SAP America, Inc. v. Versata Development Group, Inc. (PTAB 2013)

By Michael Borella --

In an example of judicial reasoning rolling downhill, the U.S. Patent and Trademark Office's Patent Trial and Appeal Board (PTAB) has struck down claims directed to a computer-implemented business method as failing to meet the requirements of 35 U.S.C. § 101.  Applying the Supreme Court's test of Mayo v. Prometheus, and with a nod to the Federal Circuit's recent CLS Bank v. Alice decision, the PTAB panel found Versata's claims encompassing unpatentable abstract ideas, and lacking additional meaningful limitations that would thwart preemption of these ideas.

Procedurally, this case followed an unusual path.  In 2007, Versata sued SAP, alleging infringement of U.S. Patent No. 6,553,350.  At trial, SAP was found to infringe, and Versata was awarded lost profits and reasonable royalty damages.  Both parties cross-appealed to the Federal Circuit, which affirmed the infringement and damages verdicts.  However, before the Federal Circuit's decision came down, SAP petitioned the U.S. Patent and Trademark Office under the America Invents Act's (AIA's) Covered Business Method Patent Review Program (this case was the first ever under the Covered Business Method Patent Review Program, and was filed on September 16, 2012, the day that the program became available), contending that several of Versata's claims were invalid under (among other sections of the statute) § 101.

One of the claims at issue, claim 17, reads as follows:

17.  A method for determining a price of a product offered to a purchasing organization comprising:
    arranging a hierarchy of organizational groups comprising a plurality of branches such that an organizational group below a higher organizational group in each of the branches is a subset of the higher organizational group;
    arranging a hierarchy of product groups comprising a plurality of branches such that a product group below a higher product group in each of the branches in a subset of the higher product group;
    storing pricing information in a data source, wherein the pricing information is associated, with (i) a pricing type, (ii) the organizational groups, and (iii) the product groups;
    retrieving applicable pricing information corresponding to the product, the purchasing organization, each product group above the product group in each branch of the hierarchy of product groups in which the product is a member, and each organizational group above the purchasing organization in each branch of the hierarchy of organizational groups in which the purchasing organization is a member;
    sorting the pricing information according to the pricing types, the product, the purchasing organization, the hierarchy of product groups, and the hierarchy of organizational groups;
    eliminating any of the pricing information that is less restrictive; and
    determining the product price using the sorted pricing information.

This rather lengthy claim is virtually devoid of physical structure.  The only conceivable "hardware" recited by claim 17 is the data source.  Thus, not unlike the business method claims of Bilski v. Kappos and CLS Bank, Versata's claim could arguably be performed as a series of mental steps or with pencil and paper.

Unlike the District Court, the panel construed the claims using the Office's "broadest reasonable interpretation" (BRI) standard during the PTAB trial.  Versata argued that the panel had erred in doing so, and should instead adopt the District Court's narrower construction.  The panel, however, disagreed.

Noting that the proceeding was before the Office rather than a court, and that Versata had the opportunity to amend its claims, the panel concluded that using the BRI standard was proper.  The panel noted that use of the BRI standard facilitated the notice function of a patentee's claims.  Specifically, the BRI standard would "encourage inventors to amend their claims to remove uncertainties and over breadth of claim scope."

Versata also challenged the PTAB's use of the BRI standard as exceeding the Office's rulemaking authority.  The panel found this line of reasoning unavailing as well.  Instead, the panel noted that in passing the AIA, Congress granted the Office broad new rulemaking authority to "establish and govern the new reviews and the relationship of the reviews to other proceedings under title 35" in order to provide a viable alternative for litigating patents.  Thus, the panel concluded that the Office had proper authority to implement the BRI standard during post-grant reviews, and that this authority furthered existing policies encouraging clarity of claim scope.

Turning to the claims themselves, the panel construed a number of claim terms, including the term "data source."  Versata asserted that this term refers to a computer database, while SAP contended that the term was broad enough to cover "any data source that may be different from a conventional database."  Ultimately, the panel construed the term as requiring use of a computer storage medium because the specification defined the field of invention as limited to computer-based pricing of products.  Still, the panel noted that adopting either construction would have no impact on the analysis of patent-eligibility under § 101.

With respect to that analysis, the panel began by noting the difficulty of applying § 101, but focused its analysis on the law set forth by Gottschalk v. Benson and Prometheus.  The former held that claims reciting an algorithmic abstract idea with "no substantial practical application except in connection with a digital computer" are unpatentable even if they recite some computer structure, because they effectively would be "a patent on the algorithm itself."  The latter held that claims including a law of nature are unpatentable unless the claims also recite additional features encompassing "more than a drafting effort designed to monopolize the law of nature."

