM review could
dispose of the entire litigation: the ultimate simplification
of issues.”).
The simplification factor would also favor Callidus
more strongly had Callidus included other grounds for
invalidity in its CBM petitions. As we explained, howev-
er, it is not necessary for the CBM proceeding to simplify
all invalidity issues to warrant a stay. See id. at 1314
(granting stay even though CBM review would not ad-
dress two prior art references). Moreover, the statute
explicitly allows petitioners, such as Callidus, to raise one
invalidity defense without invoking estoppel as to other
defenses that could have been raised. Benefit Funding,
767 F.3d at 1387; compare AIA § 18(a)(1)(D) (prohibiting
petitioner in CBM review from asserting in litigation
“that the claim is invalid on any ground that the petition-
er raised during that transitional proceeding”), with 35
U.S.C. § 315(e)(2) (prohibiting petitioner in inter partes
review from asserting in litigation “that the claim is
invalid on any ground that the petitioner raised or rea-
sonably could have raised during that inter partes re-
view”) (emphasis added). Balancing these interests, we
conclude that district court clearly erred, and the first
factor strongly favors a stay.
Factor (B): Whether Discovery Is Complete and Whether
a Trial Date Has Been Set
While not clearly stated, it appears that the district
court believed that this factor weighed against a stay, or
at best was a neutral factor. The district court acknowl-
edged that “discovery is not complete,” but pointed out
that “the trial date that is scheduled is within months of
when the PTAB is expected to issue its decision.” District
Court Decision, 2014 WL 1868869, at *2. First, the
district court failed to explain why the fact that the ex-
pected date of the PTAB’s decision, which is scheduled to
VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC. 9
issue no later than seven months before the scheduled
trial date, counsels against a stay. Second, and more
importantly, the district court failed to analyze how much
more remains to be done in litigation before reaching the
trial date. See VirtualAgility, 759 F.3d at 1317 (evaluat-
ing this factor by noting that discovery had not begun, no
trial date had been set, eight months of fact discovery
remained, and trial was a year away). For these reasons,
we conclude that the district court clearly erred by finding
that the relative timing of the PTAB’s expected decision
alone disfavors a stay.
When Callidus filed its first set of CBM petitions and
concurrent motion to stay in August 2013, discovery had
not yet started; hence, no documents or discovery requests
had been exchanged, no depositions taken, no expert
reports prepared. Because the Markman hearing and
trial were two years away (scheduled for June and Octo-
ber 2015), the parties had not yet exchanged claim terms
or proposed constructions. The litigation was still in its
infancy. See id.
On appeal, Versata argues that the case advanced
past its infancy between Callidus’s original motion to stay
in August 2013 and the district court’s denial of that
motion in May 2014. During that period, the parties
exchanged discovery requests, issued third-party subpoe-
nas, and produced documents, including source code. In
Versata’s view, the state of the ongoing discovery under-
mined the purpose of a stay: preservation of resources and
judicial efficiency.
Though unclear from the district court’s brief analy-
sis, it appeared to evaluate the stage of litigation at the
time of its decision. See District Court Decision, 2014 WL
1868869, at *2 (stating that “discovery is not complete”).
This was error. As we explained in VirtualAgility, gener-
ally the time of filing the motion will be the relevant stage
at which to measure this factor. 759 F.3d at 1317. We
10 VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC.
recognized in VirtualAgility that it is entirely appropriate
and within the discretion of the district court to wait for
the institution decision before ruling on the motion. Id.
And courts are not obligated to ignore advances in the
litigation that occur as of the date that the PTAB granted
CBM review. See id. at 1317 n.6.
But, like in VirtualAgility, whether we look at the
August 2013 date when the motion to stay was filed or the
March 2014 date when the PTAB granted CBM review,
this factor strongly favors a stay. See id. at 1317. By
March 2014, the case had not yet progressed to a point
that disfavors a stay. Although many documents and
discovery requests had been exchanged, fact discovery
was still ongoing and no fact witnesses had been deposed.
With the close of expert discovery still seven months
away, the parties had not filed any expert reports or
taken any expert depositions. Appellants’ Br. 26. And
finally, the parties had not exchanged proposed terms or
claim construction positions, for both the Markman
hearing and the trial were well over a year away. While
the parties have conducted some discovery, we must also
be mindful of the burden on the parties and the court in
completing both fact and expert discovery, resolving
summary judgment motions, completing the Markman
process, and preparing for trial. See VirtualAgility, 759
F.3d at 1317; see also Broad. Innovation, L.L.C. v. Charter
Commc’n, Inc., No. 03-CV-2223-ABJ-BNB, 2006 WL
1897165, at *8 (D. Colo. July 11, 2006) (“[C]ourts consid-
ering this factor do not stop at discovery and trial set-
tings, but rather, routinely inquire as to the occurrence
summary judgment arguments, rulings on summary
judgment, and the status of the final pretrial order,
among other elements.”). We therefore conclude that in
this case, the timing factor strongly favors a stay, and the
VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC. 11
district court clearly erred by not evaluating the status of
the litigation. 5
Factor (C): Undue Prejudice or Tactical Advantage
On this factor, the district court made no factual find-
ings that Versata would suffer undue prejudice as a result
of a stay. 6 Instead, the court determined that Callidus
held an improper tactical advantage over Versata by
seeking to stay Versata’s infringement claims while still
pursuing its own infringement counterclaims:
5 Even if we evaluated this factor as of May 2014—
the date when the district court denied the motion—the
outcome would not change. Both fact and expert discov-
ery remained ongoing, and the Markman hearing and
trial date were still well over a year away. The case had
not, in a matter of two months, progressed in any mean-
ingful way. At that date, the preservation of the parties’
and the court’s resources would be served by a stay. The
same is true of October 2014—the date of the PTAB’s
institution of the second set of CBM petitions—as expert
discovery was still ongoing, the parties had not meaning-
fully engaged in claim construction, and trial was a year
away.
