In an attempt to address both actual and perceived litigation abuse involving business method patents, Congress enacted a Covered Business Method ("CBM") patent review process under Section 18 of the Leahy-Smith America Invents Act ("AIA"). This transitional program codified in Section 18 empowered the United States Patent and Trademark Office ("USPTO") to conduct post-grant validity reviews of certain patents that qualify as CBM patents.
In order to initiate a validity review under this transitional program a patent challenger has to first demonstrate that the patent must qualifies as a CBM patent.
Section 18(d)(1) defines the term CBM as follows:
For purposes of this section, the term "covered business method patent" means 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.
(AIA § 18(d)(1)).
Thus, the definition of CBM includes the explicit exclusion of "technological inventions." Unfortunately, (but not unexpectedly) in enacting Section 18, Congress failed to define or provide clarification as to what the term "technological inventions" means. Instead, Congress instructed the USPTO to "issue regulations for determining whether a patent is for a technological invention." (AIA, § 18(d)(2)). Additionally, Congress authorized the USPTO to "issue regulations establishing and implementing a transitional post-grant review proceeding for review of the validity of covered business method patents. (AIA, § 18(a)(1)). Pursuant to that broad authority granted by Congress, the USPTO adopted regulations, in 37 C.F.R. §§ 42.300-.304, governing the Section 18 program which include definitions for the terms "covered business method patent" and "technological invention." As might be expected, these regulations were quickly challenged following a decision adverse to the patent holder.
In Versata Development Group, Inc. v. SAP America, Inc., the United States Court of Appeals for the Federal Circuit ("CAFC") was presented with the issue of whether U.S. Patent No. 6,553,350 qualified as a CBM patent. In addressing this issue, the CAFC attempted to provide its interpretation of the meaning of the terms "covered business method" and "technological inventions" of Section 18. Unfortunately, the CAFC's interpretations merely accepted the USPTO's definition as to what qualifies as a CBM and continued the current trend of utilizing prior art analyses a la Alice in its consideration of what constitutes a "technological invention."
The case originated in 2007 when Versata Development Group, Inc. brought suit against SAP America, Inc., alleging infringement of U.S. Patent No. 6,553,350, entitled "method and apparatus for pricing products in multi-level product and organizational groups." Versata prevailed at trial in the District Court for the Eastern District of Texas. Versata Development Group, Inv. v. SAP America, Inc., No. 2014-1194, slip op. at 10 (Fed. Cir. July 9, 2015). The CAFC affirmed the verdict upon appeal by SAP. Id.
During the trial and appeal proceedings, and following adoption of the AIA, SAP separately petitioned the USPTO's Patent Trial and Appeal Board ("PTAB") for a CBM review of the '350 patent pursuant to Section 18 on the grounds that claims 17 and 26-29 of the '350 patent were unpatentable for failing to comply with 35 U.S.C. §§ 101, 102, and 112. In order to analyze whether the claims of the '350 patent comply with 35 U.S.C. §§ 101, 102, and/or 112, the PTAB was required to first determine that the claims of the '350 patent were directed to a "covered business method" as the term is defined in 37 C.F.R. § 42.301(a), specifically, based on whether the claims were directed to "financial products or services." Ultimately, the PTAB concluded that the '350 patent is a CBM patent, and thus qualifies for a CBM review, because "Versata's '350 patent claims methods and products for determining a price and that these claims, which are complementary to a financial activity and relate to monetary matters, are considered financial products and services under § 18(d)(1)." (emphasis added). Upon finding that the '350 patent qualifies as a CBM patent, the PTAB initiated a CBM review of the validity of claims of the '350 patent and analyzed claims 17 and 26-29 under 35 U.S.C. § 101. The result of the review was a final written decision by the PTAB invalidating claims 17 and 26-29 of the '350 patent under 35 U.S.C. § 101. Versata appealed the PTAB's final written decision to the CAFC.
On appeal, Versata argued the PTAB's final written decision was improper because the '350 patent is not a CBM patent and therefore did not qualify for a CBM review. Due to the express language of Section 18 indicating that a CBM patent "does not include patents for technological inventions," the issue of whether the '350 patent is a CBM patent also required the CAFC to address whether the '350 patent is directed to a "technological invention."
Versata presented arguments that Congress intended CBM patents to be limited to "products or services from the financial sector-i.e., banks, brokerages, holding companies, insurance, and similar institutions with a finance focus." Essentially, Versata read the statute to refer to "financial products" and "financial services." The USPTO, in its brief as an intervener, argued that nothing in the text of Section 18 limits itself to any one sector or industry as argued by Versata. While the USPTO's statement is correct on its face, the lack of specificity in the statute required the USPTO to argue that a CBM includes patents "relating to monetary matters," which comports with the dictionary definition of "financial."
In its decision, the CAFC offered very little guidance as to its interpretation of the term "covered business method," but nonetheless held that the claims of the '350 patent "fall well within the terms of the statutory definition of a 'covered business method patent'." Versata slip op. at 36. In deferring to the USPTO's definition, the CAFC held:
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.
To limit the definition as Versata argues would require reading limitations into the statute that are not there. This understanding of the text is reinforced by the scope of the entire § 18 program, and the general concern, including within the halls of Congress, regarding litigation abuse over business method patents. These concerns caused Congress to create a special program for these patents in the first place. Versata slip op. at 39.
Further, the CAFC offered little additional guidance as to its interpretation of the term "technological inventions." Indeed, the Court went so far as to admit the term's ambiguity by expressing that "Versata's '350 patent ... does not fall within the exception for technological inventions, whatever that exception may otherwise mean." Versata slip op. at 39 (emphasis added). For its part, the PTAB in reaching its original decision relied on the definition of "technological inventions" set forth in 37 C.F.R. §42.301(b), which states "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." Although the CAFC criticized the USPTO's circular definition of the term, the CAFC relied on this definition and the Supreme Court's statement in Alice that recitation of a general purpose computer to perform otherwise abstract steps "does not change the fundamental character of an invention." With these definitions in mind the Court found that that the '350 patent claimed a non-technical procedure "akin to creating organizational management charts," and therefore, is not a "technological invention" under Section 18.
These two determinations regarding CBMs and technological inventions seem to leave a logical gap. While many practitioners might agree that the invention in the '350 Patent was not technological, the failure to analyze why the claimed subject matter falls "well within" the definition of a CBM provides little guidance to practitioners. The only tie to a "financial product or service" in the claims are the words "price" and "pricing." Seemingly, in the view of the CAFC, this limited connection to being "financial" is enough to trigger CBM review.