Versata Development Group, Inc. v. SAP Am., Inc.,__ F.3d ___ (Fed. Cir. July 9, 2015) (majority opinion by Plager, with Newman; dissent-in-part by Hughes)
The Federal Circuit affirms the PTAB’s finding in a covered business method (CBM) proceeding that Versata’s claims are unpatentable under section 101 and resolves several key procedural issues along the way.
Holding #1:The Federal Circuit has jurisdiction to review the PTAB’s determination that the patent is a “covered business method.”
The appeal bar in section 324(e) does not prohibit “judicial review, when conducted with regard to the PTAB’s final written decision, of PTAB compliance with any requirement that involves the ultimate authority of the PTAB to invalidate a patent.”
The determination that a patent is a “covered business method” is one such requirement, because this brings it within a special PTAB power to invalidate. That the PTAB chooses to address this question at the institution stage does not defeat appellate jurisdiction.
In re Cuozzo is not to the contrary because it “ruled only on review of the initiation decision itself, not about whether the final decision breached any limit on invalidation authority,” and any problems with the petition there could have been “cured by a proper pleading.”
Judge Hughes dissented on this issue, arguing that the language of section 324(e) barred review of this question at any time and that Cuozzo was indistinguishable.
Holding #2: Versata’s patent was properly subject to a CBM proceeding.
Versata’s patent deals with a “financial product or service,” as required by the CBM statute, because it claims methods for “determining a price,” which is “complementary to a financial activity and relate[s] to monetary matters.”
Contrary to Versata’s argument, CBM review is “not 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 and brokerage houses.”
The CBM statute’s exception for “technological innovations” did not apply because the claimed pricing could be achieved “in any type of computer system or programming or processing environment” and “no specific, unconventional software, computer equipment, tools, or processing capabilities are required.”
The PTAB gets significant deference on both of these determinations.
Holding #3: The PTAB has authority to assess patentability under section 101 in a CBM proceeding.
As with the first issue, the Federal Circuit had jurisdiction to decide this issue because it relates to the PTAB’s ultimate authority to invalidate the patent.
Although a “hyper-technical adherence to form rather than an understanding of substance” might suggest that the CBM statute excludes section 101, Congress was best understood to include it given the ubiquity of section 101 challenges in litigation and the goal of providing a faster, cheaper way to adjudicate validity of these patents.
Holding #4: On the merits, Versata’s patent was invalid under section 101 and the two-step Mayo/Alice framework.
Under step 1, the claims were directed to the “abstract idea of determining a price, using organizational and product group hierarchies.”
Under step 2, there was no inventive concept that transformed the claims into a patent-eligible application of an abstract idea. The claimed computer functionality was “purely conventional,” and the steps were “well-understood, routine, conventional activities previously known to the industry.” The patent simply used a computer to determine prices more quickly using known methods.
Takeaways for Future Cases:
The panel’s holding on jurisdiction likely applies to IPR appeals because the relevant statutory language is similar to that of the statutes for CBMs.
The jurisdictional holding may also impact whether the Federal Circuit will review denials of institution based on the “redundancy” doctrine or decisions using the “joinder” statute to institute IPRs after the one-year time bar.
Several CBM appeals were stayed pending this decision and will also likely end with affirmances of PTAB decisions invalidating the claims.
Craig Countryman is a Principal in the Southern California office of Fish & Richardson and was named a 2016 Rising Star by Law360, and was named to the "Top 40 Under 40" lists in both the Daily Journal and the San Diego Daily Transcript. His practice...