In its first ruling under the newly implemented American Invents Act (AIA) Transitional Program for Covered Business Method Patents, the Patent Trial and Appeal Board (PTAB) invalidated Versata’s 6,553,350 (‘350) patent.  In reaching its decision, the PTAB confirmed use of the broadest reasonable interpretation (BRI) standard for claim construction in AIA Transitional Program for Covered Business Method Patents.  Using this standard for claim construction, the PTAB invalidated all challenged claims, finding the claims recited an unpatentable abstract idea—namely, the abstract idea of “determining a price using organizational and product group hierarchies, which are akin to management organizational charts.”[1]  The challenged claims did not incorporate sufficient meaningful limitations, and the PTAB emphasized that “claims do not become patentable under § 101 simply for reciting a computer element.”[2]

The decision highlights one of the benefits of invoking the new Transitional Program for Covered Business Method Patents: it provides more ways to challenge the validity of patents at the U.S. Patent and Trademark Office (PTO).  Invalidating a patent for unpatentable subject matter under 35 U.S.C. § 101 is not an option in other post grant proceedings, such as ex parte reexamination or the new inter partes review procedure.  Both ex parte reexamination and inter partes review are limited to validity challenges based upon patents and printed publications.  Further, third party involvement after initiation of the proceeding is only available in inter partes review.  A challenge based upon unpatentable subject matter under § 101 can be brought in yet another type of proceeding called a post-grant review proceeding.  But the post-grant review proceeding is time-limited, only being available for the first nine (9) months after grant of a patent.

The Transitional Program for Covered Business Method Patents is limited to certain patents involving financial products or services.  But, for the patents that meet this requirement, this decision showcases the Transitional Program for Covered Business Method Patents as a new, more versatile tool to effectively challenge weak patents in a forum that is faster and cheaper than typical patent litigation. 

I.                   The Facts of SAP America, Inc. v. Versata Development Group, Inc.

In 2007, Versata Development Group, Inc. (Versata) filed suit against SAP America, Inc. (SAP) for infringement of the ’350 patent.  The ’350 patent is directed to a method and apparatus for pricing products and services. In particular, the patent involves the concept of hierarchies and “operates under the paradigm of WHO (the purchasing organization) is buying WHAT (the product).”[3]

After a finding in district court of infringement and an award of damages, SAP appealed to the Federal Circuit.  On appeal, SAP did not appeal the district court’s claim construction or the validity of the ’350 patent.  The Federal Circuit affirmed the jury’s finding of infringement and the award of damages, but remanded after finding the injunction overbroad. 

Meanwhile, in September 2012, SAP was the first to file a petition under a new America Invents Act Transitional Program for Covered Business Method Patents, which allows certain patent challenges before the PTO.  SAP challenged claims 17 and 26-29 of the ’350 patent as unpatentable under 35 U.S.C. §§ 101, 102, and 112 ¶¶ 1-2.  The PTAB granted the petition as to the §§ 101 and 102 (prior art) grounds.  In order to expedite proceedings, SAP agreed to forgo the prior art challenge and only challenge the claims as lacking patentable subject matter under § 101.

Both sides presented arguments at a hearing held April 17, 2013.  SAP argued that the ’350 patent claims were directed to the unpatentable abstract idea of arranging customer and product hierarchies and calculating a product price.  Versata maintained that, when the claims were viewed as a whole and each of their limitations considered, the claims were “directed to a specific, practical and advantageous way to determine a product price.”[4]  Both sides supported their positions through expert “testimony” in the form of declarations. 

Approximately nine months after filing for petition, the PTAB issued its decision invalidating all challenged claims.

II.                The PTAB’s Decision

The PTAB dedicated a significant portion of its decision to confirming use of the Broadest Reasonable Interpretation (BRI) standard in evaluating patentability.  Versata had argued that the PTAB’s use of the BRI standard was in error and that the claim construction standard should have been the same as the district court’s claim construction.  According to the PTAB, the BRI standard was appropriate, and use of the BRI standard encouraged patentees to eliminate ambiguities and narrow claims via amendment.[5]  The Patent Owner may clarify or narrow the claims through amendment before the PTAB, but lacks such an option in district court litigation.  Further, the PTAB explained that use of the BRI standard ensured that multiple proceedings in front of the PTO challenging the same patent would involve a uniform claim construction standard, preventing inconsistent and confusing results that might occur if differing standards were applied in PTO proceedings.  The patent at issue was the subject of a pending reexamination.

