Introduction

On July 9 2015 the Federal Circuit issued its first opinion from an appeal of a final decision in a US Patent and Trademark Office (USPTO) covered business method review proceeding, addressing several issues relating to covered business method proceedings and providing its opinion on whether the USPTO Patent Trial and Appeal Board (PTAB) decision was correct that Versata's patent, directed to determining a price using organisational and product group hierarchies, was invalid under 35 USC § 101 as it was directed to "abstract ideas".(1)

Quoting 35 USC § 324(e), which provides that "[t]he determination by the Director whether to institute a post-grant review... shall be final and nonappealable", the court made clear that it was not going to review the determination by the PTAB as to whether to institute a covered business method review, but rather the merits of the final written decision that was appealed. However, the court did hold that it has the power to review on appeal the PTAB's decision in a covered business method proceeding of whether the challenged patent is a "covered business method".

The Federal Circuit did not depart from its prior decision that the 'broadest reasonable interpretation' standard for construing claim language used by the USPTO is appropriate, as opposed to the stricter standard used by district courts.

The Federal Circuit next responded to Versata's challenge to whether the PTAB is authorised to invoke 35 USC § 101 as a basis for a finding of invalidity and the USPTO's challenge to whether the court could review this issue on appeal. The court answered both questions in the affirmative.

Having resolved those threshold issues, the court affirmed the USPTO on the merits of the covered business method challenge, ruling that:

  • the patent was a covered business method subject to covered business method review;
  • the USPTO properly construed the disputed claim terms; and
  • the claims were unpatentable under Section 101 as directed to ineligible subject matter.

Senior Judge Plager wrote the majority opinion, joined by Judge Newman, while Judge Hughes wrote an opinion concurring in part and dissenting in part. Hughes agreed that the patent claims were ineligible under Section 101, but asserted that the Federal Circuit was not empowered to review the PTAB's decision of whether the patent was directed to a covered business method.

Background

The Leahy-Smith America Invents Act established new proceedings in the USPTO to enable challenges to granted patents, one of which is covered business method review. Covered business method proceedings are available only for a 'covered business method patent', which the act defines as "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". "Patents for technological inventions" are exempt from covered business method review under the statute. The USPTO has defined a 'technological invention' as one in which "the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution".

When a challenger files a petition for covered business method review, the review proceeds in two phases. First, the PTAB determines whether to grant the petition and institute review. As part of this institution decision, the PTAB considers whether the requirements for covered business method review are met, including whether the claims are directed to a covered business method patent rather than a technological invention. If those requirements are met and the PTAB determines that at least one challenged claim is more likely than not unpatentable, the PTAB institutes the covered business method review. Second, after the covered business method review is instituted, the PTAB proceeds to consider the merits and renders a final decision on whether the challenged claims are patentable over the grounds stated in the petition.

As part of the America Invents Act, Congress hoped to streamline post-grant proceedings, including covered business method review, and decided that only certain aspects of the proceedings should be appealable. As such, 35 USC § 324(e) provides that "[t]he determination... whether to institute a post-grant review under this section shall be final and nonappealable".

Facts

Versata Development Group, Inc owns US Patent 6,553,350 (the "'350 patent"), which is generally directed to pricing products in multi-level product and organisational groups. SAP America, Inc and SAP AG filed a petition for covered business method review of claims 17 and 26 to 29 of the '350 patent on September 16 2012 (the day on which covered business method procedures took effect). The PTAB granted the petition and instituted a covered business method review on January 9 2013. On June 11 2013 the PTAB issued a final written decision cancelling the challenged claims as unpatentable under 35 USC § 101 as being directed to "abstract ideas". Versata appealed.

Decision

On appeal, the Federal Circuit addressed four issues.

Scope of appellate review

The court held that the Section 324(e) prohibition of appellate review of covered business method institution decisions does not prevent the court from reviewing issues that the PTAB has considered during the institution phase and that serve as limitations on the PTAB's authority to issue a final written decision. Thus, while the court could not review the PTAB's institution decision per se, it nevertheless could – as part of its review of the PTAB's final written decision – determine whether the challenged patent constituted a covered business method patent.

Definition of 'covered business method patent'

The court agreed with the PTAB that the statutory definition of 'covered business method patent' is broad and covers a range of finance-related activities. The court rejected Versata's contention that the phrase 'financial product or service' limits a covered business method to products or services of the financial services industry or to patents owned by or directly affecting financial institutions. The court next considered the 'technological invention' exception. While criticising the USPTO's definition as circular and unhelpful, the court nevertheless agreed with the PTAB's determination that the challenged patent (specifically, representative claim 17) did not solve a technical problem using a technical solution.

Claim construction standard

The Versata court approved the PTAB's use of the 'broadest reasonable interpretation' claim construction standard for covered business method review.

Merits determination

The court first questioned whether it could review whether the PTAB is authorised to invoke Section 101 as a test of validity in covered business method proceedings. For the same reasons as it used when considering the scope of appellate review, the court answered in the affirmative: the PTAB's authority to apply Section 101 speaks to a limitation on the PTAB's authority to invalidate a patent. Having decided that it was allowed to answer the question, the court next turned to the answer itself, holding that failure to comply with Section 101 is a proper ground of invalidity in a covered business method review. Despite language in 35 USC § 321(b) that seems to exclude Section 101 from the scope of covered business method proceedings, the court drew on broader language in Section 328(a), the case law surrounding Section 101 and legislative intent to conclude that Section 101 may also be applied in covered business method reviews.

Finally, the court reached the merits of the PTAB's invalidity finding using the Supreme Court'sAlice/Mayo framework for determining whether claimed subject matter is patent eligible. Under that framework, first a determination is made as to whether the claims at issue are directed to a patent-ineligible concept. Second, if the claims are directed to such a patent-ineligible concept, a determination is made as to whether the claim includes a limitation or combination of limitations that is sufficient to ensure that the patent in practice amounts to significantly more than a patent on the patent-ineligible concept itself.(2) Applying the Alice/Mayo framework, the court first held that the challenged '350 patent claims were not directed to patent-eligible subject matter, and instead covered the abstract idea of determining a price using organisational and product group hierarchies, which the court deemed a basic conceptual framework for organising information. Next, the court found that none of the claims included sufficient additional limitations that would have transformed their nature into a patent-eligible application of that abstract idea.

Dissent in part

Hughes dissented in part by noting that the plain language of Section 324(e), as well as the distinct institution and merits phases of covered business method proceedings, bar appellate review of the PTAB's threshold decision of whether the challenged patent is directed to a covered business method. He also asserted that such review is contrary to Congress's intention that covered business method proceedings provide a quick, cost-effective alternative to district court litigation.

For further information on this topic please contact Jonathan Berchadsky or Andrew Kutas at Fitzpatrick, Cella, Harper & Scinto by telephone (+1 212 218 2100) or email (jberchadsky@fchs.comor akutas@fchs.com). The Fitzpatrick, Cella, Harper & Scinto website can be accessed atwww.fitzpatrickcella.com.

Endnotes

(1) Versata Development Group, Inc v SAP America, Inc, 2014‑1194 (Fed Cir July 9 2015).

(2) Alice Corp Pty Ltd v CLS Bank Int'l, 134 S Ct 2347, 2355 (2014).

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