CAFC Endorses PTAB Construction of "Business Method Patent"

Yesterday, the CAFC issued its long awaited decision in the dispute between Versata and SAP (here). The appeal stemmed from the very first Covered Business Method (CBM) patent challenge proceeding. On appeal, one of Versata's (patentee) main challenges was directed to the statutory definition of "covered business method" and "technological invention" as applied by the Patent Trial & Appeal Board (PTAB) in instituting the CBM proceeding. That is, Versata's argued that its patent did not qualify as a CBM patent, and, therefore, the PTAB had no right to institute the review.

In rejecting Versata's arguments, the CAFC found that the PTAB applied the appropriate definitions. All other issues were also decided against Versata, including the determination that 101 challenges were appropriate for CBM proceedings, whether or not BRI may be applied in PTAB proceedings (earlier decided in Cuozzo decision) and that the Versata patent was unpatentable as being directed to an abstract idea (price calculations). Seems the Court has become quite the "death squad" for patentee appeals, affirming the PTAB in almost all but rare exceptions

Yet, while a loss on all fronts for Versata, on the bright side, Versata was already paid several hundred million dollars from SAP last fall — for infringing Versata's abstract ideas. 

Of particular note for practitioners is the Court's willingness to review the institution decision in limited respects. That is, despite earlier determinations that found a bar to appealing institution determinations, the Court distinguished the dispute over CBM eligibility as pertaining to the PTAB's "ultimate authority to invalidate."  

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. We answer both questions in the affirmative, and therefore reject the contention that we may not review whether the ’350 patent is a CBM patent covered by § 18.

(emphasis added)

As I mentioned earlier this week, other issues that could fall into this category would include RPI/Privity. Still other possibilities being disputes about applicable estoppel, and statutory bars to petition consideration such as 35 U.S.C. §§ 315(a) and (b). Disputes over issue joinder, 315(c), would also seem to be fair game.

As to clarity on the definition of "business method" and technological invention, the Court pointed out:

The PTAB observed that in its notices the USPTO considered the legislative debates and history, as well as the overall transitional program itself.  . . . Also, the PTAB observed that in its final notice of rulemaking the agency explained that the legislative history supported the proposition that the definition be broadly interpreted to “encompass patents claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.”                                                             

                                                                              .        .       .        .        .

We agree with the USPTO that, as a matter of statutory construction, the definition of “covered business method patent” is 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. The plain text of the statutory definition contained in § 18(d)(1)— “performing . . . operations used in the practice, administration, or management of a financial product or service”—on its face covers a wide range of finance-related activities. The statutory definition makes no reference to financial institutions as such, and does not limit itself only to those institutions.

                                                                             .        .       .        .        .

Furthermore, the expertise of the USPTO entitles the agency to substantial deference in how it defines its mission.

On the topic of technological invention, the Court explained:

As we are now instructed, the presence of a general purpose computer to facilitate operations through uninventive steps does not change the fundamental character of an invention. See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).The PTAB viewed the invention typified by claim 17 as basically a method of determining a price. This was a determination that could be achieved “in any type of computer system or programming or processing environment,” and accordingly “no specific, unconventional software, computer equipment, tools or processing capabilities are required.”

Interesting reference to Alice in this portion of the decision. It has always been my opinion that if a petitioner can demonstrate CBM qualification that such a showing is substantially overlapping with a proper 101 showing. In fact, there has yet to be a single CBM instituted on 101 that failed at the time of final written decision. 

Since its introduction, CBM filings have been devastating to business method patents; this is exactly what Congress intended.  When Congress created this special class of challenge it was to specifically defeat patents believed to be invalid under 101, but too cost prohibitive to defeat in district court. This decision will go a long way in maintaining the current momentum.