6 Absent factual findings, we decline to consider
whether either party would be unduly prejudiced. We
note, however, that generic concerns raised by Versata in
its appeal brief about undue prejudice, i.e., that a stay
will raise issues with stale evidence, faded memories, and
lost documents, are, without more, true of any stay and
may affect either party’s preservation of its evidence. See
VirtualAgility, 759 F.3d at 1319 (“It is undoubtedly true,
as many courts have observed, that with age and the
passage of time, memories may fade and witnesses may
become unavailable. Without more, however, these asser-
tions here are not sufficient to justify a conclusion of
undue prejudice.”).
12 VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC.
Given the fact that Callidus has affirmatively as-
serted its patents against Versata, it is apparent
that Callidus is playing the stay card as both a
sword and a shield, moving forward on its inter-
ests but denying Versata the opportunity to do the
same, thus presenting a clear tactical advantage
for Callidus, the moving party.
District Court Decision, 2014 WL 1868869, at *2.
The district court’s assertion that Callidus intended to
“move forward on its [own] interests” while staying Versa-
ta’s case-in-chief is not correct. Callidus made clear to the
district court that it was seeking to stay the entire case.
See Joint Appendix (J.A.) 0600 (“THE COURT: . . . Would
you intend for us to go forward with [your patents]?
[Callidus]: No, your Honor. In our motion for stay, we
asked to stay the entire litigation.”). At oral argument,
Versata did not dispute that Callidus sought a stay of the
entire case. See Oral Argument at 30:20–31:56, available
at http://www.cafc.uscourts.gov/oral-argument-
recordings/2010-1648/all. The district court’s findings
therefore were clearly erroneous.
Although not clear, it appears that the district court
may have also found that Callidus’s motions to transfer
and dismiss for failure to state a claim amounted to
improper tactics. But if this was a consideration in the
district court’s analysis, the opinion fails to explain why
such motions were improper. For example, Versata does
not claim that the motions were frivolous. Litigants are
within their rights to seek a proper forum or to dismiss a
claim, and these motions by themselves are not improper,
without some basis to find otherwise. This record does
not suggest any undue prejudice to Versata or clear
tactical advantage to Callidus. The district court clearly
erred, and we conclude that this factor strongly favors a
stay.
VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC. 13
Factor (D): Reduced Burden of Litigation
Callidus’s motions practice influenced the district
court in finding that this fourth factor weighs against a
stay. By filing preliminary motions, the district court
concluded that “Callidus’ tactics have actually increased
the burdens of litigation, rather than reduced them.”
District Court Decision, 2014 WL 1868869, at *2. 7
We conclude that the district court clearly erred in
evaluating the burden-of-litigation factor exclusively
through this backward-looking lens. The correct test is
one that focuses prospectively on the impact of the stay on
the litigation, not on the past actions of the parties. Cf.
VirtualAgility, 759 F.3d at 1317 (noting that fact discov-
ery was ongoing and the parties had not engaged in
meaningful claim construction or jury selection);
Sightsound Techs. v. Apple, Inc., No. 11-1292, 2013 WL
2457284, at *3 (W.D. Penn. June 6, 2013) (“Nonetheless,
while much has been done thus far, there is more to come.
The parties and Court will expend further substantial
resources in this litigation, through completing discovery
and trial.”). When framed appropriately, it becomes clear
that a stay will indeed reduce the future burdens of
litigation.
7 VirtualAgility recognized that the reduced burden
of litigation factor may be implicated by a court’s familiar-
ity with the patents at issue. 759 F.3d at 1314 n.4. It
was not implicated in this case, however, by denial of
Callidus’s motion to dismiss. The district court grounded
the denial on Versata adequately identifying the accused
products, asserting facially plausible claims under its
pleading burden, and providing Callidus with adequate
notice—not on any substantive discussion of the patents-
in-suit. See Versata Software, Inc. v. Callidus Software
Inc., 944 F. Supp. 2d 357, 362–63 (D. Del. 2013).
14 VERSATA SOFTWARE, INC. v. CALLIDUS SOFTWARE, INC.
As in VirtualAgility, we note that the simplification
analysis under the first factor often points in the same
direction as reducing the burden of litigation under the
fourth factor. 759 F.3d at 1313. Since the CBM proceed-
ings will move forward on all asserted claims, if Callidus
is successful, a stay will relieve the parties and the dis-
trict court of having to expend substantial resources on
claim construction and both noninfringement and invalid-
ity defenses. See id. For these reasons and the same
reasons identified for the first factor, we conclude that the
district court clearly erred, and that this fourth factor
strongly favors a stay.
CONCLUSION
Because the factors when taken together strongly fa-
vor a stay pending CBM review, we reverse and remand
with instructions to grant the motion to stay as to the ’024
and ’304 patents.
REVERSED AND REMANDED