The panel quickly determined that the claimed process was directed to "determining a price using organizational and product group hierarchies, which are akin to management organizational charts."  This, the panel decided, was a "disembodied concept," and was capable of being performed mentally or on paper -- an abstract idea.  With that out of the way, the panel carried out a three-step analysis, examining the claim for meaningful limitations.

First, the panel found that computer implementation of an abstract idea is not enough to meet the requirements of § 101.  Comparing Versata's claims to those of Benson, the panel determined that even if a computer is required to implement the Versata invention, "[t]he mere recitation of computer implementation or hardware in combination with an abstract idea, however, is not itself a significant, meaningful limitation on the scope of the claims."  Thus, the panel concluded that, like Benson, the claims were directed to an abstract idea performed by a computer.

Second, the panel determined whether this computer implementation itself included a "contribution to the arts that lies not in the type of computing device or processing environment employed."  Finding that the claimed process could be performed by a well-known, general-purpose computer, the panel answered this question in the negative.

Third, the panel found no additional meaningful limitations.  Based largely on expert testimony, the panel found that any additional steps recited by the claims consisted of merely routine and conventional activities.  While noting that it was improper to combine the inquiries of § 101, with those of § 102 and § 103, the panel agreed with SAP's expert that "the additionally claimed steps of storing, retrieving, sorting, eliminating and receiving are well-known, routine, and conventional steps."  Consequently, the panel concluded that the claims preempted the abstract idea recited therein, and were patent-ineligible.

Perhaps the most perplexing aspect of the reasoning leading to this conclusion is the panel's insistence that they did not combine the subject matter eligibility, novelty, and obviousness tests.  Nonetheless, they went straight on to compare a claimed invention to prior art when considering the subject matter eligibility of the claims.  Undoubtedly, this rationale is the red-headed step child of Prometheus, which influenced the Federal Circuit in CLS Bank, and now has risen at the PTAB.

This case also illustrates how some federal judges, and now some PTAB panels, have soured on the general purpose computer.  General-purpose computing has grown dramatically over the last 25 years, replacing special-purpose computing in many fields and applications.  Much of the Internet, which is a major driver of the U.S. economy, is based on general purpose computing.  Still, the courts and the Office have lately taken to finding that implementing an algorithm on such a computer does not create a special purpose computer, as held by the Federal Circuit in 1994's In re Alappat.

But software patents are far from extinct.  One common thread through Bilski, CLS Bank, and this case is that broadly-drafted business method claims are likely subject to attack under § 101, even if they recite some computer structure.  If anything, these cases provide a roadmap for drafting claims that would pass muster under § 101.  For instance, tying together software steps with particular hardware components may provide limitations that a court finds "meaningful."

Nonetheless, cases like this one exemplify that the viability of many computer-implemented patents is uncertain.  Markets abhor uncertainty.  If the goal of the patent system is to encourage disclosure of important inventions in which organizations and individuals invest, there is a disconnect between this objective and the current state of the law.

SAP America, Inc. v. Versata Development Group, Inc. (P.T.A.B. 2013)
Panel:  Administrative Patent Judges Medley, Tierney, and Elluru
Final Written Decision by Administrative Patent Judge Tierney

Comments

[EG]

Michael,

The most problematical ruling by the PTAB is on Claim 29 to the apparatus; that is a "machine" under 35 USC 101, plain and simple. Claim 29 also recites hardware components (processor and memory) that implement computer program instructions (i.e., software). There are also no "mental steps" in Claim 29. This is yet another gross misapplication of Gottschalk v. Benson, which is itself a gross misapplication of what is patent-eligible under 35 USC 101.

By contrast, Claim 17 (method without any recitation of machine-implementation) is the most problematical in reaching the patent-eligibility "zone." Frankly, any method which doesn't recite machine-implementation and could be performed with pen/paper or in a human's head (i.e., could be performed as "mental steps") is going to be a problem in reaching the patent-eligibility "zone" under 35 USC 101.

[EG]

Michael,

Another problem I've got with this ruling relates to the differing claim construction standard we now have in proceedings in the USPTO, especially those which involve patents already adjudicated in the courts. I can understand the BRI doctrine as it relates to pending patent applications, but applying the BRI doctrine to post-grant proceedings, like this one under the AIA (Abominable Inane Act), creates utter chaos, as well as inconsistent adjudication depending on whether your before the USPTO or before the courts. Once the patent application becomes a patent, application of BRI should be over and done with.

[Skeptical]

Interestingly, the decision glosses over a critical distinction in claim construction.

