Versata Development Group, Inc. v. SAP America, Inc.

Versata Development Group, Inc. v. SAP America, Inc., 793 F.3d 1306 (Fed. Cir. 2015), is a July 2015 decision of the Federal Circuit affirming the final order of the Patent Trial and Appeal Board (PTAB), the recently created adjudicatory arm of the United States Patent and Trademark Office (USPTO), invalidating as patent ineligible the claims in issue of Versata's U.S. Patent No. 6,553,350Method and apparatus for pricing products in multi-level product and organizational groups (issued Apr. 22, 2003). (the '350 patent). This was the first case in the Federal Circuit reviewing a final order in a Covered Business Method (CBM) invalidation proceeding under the America Invents Act (AIA).Pub. L. No. 112-29, 125 Stat. 284 (2011). The case set an important precedent by deciding several unsettled issues in the interpretation of the CBM provisions of the AIA,Dennis Crouch, Versata v. SAP: Federal Circuit Claims Broad Review of CBM Decisions, Patently-O (July 9, 2015) ("an important decision stemming from the first Covered Business Method (CBM) Review Proceeding"). including what are business-method patents under the AIA and whether the AIA authorizes the PTO to hold such patents invalid in CBM proceedings on the ground that they are patent ineligible under 35 U.S.C. § 101 as "abstract ideas."

Background

The patent

According to the specification of Versata's patent, the patent is based on the preexisting WHO/WHAT hierarchal paradigm for structuring pricing data. Versata's system organizes various pricing tables and price adjustment tables, and various products and purchasing organizations, based on "who" (i.e. which purchasing organization) is purchasing "what" (i.e. which product). The system organizes various purchasing organizations and products into hierarchical tables containing organizational groups and product groups.'350 patent, col. 3, lines 9-32.

Various price adjustments (for example volume discounts) may be specified for each level of the organizational groups and product groups hierarchies. The price adjustments for a particular purchasing organization are determined by retrieving the price adjustments for that particular purchasing organization as well as the price adjustments for organizational groups above the particular purchasing organization in the organizational groups hierarchy. Likewise, the price adjustments for a particular product are determined by retrieving the price adjustments for that particular product as well as the price adjustments for product groups above the particular product in the product groups hierarchy.'350 patent, col. 3, lines 50-65.

The system uses several criteria to sort and organize the various pricing adjustments applicable to a particular product offered to a particular purchasing group. After the sorting is accomplished the pricing adjustments are applied in sequence to arrive at a final price at which a particular product can be sold to a particular purchasing organization. According to the patent specification, previous comparable systems required a mainframe computer, but this invention makes it possible to use a portable computer.'350 patent, col. 3, lines 59-65, The patent asserts:

The invention overcomes the prior art's difficulty in storing, maintaining, and retrieving the large amounts of data required to apply pricing adjustments to determine prices for various products. Because of the invention's method and apparatus, prices for a large number of products can be determined by a laptop computer and the prior art's need to utilize a mainframe computer is alleviated.'350 patent, col. 3, lines 16-23.

Versata's system bases pricing rules on characteristics of each organizational group instead of basing the rules on a per-customer basis. By placing customers and products into a hierarchal organization, the patent claims, the total amount of data is reduced because the same data entry is applicable to and is used for multiple customers (those fitting into a given slot in the data organization).'350 patent, col. 4, lines 4-15.

Figure 4A of the patent, below, shows an example of an arrangement of an organizational group according to the patent.

In summary, according to the patent:

In other words, the invention provides for flexibility in formulating a desired pricing system while reducing the prior art need to store, maintain, and retrieve huge amounts of data.'350 patent, col. 4, lines 11-14.

Proceedings in USPTO

The case began when SAP America, Inc. (along with its German parent corporation SAP AG) filed a petition to the USPTO, under the AIA, requesting that the USPTO institute review of the validity of certain claims in the '350 patent. Versata Development Group, Inc. (Versata) owns the '350 patent and had previously sued SAP for infringing the patent. In its petition to the USPTO, SAP alleged that the patent was a covered business method patent.

Covered business method patents are subject to the special provisions of AIA § 18, which establishes a separately-designated eight-year-program under which the USPTO conducts post-grant (i.e., after patent issuance) review proceedings concerning the validity of covered business method patents.Section 18 of the AIA is not codified in 35 U.S.C. It is found in 125 Stat. 329–31. The special program provided by § 18 is available only for "covered business method patents," as that term is defined in the AIA.2015 U.S. App. LEXIS 11802, at *3-*4.

