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