On July 9, 2015, a divided Federal Circuit held in Versata Development Group, Inc. v. SAP America, Inc., No. 14-1194, that it can review Patent Trial and Appeal Board (PTAB) determinations that a patent is a "covered business method" (CBM). The PTAB determines CBM eligibility in the institution decision, and under 35 U.S.C. § 324(e) an institution decision is not reviewable. Nevertheless, the court held that a patent's status as a CBM limits the PTAB's authority to invalidate the patent, and that determinations implicating this invalidation authority are reviewable following final written decision. Judge Hughes dissented from the opinion of Judges Newman and Plager, arguing that the court's review of CBM eligibility is effectively a review of the institution decision itself.

Background of the Case

SAP America, Inc. (SAP) filed the first CBM proceeding against a patent owned by Versata Development Group, Inc. (Versata). The challenged patent was directed to methods and systems for pricing products based on hierarchical groupings of customers and products. SAP's petition argued that the patent was eligible for CBM review because: (1) it was a financial service or product, and (2) it was not directed to a technological invention. The PTAB agreed and instituted review based on 35 U.S.C. § 101. In its final written decision, the PTAB canceled all challenged claims under § 101 as directed to a patent-ineligible abstract idea. Versata filed a request for rehearing challenging, among other things, the PTAB's determination that the patent was a CBM, but the PTAB found that this argument had been waived because it was not raised during trial. Versata then appealed the final written decision, including the PTAB's threshold determination that its patent was a CBM. SAP countered that CBM eligibility was part of the institution decision, and therefore not appealable, and that Versata had waived the issue regardless. The USPTO entered the appeal as intervenor, arguing that the court lacked jurisdiction to review issues decided in institution decisions even after final written decision.

Judicial Review of CBM Eligibility

Before addressing the merits of Versata's arguments, the Federal Circuit first addressed whether it even had jurisdiction to review these issues. Previous Federal Circuit opinions held that the court could not review decisions to institute or not institute inter partes review (IPR) via appeal or mandamus action. The "nonappealable" status of institution decisions is governed by analogous statutory provisions for IPRs, § 314(d), and for CBM and post-grant review (PGR) proceedings, § 324(e). However, the court noted that these opinions addressed interlocutory appeals of the institution decisions rather than appeals following final written decision.

Addressing the issue at hand, the court first distinguished between the decision to institute a trial and the invalidation of a patent in a final written decision. Noting the "heavy burden" of persuasion needed to overcome the "strong presumption" in favor of judicial review, the court concluded that, while institution is not reviewable, the PTAB's ultimate authority to invalidate patents is not shielded from review by § 324(e). The court then considered whether CBM eligibility is such a limit on the PTAB's authority to invalidate patents. Looking to the statutory scheme created by Congress limiting the timeframe and the scope of the CBM review, the court concluded that a patent's status as a CBM does limit the PTAB's authority to invalidate the patent.

Holding that CBM eligibility is reviewable following final written decision, the court distinguished its recent opinion in In re Cuozzo Speed Technologies, LLC, No. 14-1301 (Fed. Cir. July 8, 2015), which was discussed in two previous WSGR Alerts.¹ In Cuozzo, the appellant argued that the PTAB improperly instituted an IPR because it relied on prior art references that were not identified in the petition as grounds of unpatentability, and the court held that this aspect of the institution decision, even after a final written decision, was not reviewable. However, the Versata court noted that Cuozzo did not address CBM eligibility specifically, nor did it address the broader question of whether a final written decision can be reviewed for compliance with a limit on the PTAB's invalidation authority. In other words, in Cuozzo, the PTAB's institution of an IPR based on a reference that was not cited in the petition did not implicate its ultimate authority to invalidate the patent because a "proper petition undisputedly could have cited it."

Addressing the PTAB's Decision on the Merits

Turning to the substance of Versata's appeal, the court first rejected Versata's argument that Congress intended CBMs to be limited to products or services in the financial sector, noting that the statutory language is not so limited, and that the USPTO is entitled to "substantial deference" and was given broad authority over CBM proceedings. Addressing Versata's next argument that the patent was not a CBM because it was a "technological invention," the court considered the USPTO's regulation defining a "technological invention" as one that: (1) recites a technological feature that is novel and unobvious over the prior art; and (2) solves a technical problem using a technological solution. While the court questioned the usefulness of this definition and the need to consider novelty and nonobviousness in this context, it agreed with the PTAB's analysis that the invention was not technological and was "more akin to creating organizational management charts." The court also rejected Versata's additional arguments that the BRI claim construction standard was improper (previously addressed in Cuozzo), that the PTAB does not have authority to consider § 101 during CBM proceedings, and that the patent was not a patent-ineligible abstract idea under § 101.

Practical Effects of Versata

Today's opinion clarifies a key reviewability issue for appealing adverse judgments in CBM proceedings. While CBM eligibility is a threshold issue at the institution stage, the issue of whether or not the patent is a "covered business method" is reviewable on appeal. Versata confirms that the Federal Circuit will consider whether a patent involved in a CBM proceeding meets the "financial product or service" requirement and whether a patent is a "technological invention" as defined by the USPTO's regulations. The court also opened the door for additional challenges to issues addressed in institution decisions if those issues implicate the PTAB's ultimate authority to invalidate a patent. This development could create opportunities for both patent owners and petitioners to challenge threshold issues in IPRs and PGRs, as well as CBM proceedings.

¹ The WSGR Alerts are available at https://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-cuozzo.htm (February 4, 2015) and https://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-cuozzo-0715.htm (July 8, 2015).