The proceeding determined that claims 17 and 26–29 were invalid. Claim 17 recites a "method for determining a price of a product offered to a purchasing organization" comprising certain steps. Claim 26 recites a "computer readable storage media comprising: computer instructions to implement the method of claim 17." Claim 27 recites a "computer implemented method for determining a price of a product offered to a purchasing organization" comprising certain steps. Claim 28 recites a "computer readable storage media comprising: computer instructions to implement the method of claim 27." Claim 29 recites an "apparatus for determining a price of a product offered to a purchasing organization" comprising certain limitations.2015 U.S. App. LEXIS 11802, at *8.

According to the Federal Circuit, Claim 17 is representative. It provides:

Prior litigation

On April 20, 2007, Versata (along with related companies Versata Software, Inc. and Versata Computer Industry Solutions, Inc.) sued SAP for infringement of the '350 patent in the U.S. District Court for the Eastern District of Texas. After trial, a jury found infringement and awarded damages.The original damages award was for $345 million. When in 2013 the Federal Circuit affirmed the jury damages verdict, interest had accumulated to increase the amount to $381 million. In October 2014, the parties settled the case on undisclosed financial terms. , U.S. court invalidates Versata patent in $391 million case (July 10, 2015). The district court upheld the infringement verdict but reversed other rulings and required a new trial on damages. A jury then awarded lost-profits damages and reasonable royalty damages. The district court upheld those awards. SAP appealed to the Federal Circuit, which upheld the jury's infringement verdict and damages award, but vacated as over-broad a permanent injunction entered by the district court.Versata Software, Inc. v. SAP America, Inc., 717 F.3d 1255 (Fed. Cir. 2013).

While all that was going on, SAP in September 2012 petitioned the USPTO to institute a covered business method review of Versata's '350 patent. The USPTO granted SAP's petition and instituted a covered business method review of the '350 patent. In accordance with the statutory standard for instituting a review, the PTAB determined that claims 17 and 26–29 were "more likely than not unpatentable." By agreement of the parties the CBM review was limited to an expedited § 101 review. In June 2013, the PTAB issued its final written decision, cancelling claims 17 and 26–29 as unpatentable under § 101. The case then came to the Federal Circuit.2015 U.S. App. LEXIS 11802, at * 11.

While the PTAB was conducting its CBM review, Versata sued the USPTO in the U.S. District Court for the Eastern District of Virginia, seeking to set aside the PTAB's decision to institute CBM review. SAP filed a motion to intervene, which the district court granted.In August 2013, the district court granted motions to dismiss that case. The district court held that it lacked subject matter jurisdiction "because the AIA's express language, detailed structure and scheme for administrative and judicial review, legislative purpose, and nature of the administrative action evince Congress's clear intent to preclude subject matter jurisdiction over the PTAB's decision to institute patent reexamination [sic] proceedings."Versata Dev. Corp. v. Rea, 959 F. Supp. 2d 912, 915 (E.D. Va. 2013). Versata appealed the district court's judgment to the Federal Circuit.

Federal Circuit ruling

Preliminary issues

The court began by disposing of preliminary issues, such as jurisdiction to hear the case. The court said that these issues "could have decisive effect on the outcome of the case regardless of its substantive merits."2015 U.S. App. LEXIS 11802, at *

Availability of judicial review

The initial decision to institute review in response to a petition is the first step in the post-grant review process. After a review is instituted, the review proceeds to a trial before the PTAB, and concludes with the PTAB's final written decision. That final decision is appealable to the Federal Circuit. The issue of whether the PTAB had the power to institute a CBM review was not before the court, because "the statute expressly instructs that we may not" address that.2015 U.S. App. LEXIS 11802, at * .

However, the court determined that it had authority in the present appeal from the final decision of the PTAB invalidating Versata's patent under § 18, which is an authority limited to CBM patents, jurisdiction to determine whether the USPTO erred in instituting a CBM proceeding. In its appeal, "Versata argues that the invalidation must be reversed as beyond the § 18 authority because the '350 patent is not actually a CBM patent under the law if properly understood, and so is outside the PTAB's invalidation authority under § 18."2015 U.S. App. LEXIS 11802, at * . The court further explained:

To determine this reviewability issue, two related questions must be answered: first, does the § 324(e) judicial review bar permit judicial review, when conducted with regard to the final written decision, of PTAB compliance with any requirement that involves the ultimate authority of the PTAB to invalidate a patent; second, if yes, is the restriction of § 18 to CBM patents such a limit. 2015 U.S. App. LEXIS 11802, at * .

The court said that what § 324(e) says is that "[t]he determination by the [PTAB] whether to institute a post-grant review under this section shall be final and nonappealable," not that the final decision to invalidate a patent that the USPTO found to be a CBM patent could not be reviewed in regard to whether the patent was actually a CBM patent and therefore within the USPTO's authority under § 18. These are two separate USPTO actions: "The distinct agency actions do not become the same just because the agency decides certain issues at both stages of the process." Therefore, the answer to the first question was yes.

As to the second question, the court held that it is proper to review the final decision in regard to whether the '350 patent is a CBM patent: