September 29, 2014
On September 25, 2014, in Benefit Funding Systems LLC et al. v. Advance America Cash Advance Centers Inc., the Federal Circuit affirmed the District of Delaware’s decision to stay litigation in light of a pending covered business method (CBM) review at the Patent Trial and Appeal Board (PTAB). Significantly, the court rejected Benefit Funding’s attempt to launch what the court characterized as a collateral attack on the jurisdiction of the PTAB. The decision will likely serve as an important precedent in future cases in which a party seeks to stray from the procedural avenues specified by the America Invents Act (AIA) for judicial review of a PTAB decision.
Benefit Funding owns a patent generally directed to a “system and method for enabling beneficiaries of retirement benefits to convert future benefits into current resources to meet current financial and other needs and objectives.” Benefit Funding sued a number of defendants for patent infringement. One of the defendants in the case filed a petition with the PTAB for post-grant review of the asserted claims under the Transitional Program for CBM Patents. The defendants then moved to stay the proceedings pending the outcome of the CBM review. The district court initially denied the defendants’ motions.
The PTAB then instituted CBM review, holding that it was more likely than not that Benefit Funding’s patent is invalid under 35 U.S.C. 101 as not covering statutory subject matter. The district court subsequently granted the defendants’ renewed motions to stay the lawsuit. Benefit Funding then filed an interlocutory appeal.
The Federal Circuit affirmed. The court first observed that the AIA provides the Federal Circuit with authority to conduct a de novo review of decisions to stay pending CBM review. Notably, this level of appellate review is significantly less deferential than the “abuse of discretion” standard of review typically used by the Federal Circuit in reviewing motions to stay. The court characterized this standard of review as “more searching.”
Benefit Funding’s sole argument on appeal was that the PTAB is not authorized to conduct CBM reviews based on section 101 grounds. Benefit Funding did not raise arguments concerning the factors specified by the AIA for courts to consider in determining whether to grant a motion to stay pending CBM review. The Federal Circuit did not evaluate these factors, although it observed that the district court had done so. Rather, the court limited its analysis to the jurisdictional argument that Benefit Funding had raised.
The Federal Circuit held that Benefit Funding’s argument constituted an impermissible collateral attack on the PTAB’s jurisdiction. According to the court, the proper time to challenge the PTAB’s authority is after final decision in the U.S. Patent and Trademark Office, and then using the procedural mechanisms specified by the AIA. Accordingly, the court determined that it was not proper for Benefit Funding to attack the PTAB’s jurisdiction via an opposition to a motion to stay. The court’s decision was partially based in pragmatism; the court noted that if every district court had to analyze the PTAB’s authority to grant a CBM on review of a motion to stay, then this would undercut the efficiencies to be gained by conducting CBM reviews at the PTAB.
Although the court did not address the substantive merits of Benefit Funding’s arguments, it observed that the PTAB issued a final decision shortly before the court issued its own opinion. In its decision, the PTAB held the contested claims unpatentable under section 101 as lacking statutory subject matter. Benefit Funding has not yet appealed this decision. Should Benefit Funding pursue an appeal, the Federal Circuit will have the opportunity to address the merits of Benefit Funding’s argument.
The Benefit Funding decision can be seen as solidifying the PTAB’s status as a venue for challenges to patent validity, even in cases where the patentee challenges the jurisdiction of the PTAB. By foreclosing collateral attacks in the district court motions to stay pending CBM at the PTAB, the Federal Circuit signaled the primacy of the PTAB in deciding validity issues. Benefit Funding will likely shape the procedural relationship between district court litigation and post-grant review under the AIA.
For more information on this decision, please contact Fitch Even attorney David A. Gosse.