The Article I court bases its claim construction rationale solely on the premise that the parties are in front of the Office and have an opportunity to amend. But as EG touches upon, there is a difference between a pending application and a granted patent that goes beyond whether or not the parties are merely in front of the Office.

A granted patent has a status, by law, of a presumption of validity. The 'taking' away, as it were, of that presumption is being done without regard to the lawful nature of that status.

Pay close attention as the rationale for granting the review in the first instance - the BRINGING in front of the Office uses a mechanism that may be proper - but that mechanism would be proper only after it is established (by some other means) that the parties are rightfully before the Office.

Can you use the standard pertaining to an application when the application has earned the status of a patent? In the sense that you are presumed innocent until proven guilty, should you not have the presumption that you have a patent until you are proven that you do not? Th mechanism for approval to proceed to a post grant review in front of the Office needs to be much more critically reviewed. Almost to the extent that a trial to see if you require a trial is needed as a very real taking is done by just the simple action of being placed before the Office.

Secondarily, as even the loss of rights inherent in applications that make amendments can attest, the ability to make amendments is not without cost to the patent holder.

Yes, I understand that there is a sense of justice that drives the mechanism for post grant review. But when that sense necessarily (or rather unecessarily) steps on rights earned already, does this not give pause?

Would not a more prudent path be to get the examination done correctly in the first instance?

Whether members of Congress even thought of making examination of patents and thus patent quality better by improving examination in the first instance, I remain...

[Michael Borella]

EG,

I think you bring up a good point, one which I probably didn't emphasize enough. In the third to last paragraph, I discussed how the courts are looking down on general purpose computing, but didn't mention that the other claims recited general purpose computing hardware.

Nonetheless, like in CLS Bank, the panel didn't view these additional limitations as "meaningful." The approach seems to be "if we can strike down a disembodied method claim, then we can strike down corresponding CRM and device / system claims that recite 'old' hardware."

Thanks,
Mike

[Skeptical]

First, put 103 on steriods with KSR.

Then, inject 103 into 101 (even as the Court says it is not) with Prometheus.

Well, Malcolm, or Keeping It Real, or Robert, or Francis, or Shrivan, or Vivika M. has it at least partly right.

This is not an indication of the majority's antipathy to patenting in the medical area.

This is an indication of the majority's antipathy to patenting in all areas.

Those in the medical arts should not take a NIMBY view.

[Bill Nelson]

Michael: "Nonetheless, they went straight on to compare a claimed invention to prior art when considering the subject matter eligibility of the claims. Undoubtedly, this rationale is the red-headed step child of Prometheus"

It's not the "child" of Prometheus. That is the Prometheus rule.

If you see ineligible subject matter in a method claim, Prometheus requires that you consider the relationship of the remaining claim elements to the prior art. If the only additional matter in the claim is old and conventional (or obvious), then the claim will fail 101 *unless* there is some integrating feature as was perceived to exist in Diehr.

The Prometheus test is a necessary and important test to prevent applicants from protecting ineligible subject matter by including an insubstantial "field of use" limitation or conventional data-gathering step.

An open question is whether the recitation of "a computer" will qualify as an "integrating" feature. If I had to guess, I'd say that the answer, generally speaking, will be "no." I also suspect that what suffices for "integration" will change as technology evolves, just as what suffices for a man-made composition to be deemed "effectively" a "product of nature" will also change (and has changed) as technology changes.

[Bill Nelson]

EG: "The most problematical ruling by the PTAB is on Claim 29 to the apparatus; that is a "machine" under 35 USC 101, plain and simple."

This is where the Myriad opinion may come into play going forward. According to the Supreme Court, Myriad's isolated DNA compositions were drawn to new, non-natural compositions of matter. If we really lived in a "plain and simple" judicial world, that's the end of the analysis under 101. But it's a bit more complicated that. Does the recitation of a "machine" turn an otherwise ineligible concept into "an invention"? It could certainly be argued that the inventors of this "machine" did far less with their concept than Myriad did with its ineligible "discovery".

"Claim 29 also recites hardware components (processor and memory) that implement computer program instructions (i.e., software). There are also no "mental steps" in Claim 29."

This is also a question for the Supreme Court to address, ultimately: does the recitation of a new function for an old machine qualify as a invention of a new machine for the purposes of 101? Again, I'd bet that the answer is "no." The Federal Circuit treats these sorts of claims as method claims when evaluating patentability in view of the prior art, and as composition claims for the purposes of eligibility. I wonder what the Supreme Court will say about that.

[Bill Nelson]

"If the goal of the patent system is to encourage disclosure of important inventions in which organizations and individuals invest, there is a disconnect between this objective and the current state of the law."

