Federal Circuit Affirms Versata's Claims are Unpatentable in Substantial Review of PTAB's First CBM Decision | Practical Law

Federal Circuit Affirms Versata's Claims are Unpatentable in Substantial Review of PTAB's First CBM Decision | Practical Law

In Versata Development Group, Inc. v. SAP America, Inc., the US Court of Appeals for the Federal Circuit affirmed that the challenged claims are patent-ineligible under 35 U.S.C. § 101 in the first covered business method (CBM) patent review under the Leahy-Smith America Invents Act (AIA). Notably, the court held that it may review the Patent Trial and Appeal Board's (PTAB) decision that a challenged patent is a covered business method, and that § 101 is an unpatentability ground that may be raised in a CBM proceeding.

Federal Circuit Affirms Versata's Claims are Unpatentable in Substantial Review of PTAB's First CBM Decision

by Practical Law Intellectual Property & Technology
Published on 10 Jul 2015 • USA (National/Federal)
In Versata Development Group, Inc. v. SAP America, Inc., the US Court of Appeals for the Federal Circuit affirmed that the challenged claims are patent-ineligible under 35 U.S.C. § 101 in the first covered business method (CBM) patent review under the Leahy-Smith America Invents Act (AIA). Notably, the court held that it may review the Patent Trial and Appeal Board's (PTAB) decision that a challenged patent is a covered business method, and that § 101 is an unpatentability ground that may be raised in a CBM proceeding.
On July 9, 2015, the US Court of Appeals for the Federal Circuit issued an opinion in Versata Development Group, Inc. v. SAP America, Inc. affirming the US Patent Trial and Appeal Board's (PTAB) final written decision in the first covered business method (CBM) review under § 18 of the Leahy-Smith America Invents Act (AIA) (No. 2014-1194, (Fed. Cir. July 9, 2015)). Notably, the court held that:
  • The judicial review bar of 35 U.S.C § 324(e), which makes PTAB institution decisions in CBM proceedings "final and non-appealable," does not preclude the Federal Circuit from reviewing issues decided during the PTAB review process regardless of when they first arose if they are "part of or predicate to the case's ultimate merits." Accordingly, the majority held that the Federal Circuit may review the PTAB's determination of whether a challenged patent is a covered business method patent, even though the PTAB makes this determination during institution.
  • Versata's invention at issue is a covered business method and does not fall within the "technological invention" exception to CBM review under AIA § 18(d)(1) and 37 C.F.R. § 42.301(a).
  • The PTAB properly applied the broadest reasonable interpretation (BRI) standard to construe the disputed claim terms and did not err in its construction.
  • The requirement that a challenged patent covers patent-eligible subject matter under 35 U.S.C. § 101 applies in CBM proceedings.
  • The PTAB properly invalidated Versata's challenged claims under § 101.
For more information on the underlying CBM proceeding and the PTAB's final written decision, see Legal Update, PTAB's First Covered Business Method Review Holds That Versata's Patent Claims Nonpatentable Abstract Ideas.

Judicial Review under 35 U.S.C. § 324(e)

35 U.S.C § 324(e) states that PTAB decisions to institute post-grant review proceedings (including CBM proceedings) are "final and not appealable." Over a vigorous dissent on this issue, the majority held that in reviewing a final written decision from a CBM proceeding, the Federal Circuit may review the PTAB's determination of whether a challenged patent is a covered business method patent, even though the PTAB makes this determination as part of its institution decision. The majority reasoned that:
  • Section 324(e)'s language does not preclude review of the PTAB's authority to enter a final written decision invalidating a patent. Because the PTAB's determination of whether a challenged patent is a CBM patent affects its ultimate authority to invalidate a patent, this determination is reviewable.
  • The US Supreme Court has repeatedly emphasized the strong presumption that Congress intends judicial review of administrative action, and nothing in § 324(e) meets the high standard for precluding review of whether the PTAB has violated a limit on its invalidation authority under AIA § 18.
  • The court's In re Cuozzo decision, holding that a PTAB institution decision is not reviewable in the inter partes review (IPR) context, is not at odds with this holding because it did not address CBM patent classification or the PTAB's authority under AIA § 18. For more information on the Federal Circuit's In re Cuozzo decision, see Legal Update, Federal Circuit Upholds First AIA Inter Partes Review.