After confirming use of the BRI standard, the PTAB assessed the patentability of the ’350 patent.  The decision first laid out the basic eligibility requirements of § 101, which requires that “a claim must do more than simply state . . . an abstract idea and add words ‘apply it.’”[6]  If a claim does nothing more than recite an abstract idea and add steps encompassing routine, conventional activities, then such a claim is not patentable.  Finding the U.S. Supreme Court’s decision in Benson to be helpful, the PTAB explained that “the recitation of generic general purpose computer hardware (processor, memory, storage) in the challenged claims represents routine, well-understood conventional hardware that fails to narrow the claims relative to the abstract idea.”[7]

The challenged claims were directed to an apparatus and method for determining price implemented on computer hardware.  The PTAB found persuasive SAP’s contention that “the abstract nature of the claims is demonstrated by the fact that the method steps can be performed in the human mind or by a human using a pencil and paper.”[8]  Specifically, the decision found that the claims involved the abstract idea of determining price using organization and product group hierarchies that the PTAB decided were akin to management organizational charts.  Determining price was simply a method of calculating, and organizational hierarchies for product and customers represented a ‘“disembodied concept,’ a basic building block of human ingenuity.”[9]

As the claims were directed to abstract ideas, the PTAB then went on to evaluate whether the claims incorporated sufficient meaningful limitations such that the claims would no longer be just an abstract idea.

The PTAB found that the claims did not incorporate sufficient meaningful limitations because.

• The claims had no substantial practical application except in connection with a computer.  In particular, the claims were drafted to include computer hardware limitations, but the underlying process could be performed with pen and paper.
• The claims required only general purpose computer hardware and programming to implement each method step.  The ’350 patent specifically stated that the invention could be implemented in any type of computer system or processing environment. “[T]he recitation of generic general purpose computer hardware (processor, memory, storage) in the challenged claims represents routine, well-understood conventional hardware that fails to narrow the claims relative to the abstract idea.”[10]
• The storing, retrieving, sorting, eliminating, and determining steps and their interrelation with each other and the arranging steps were merely routine, conventional steps.  The steps did not reflect meaningful limitations.

The PTAB decision devotes significant analysis to the expert testimony of each party.  Generally, the PTAB agreed with SAP’s expert as to all relevant points.  The analysis highlights a distinction from the former reexamination procedure—this new review procedure, unlike reexamination, results in a decision by a panel of judges based on witness testimony.  The procedure also differs from a traditional trial in court, because the testimony is provided through declarations rather than presented live on a witness stand.  This new procedure is most akin to patent interference practice, which similarly involves decisions based on testimony taken in written form.

The PTAB’s decision finding the ’350 patent claims unpatentable is at odds with the Federal Circuit’s earlier decision affirming a finding of infringement and award of damages.  SAP has petitioned the Federal Circuit for a rehearing on that earlier decision, and that request is currently pending.[11]  Similarly, Versata has declared its intention to appeal the PTAB ruling to the Federal Circuit.[12]  Whether the PTAB decision ultimately results in SAP avoiding damages or an injunction thus remains to be seen. 

[1] SAP America, Inc. v. Versata Development Group, Inc., CBM2012-0001, slip op. 28 (P.T.A.B. June 11, 2013).
[2] Id. at 29.
[3] Id. at 4.
[4] Id. at 6.
[5] Id. at 10. The PTAB noted that Congress had given the PTO authority under 35 U.S.C. § 326(a)(2), (5), (9) to “promulgate rules setting forth the standards to institute review, as well as standards and procedures for discovery and motions to amend claims.”  Id. at 14.  Under this authority the PTO promulgated Rule 37 C.F.R. § 42.300(b):
        -A claim in an unexpired patent shall be given its broadest reasonable construction in light of the specification of the patent in which it appears.
Id. at 10 (quoting Rule 37 C.F.R. § 42.300(b)).
[6] Id. at 25.
[7] Id. at 30 (citing Gottschalk v. Benson, 409 U.S. 63, 65 (1972)).
[8] Id. at 28.
[9] Id. at 29.
[10] Id. at 30.
[11] Lisa Shuchman, Patent Board’s SAP Ruling is First Under New AIA Rules, Corporate Counsel (June 13, 2013), http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1202603966169&Patent_Boards_SAP_Ruling_is_First_Under_New_AIA_Rules.
[12] Id.