On June 11, 2013, the Patent Trial and Appeal Board (PTAB) of the United States Patent and Trademark Office (USPTO) issued the first final written decision in one of the new proceedings created by the America Invents Act (AIA). The decision was issued in CBM2012-00001 (Versata Software, Inc. v. SAP America, Inc.), filed under the Transitional Program for Covered Business Method Patents ("CBM review"), and found the challenged patent claims invalid under 35 U.S.C. § 101. The decision will rightfully receive attention as demonstrating the USPTO's willingness to strike down claims previously issued by the agency. Equally noteworthy, however, is the decision's discussion dedicated to applicable claim construction in AIA proceedings, which underscores the difference between the applicable "broadest reasonable" construction standard before the PTAB and the significantly different standard applied at the district court level.
Background of Versata Software, Inc. v. SAP America, Inc.
In 2007, Versata Software, Inc. sued SAP America, Inc. for infringement of U.S. Patent 6,553,350. The case proceeded to trial and a jury found infringement by SAP and awarded damages. The district court denied SAP's post-trial motion challenging the infringement verdict but held a new trial on damages. In the second trial, the jury awarded lost-profits and reasonable royalty damages. The district court upheld those awards.
Both parties appealed the district court's final judgment to the U.S. Court of Appeals for the Federal Circuit (CAFC) on October 11, 2011.1 The CAFC affirmed the jury's infringement verdict and damages award, but vacated and remanded a permanent injunction as overbroad.2
SAP subsequently filed a petition for CBM review with the USPTO on September 16, 2012, challenging claims 17 and 26-29 of the ’350 patent as unpatentable under 35 U.S.C. § 101 (patentable subject matter), § 102 (anticipation by prior art), and ? 112 (failure to satisfy written description or enablement requirements). On January 9, 2013, the PTAB granted the petition and instituted a CBM review trial with respect to 35 U.S.C. §§ 101 and 102 only. In exchange for dropping the 102 challenge, SAP requested, and was granted, an expedited trial schedule.
Versata responded to the petition by contending that the challenged claims were patentable under § 101 and that the PTAB had employed an incorrect claim construction standard in construing the ’350 patent claims. SAP's reply to the patent owner response maintained that the claims were unpatentable and that the PTAB had construed the claims properly in its decision to institute CBM review. Both parties requested an oral hearing, which was held on April 17, 2013. As previously noted, the PTAB issued its final decision on June 11, 2013, invalidating claims 17 and 26-29 of the ’350 patent as ineligible under 35 U.S.C. § 101.
The PTAB's Position on Claim Construction in Post-Grant Proceedings
In its decision, the PTAB emphasizes that, for purposes of post-grant proceedings, claims are construed under the "broadest reasonable interpretation" standard as opposed to the Federal Circuit's Phillips standard for district court litigation. It reasoned that "the new AIA reviews before the Office, like reissue and reexamination proceedings, provide patent owners with an opportunity to amend their claims. . . . The use of the broadest reasonable interpretation encourages patent owners to remove ambiguities and to narrow their claims by amendment, such that the inventor's contribution to the art is expressed in clear, precise and unambiguous terms."3 The PTAB also cited the legislative history of the AIA in determining that the USPTO had the appropriate discretion and imperative to require the use of the broadest reasonable interpretation standard in such proceedings.4
It is apparent that the PTAB and the USPTO view the CBM review proceedings, and post-grant proceedings more generally, as an opportunity for de novo review of subject patents rather than an extension of traditional district court litigation. Thus, patents under review are more easily subject to attack from prior art than would generally be the case in district court litigation. Additionally, the different construction standards mean that claim construction positions taken in post-grant proceedings will not necessarily be binding in litigation (and vice versa).
The PTAB's Patent Eligibility Calculus in Post-Grant Proceedings
The PTAB also made clear that it will not hesitate to invalidate claims as patent ineligible under 35 U.S.C § 101. In invalidating the ’350 patent claims under review, the PTAB emphasized that "mere recitation of computer implementation or hardware in combination with an abstract idea  is not itself a significant, meaningful limitation on the scope of the claims."5 In addition, the PTAB noted that Versata failed to establish any "specific" steps appended to an abstract idea to provide a meaningful limitation within the scope of § 101.6 It is apparent that the PTAB takes a dim view of claims that "do not add meaningful limitations beyond the recited abstract idea and, in practical effect, preempt the abstract idea."7
Defendants accused of infringing business method patents should strongly consider CBM review as part of their overall defense strategy. The PTAB has made clear that patent claims under challenge will be construed under a more liberal "broadest reasonable interpretation" standard that does not depend on (and differs from) claim constructions in associated district court litigation proceedings. Additionally, the PTAB has signaled that claims including questionably patent-eligible material are susceptible to attack under 35 U.S.C. § 101. Accordingly, CBM review may provide an efficient and effective alternative or supplement to traditional patent infringement litigation.