Covered Business Method and the Technological Invention Exception

The court rejected Versata's arguments that the challenged claims were not covered business methods subject to review under AIA § 18 and were "technological inventions" excepted from CBM review under AIA § 18(d)(1) and 37 C.F.R. § 42.301(a). In pertinent part, the court:
  • Affirmed the PTAB's interpretation of covered business method patent. The PTAB correctly ruled that a CBM patent does not require the challenged patent to be literally directed to financial products or services. Rather, the challenged claims need only relate to monetary matters, which covers Versata's claims directed to methods and products for determining prices.
  • Rejected Versata's argument that a covered business method patent must be limited to products and services of only the financial industry or to patents owned by or directly affecting the activities of financial institutions such as banks.
  • Affirmed the PTAB's decision that the challenged claims were not "technological inventions" because they do not solve a technical problem using a technical solution. Instead, the PTAB correctly determined that Versata's claims were essentially a method of determining price, which could be achieved on any computer system or programming environment without the need for any special software or equipment.

The Broadest Reasonable Interpretation Claim Construction Standard

Turning to claim construction, the court affirmed the PTAB's use of the BRI standard in the CBM review context. While not dispositive on the issue, the court noted its In re Cuozzo decision affirming the PTAB's use of the BRI standard in the IPR context. The court further noted that it would have affirmed the PTAB's construction under either the BRI standard or the Phillips claim construction standard applied in district court litigation.

Patent-eligibility under 35 U.S.C. § 101

Finally, the court affirmed the PTAB's determination that the challenged claims were patent-ineligible under § 101. In pertinent part, the court:
  • Held as a threshold matter that it has jurisdiction to review the PTAB's decision to invoke § 101 as an invalidity ground in a CBM proceeding. The court again reasoned that the PTAB's invocation of § 101 relates to the ultimate issue of the PTAB's authority to invalidate a patent and is therefore reviewable under § 324(e), even though the PTAB invokes § 101 at the institution phase.
  • Interpreted 35 U.S.C. § 321(b), which states that a petitioner may request CBM review on any ground that could be raised under paragraphs (2) or (3) of 35 U.S.C. § 282(b). These paragraphs are directed to defenses concerning any "conditions for patentability" or failing to comply with 35 U.S.C. §§ 112 or 251. The court held that § 101 is a condition for patentability, rejecting Versata's argument that these defenses are limited to 35 U.S.C. § 102 and 103.
  • Applied the two-part framework set out by the Supreme Court in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014) to affirm the PTAB's ruling that Versata's claims are invalid under § 101 because:
    • they are directed to the abstract idea of determining price and organizing product hierarchies; and
    • none of the claims have sufficient additional limitations to make them patent-eligible as they could be performed by a conventional computer.

The Dissent

Judge Hughes issued a lengthy dissented-in-part, disagreeing with the majority's holding the Federal Circuit may review PTAB determinations of whether a challenged patent is a covered business method patent, asserting that:
  • Section 324(e)'s language unambiguously bars judicial review of the PTAB's institution decision at any time. The PTAB's institution decision necessarily includes a threshold determination of whether a patent is a covered business method patent, which should therefore be immune from review.
  • Other statutory sections describe which PTAB decisions are in fact reviewable. 35 U.S.C. § 329 expressly permits appeals only of final written decisions "on patentability," and does not cover preliminary PTAB determinations. Similarly, 35 U.S.C. § 328 defines a final written decision as regarding only the patentability of the challenged claims.
  • The structure of the post-grant review process clearly divides the process into two distinct phases, one of which is not appealable (institution) and one of which is (final written decision).
  • The purpose of post-grant reviews is to be a quick and cost effective alternative to litigation, which is undercut by permitting the Federal Circuit to second-guess the PTAB's institution decisions.
Judge Hughes further noted that the majority's decision directly conflicts the court's decision in In re Cuozzo, which held that the judicial review bar statute concerning IPR proceedings, 35 U.S.C. § 314(e), precludes review of matters relating to institution even during review of the final written decision.