Federal Circuit Affirms PTAB in First-Instituted Covered Business Method Review (CBM) Proceeding

On July 9, 2015, the Federal Circuit affirmed a final written decision made by the U.S. Patent & Trademark Office Patent Trial and Appeal Board (“PTAB”) in SAP America, Inc. v. Versata Development Group, Inc. (CBM2012-00001), the PTAB’s first instituted Covered Business Method Review (“CBM”) Proceeding under § 18 of the Leahy-Smith America Invents Act (“AIA”). As a basis for the affirmance, the court established several important guidelines concerning Federal Circuit review of CBM proceedings which are highlighted below.

SAP began this case on September 6, 2012 by petitioning the PTAB to institute a CBM proceeding to invalidate certain claims in U.S. Patent No. 6,553,350 (“the ‘350 patent”). The PTAB decided to institute the proceeding on January 9, 2013, , finding that the ‘350 patent qualified as a “covered business method patent” under § 18 of the AIA, that 35 U.S.C. § 101 eligibility was a permissible ground for challenging patent claims in a CBM proceeding, and that the challenged claims were more likely than not unpatentable under § 101. In its final written decision on June 11, 2013, the PTAB, confirmed that the challenged claims were ineligible under § 101. After a PTAB denial of its subsequent request for rehearing, Versata appealed the decision to the Federal Circuit.

In the July 9 decision, the Federal Circuit first addressed the scope of its judicial review. The court acknowledged that 35 U.S.C. § 324(e) prohibits judicial review of the PTAB’s to institute. However, the court determined that PTAB compliance with any requirement that involves its ultimate authority to invalidate a patent should properly be subject to judicial review. Under this framework, the court held that the PTABs determination in its decision to institute that the patent qualified as a covered business method patent under § 18 of the AIA involved this invalidation authority, and was properly subject to judicial review. Judge Hughes of the court dissented from this aspect of the decision, suggesting that the covered business method patent determination should remain out of bounds under 35 U.S.C. § 324(e).

Having decided in majority that the covered business method patent determination was in bounds for review, the court next reviewed the PTAB determination. Under § 18(d)(1) of the AIA, a covered business method patent is defined to be “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.” Versata argued that ‘350 patent does not qualify because the claims are not directed to products or services from the financial sector.” The court agreed with the PTAB that qualified patents are 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, but encompass other patents that claim activities more broadly relate to monetary matters such as are claimed by the ‘350 patent. The court also agreed with that PTAB that ‘350 patent did not entail a “technological invention” because the patent “does not does not solve a technical problem using a technical solution.” Accordingly, the court concluded that the ‘350 patent qualified as a covered business method patent properly subject to CBM proceedings.

The court moved on to address the proper standard for claim construction in the PTAB, noting that the court had decided this question one day earlier in In Re: Cuozzo Speed Technologies, LLC. In Cuozzo, the court affirmed use of the PTABs “broadest reasonable interpretation” (“BRI”) standard in construing the claims at issue in a CBM proceeding.

Finally, the Federal Circuit addressed the questions of whether the PTAB properly invoked § 101 as a test of invalidity in a CBM proceeding, and if so, whether it reached the right outcome on the merits in the present case. In opposition to the application of § 101, Versata argued that the tests for invalidity must be limited to a ground that could be raised under paragraph (2) or (3) of 35 U.S.C. § 282(b), and that § 101 does not fall within this category. While acknowledging § 101 was not specifically listed as a statutory ground under paragraph (2) or (3) of 35 U.S.C. § 282(b), it noted that “both our opinions and the Supreme Court’s opinions over the years have established that § 101 challenges constitute validity and patentability challenges.” The court concluded that“[it] would require a hyper-technical adherence to form rather than an understanding of substance to arrive at a conclusion that § 101 is not a ground to test patents under … § 18 processes.”

The court then addressed the merits of the PTAB decision in the present case under § 101. Here, the court applied recent § 101 case law including the foundational two-part test set forth by the Supreme Court in Alice Corporation Pty. LTD. v. CLS Bank International et al. Under the first part of the Alice test, the court concluded that the claims at issue were directed to the abstract idea of determining a price using organizational and product group hierarchies. Under the second part of the test, the court concluded that all of the claim limitations were “well-understood, routine, conventional activities previously known to the industry” that failed to transform the claimed abstract idea into a patent-eligible application. As a result, the court affirmed the PTAB’s final decision holding that the claims at issue were invalid under § 101.

Gibbons P.C. will continue to monitor and report on decisions and trends relating to PTAB proceedings, including CBM proceedings.

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