Uncertainty seems to be an inherent part of the business of obtaining and enforcing patents. This has been true for many decades and will continue to the be case. The Supreme Court's increased involvement necessarily means increased uncertainty. That said, their involvement is a response to an historically unprecedented increase in the use of the patent system

http://www.uspto.gov/web/offices/ac/ido/oeip/taf/h_counts.htm

Since 1945, the US population has roughly doubled. Patent grants have risen 10 fold over that period and the rate of which grants are rising is increasing while the rate of growth of the population is decreasing. At the same time, the focus of patents has shifted away from products and methods of manufacturing new products to inventions that are increasingly abstract, e.g., patents that serve to protect "correlations", relationships between data, and information itself. Are such abstractions "important"? Certainly. And it's always been the case. Are patents on such a necessary or preferred way to promote the dissemination of "better" information? I think that's debatable, to say the least.

Thomas Edison was well-known (and remains infamous) as an extremely active and even ruthless exploiter of the patent system. Does anyone know if he filed patents on, say, methods of using a phonograph to advertise goods? Or methods of distributing films to theaters? Methods of monetizing phonographs or films? Did he ever try to patent a method of making a particular type of phonograph or film, or the resulting new phonograph or new film itself, based on the useful information content of the phonograph or film?

He certainly could have done all these things, had he wished. He could have taken his cases to the Supreme Court. He had the money and he had the lawyers. Had he done all those things then, maybe we'd have less uncertainty now ...

[6]

"Unlike the District Court, the panel construed the claims using the Office's "broadest reasonable interpretation" (BRI) standard during the PTAB trial."

Oooooo SNAP!

[Skeptical]

Bill Nelson states "their involvement is a response to an historically unprecedented increase in the use of the patent system"

Using the patent system is suddenly a bad thing?

Bill Nelson also states "and the rate of which grants are rising is increasing"

Sorry Bill, you are mistaken. Perhaps you need to take a larger historical view and then account for the artificial suppression of that rate of grant during the black ages of the Dudas Patent In(just say)NO vation era.

Further, it should be recognized that innovation breeds innovation and that it should not be pre-supposed that patent activity will either be linear or will strictly track with population.

If the Court is becoming involved because "there are too many patents," that is a clear sign that ultra vires action - even unconstitutional action - is afoot.

Of this notion that there must be some 'proper' level of patent activity, I am...

[Bill Nelson]

Skeptical writes, "Using the patent system is suddenly a bad thing?"

Not at all. Patents serve a useful purpose. But using (abusing) the patent system to protect innovations that are not worthy of protection or to protect things and ideas that patents were never intended to protect is probably a "bad thing".

"Bill Nelson also states "and the rate of which grants are rising is increasing." Sorry Bill, you are mistaken."

I'm talking about increases in the number of grants/year. I'm not mistaken about that. This has nothing to do with the ease of obtaining patents, which you seem to be referring to and which is another issue.

[Skeptical]

Bill,

Are you discounting the number of grants per year according to the number of applications per year, or do you really think your calculations (without recognizing other pertinent factors) mean anything at all?

As to "not worthy of protection...," it appears that you have a 'philisophical' issue and not a 'legal' issue that is bothering you. Or is the phrase "entitled to a patent unless" mean something else to you? In essence, you are assuming your conclusion as providing the basis for your rant. You went from a sheer numbers 'bad' to a well, the sheer numbers must mean that abuse is happening and abuse is bad. You will not receive any argument that abuse is bad. But you will receive push back for such naked assumptions and jumps in logic. Is there some statistic that is showing the RATE of such ill-gained patents has been climbly dramatically or dangerously enough to risk unconstitional action by the Court?

Which leads me to my final comment: you do not touch the main gist of my comment: any perception by the Court of "too much" in and of itself is problematic.

[Bill Nelson]

Skeptical: "any perception by the Court of "too much" in and of itself is problematic."

That would seem to be your "philosophical issue."

"do you really think your calculations (without recognizing other pertinent factors) mean anything at all?"

I've told you already what I believe is the explanation for the numbers. There may be other explanations and contributing factors, some less probable than others. I highly doubt, for example, that the explanation is a 5 fold increase in the ability of human beings to innovate patent-worthy improvements to existing technology.

"Are you discounting the number of grants per year according to the number of applications per year"

Not at all. The increasing number of applications filed per year is the immediate cause of the number of grants per year.

[Skeptical]

"too much" lacks a legal basis.

If lacking a legal basis is a philosophical issue, then yes I am guilty as charged.

Rest assured, I find more comfort in my philosophy than I can see in yours.