Versata v. SAP and Implications for U.S. Patent and Trademark Office’s Patent Trial and Appeal Board

In 2011 Congress passed the America Invents Act (AIA) which provided the most significant change to the U.S. patent system since 1952. Several of the biggest changes were related to the formation and operation of the Patent Trial and Appeal Board (PTAB), an administrative body of the U.S. Patent and Trademark Office (USPTO), which decides issues of patentability. The first week of December, the U.S. Court of Appeals for the Federal Circuit heard arguments in the first challenge to a PTAB decision related to covered business method patents that could answer some important questions related to the new proceedings.

In an effort to respond to concerns about patent trolls, the AIA included a provision for a transitional program for covered business method patents. Section 18(d)(1) of the AIA specifies that a covered business method patent is “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.”

Under the transitional program for covered business method patents, companies can only file a petition if they have been sued for infringement of a patent that is considered a covered business method patent. SAP America, a multinational business software company, had been battling an infringement suit by Versata Development Group since 2007. In two separate trials SAP was found to infringe on Versata’s patent for “[a] method and apparatus for pricing products in multi-level product and organizational groups” (US Patent No. 6,553,350). The claimed invention was a method for providing individualized pricing information efficiently by creating hierarchical product and data structures to organize data on both customers and products.

When the transitional program for covered business method patents became effective on September 16, 2012, SAP filed the first PTAB petition under the new law to institute a review of Versata’s patent claims. Ultimately the PTAB panel decided that Versata’s patent was invalid because it was based on an abstract idea and merely used a computer to complete a process that could be performed by other means. Versata is fighting this decision and is arguing that the USPTO used the wrong standard for interpreting Versata’s patent claims.

Lisa Dolak, Angela S. Cooney Professor of Law at the Syracuse University College of Law, has closely watched the PTAB process. She has presented two webcasts on the PTAB, Patent Office Post-Grant Contested Proceedings: New Challenges, New Opportunities in 2013 and PTAB Contested Proceedings: Tips, Traps and Pitfalls for the Patent Owner and Petitioner in August 2014.

When asked about the importance of this appeal, Dolak explained, “As the first Federal Circuit appeal in a final written PTAB decision in one of the new post-grant contested proceedings, this case will answer a number of very important questions of first impression. Versata challenges the PTAB’s power to adjudicate the patent in question — i.e., whether the patent truly claims a “covered business method” — as well as the Board’s authority to rely on subject matter ineligibility as a basis for holding claims unpatentable in covered business method proceedings. But whether the Federal Circuit even has the power to hear these questions in such an appeal (from a final written PTAB decision) is a threshold issue in this case, one which has significant implications for post-grant contested proceedings generally.”

Dolak also noted, “Another important issue concerns the relationship between district court judgments and USPTO adjudications regarding the same patent. In particular, what’s at issue here is the USPTO’s power to effectively “un-do” a district court judgment in favor of a patentee with a subsequent PTAB decision of unpatentability in a contested proceeding. Given the high percentage of post-grant proceedings that involve parallel litigation in the district courts, the effect of final PTAB decisions on district court outcomes is of great significance.”

This issue relates to the inability of SAP to overturn the jury award for patent infringement based on the PTAB’s eventual finding of unpatentability. The District Court refused to vacate the jury verdict, reasoning that to do so would essentially render the entire jury process worthless in violation of the seventh amendment. SAP then appealed to the Federal Circuit which also refused to overturn the verdict in June. The parties announced they’d reached a settlement and licensing deal in October. Versata’s appeal of the PTAB’s invalidity finding is the one issue still pending.