The Federal Circuit’s recent decision in Versata Development Group v. SAP America, Inc. validates the PTAB’s overall approach to “covered business method” (CBM) proceedings and suggests that patent owners face an uphill battle when appealing the cancellation of claims following CBM review. Significantly, however, the Federal Circuit ruled that it has the power when reviewing a final written decision to consider whether the patent qualified for CBM review at all. The USPTO had disagreed, maintaining that the Federal Circuit lacked authority to review this threshold question because it concerned the PTAB’s decision whether or not to institute CBM review at all—a determination that by law is “nonappealable.” The Federal Circuit’s decision offers hope for other patent owners who face CBM reviews and believe that the PTAB erred in deciding that the challenged patent even qualifies. It also indicates that the Federal Circuit will not always be willing to accept the USPTO’s reading of key language in the America Invents Act.

Basics

On July 9, the Federal Circuit affirmed the PTAB’s decision cancelling all of the claims that SAP America had challenged for lack of statutory subject matter (i.e., § 101) in the first ever CBM proceeding, filed against patent owner Versata. Later, the Federal Circuit affirmed the dismissal of a lawsuit that Versata had filed in Virginia against the USPTO challenging the PTAB’s decision to institute the CBM review.

Versata challenged the PTAB’s decision on many grounds, including whether the challenged patent—relating to pricing products—even qualified as a covered business method. However, SAP and the USPTO maintained that the Federal Circuit lacked authority to consider this issue because the PTAB had addressed it when determining whether to institute the CBM—a determination that by law is “final and nonappealable.” The Federal Circuit responded as follows in its decision.

Authority to consider whether a patent qualifies for CBM review

Citing the “strong presumption” favoring judicial review of administrative decisions, the Federal Circuit ruled that it had authority to consider whether a patent qualifies for CBM review when reviewing the PTAB’s final written decision. The Federal Circuit also criticized the USPTO for having initially emphasized the Federal Circuit’s authority before later switching positions.

When successfully moving to dismiss the Virginia civil action, the USPTO had emphasized that Versata would eventually be able to challenge the CBM determination when appealing the PTAB’s final written decision to the Federal Circuit. The district court itself also stressed this opportunity when granting the USPTO’s motion to dismiss. Monday’s decision from the Federal Circuit affirmed the district court’s decision while further emphasizing the “fundamental importance of judicial review.”

Definition of a covered business method

However, the Federal Circuit in turn affirmed the PTAB’s determination that Versata's claims constituted covered business methods. Rejecting Versata’s narrow interpretation of “financial product or service,” the decision held that CBMs are not limited to patents that implicate the financial industry. However, the Federal Circuit did not define the outer limits of the definition or the “technological invention” safe harbor.

Eligibility under § 101

The Federal Circuit also agreed with the PTAB that CBM reviews can address § 101 issues, notwithstanding a “hyper-technical” argument to the contrary that Versata had raised and which others—especially critics of the current state of § 101 law—have also touted. The ability to raise § 101 issues is one of the major distinguishing features between CBM reviews and the more widely used IPR process.

Having resolved these threshold issues, the Federal Circuit turned to the merits and affirmed that Versata’s claims were unpatentable under § 101. Although subject matter eligibility is ultimately a question of law subject to de novo review, the Federal Circuit emphasized the PTAB’s “underlying fact findings and credibility determinations,” which the court determined were supported by substantial evidence. This discussion is consistent with previous AIA appeals such as In re Cuozzo and suggests that the Federal Circuit will be reluctant to overrule PTAB decisions cancelling claims.

Takeaways

Technically speaking, patent owners can challenge the PTAB’s determination that a challenged patent is eligible for CBM review; they must wait until the PTAB issues a final written decision.

Practically speaking, such appeals face an uphill battle. The Federal Circuit appears comfortable with the PTAB’s broad interpretation of the CBM eligibility standards.

Continuing the trend that we have seen with IPR appeals, the Federal Circuit appears reluctant to “second guess” PTAB decisions cancelling claims in CBM reviews. A patent owner’s best chance is to convince the PTAB not to institute a review at all, or at minimum to convince the PTAB to confirm the claims in the final written decision.