Versata Development Group v. Sap America, Inc. , 793 F.3d 1306 ( 2015 )

United States Court of Appeals
for the Federal Circuit
______________________
VERSATA DEVELOPMENT GROUP, INC.,
Appellant
v.
SAP AMERICA, INC., SAP AG,
Appellees
UNDER SECRETARY OF COMMERCE FOR
INTELLECTUAL PROPERTY, DIRECTOR OF THE
UNITED STATES PATENT AND TRADEMARK
OFFICE,
Intervenor
______________________
2014-1194
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board, in No. CBM2012-
00001.
______________________
Decided: July 9, 2015
______________________
JEFFREY A. LAMKEN, MoloLamken LLP, Washington,
DC, argued for appellant. Also represented by NANCY JO
LINCK, MARTIN MOSS ZOLTICK, ROBERT DANNY
2 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
HUNTINGTON, BRIAN S. ROSENBLOOM, Rothwell, Figg,
Ernst & Manbeck, P.C., Washington, DC.
ERIKA ARNER, Finnegan, Henderson, Farabow, Gar-
rett & Dunner, LLP, Reston, VA, argued for appellees.
Also represented by J. MICHAEL JAKES, MICHAEL A.
MORIN, Washington, DC; EDWARD R. REINES, Weil, Got-
shal & Manges LLP, Redwood Shores, CA.
MELISSA N. PATTERSON, Appellate Staff, Civil Divi-
sion, United States Department of Justice, Washington,
DC, argued for intervenor. Also represented by STUART F.
DELERY, MARK R. FREEMAN; SCOTT WEIDENFELLER,
NATHAN K. KELLEY, JOSEPH MATAL, WILLIAM LAMARCA,
Office of the Solicitor, United States Patent and Trade-
mark Office, Alexandria, VA.
DAN L. BAGATELL, CHRISTOPHER S. COLEMAN, Perkins
Coie LLP, Phoenix, AZ, for amici curiae Intel Corporation,
Asustek Computer, Inc., Broadcom Corporation, HTC
Corporation, ZTE (USA) Inc.
ANN A. BYUN, Hewlett-Packard Company, Wayne, PA,
for amicus curiae Hewlett-Packard Company.
DARYL JOSEFFER, ASHLEY CHARLES PARRIS, King &
Spalding LLP, Washington, DC, for amicus curiae The
Internet Association.
MICHAEL E. JOFFRE, MELANIE L. BOSTWICK, Kellogg,
Huber, Hansen, Todd, Evans & Figel, PLLC, Washington,
DC, for amici curiae Dell Inc., eBay Inc., Facebook, Inc.,
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 3
Limelight Networks, Inc., Newegg Inc., QVC, Inc., Rack-
space Hosting, Inc., Red Hat, Inc., SAS Institute Inc.,
VIZIO, Inc., Xilinx, Inc. Dell Inc. also represented by
ANTHONY PETERMAN, Dell Inc., Round Rock, TX.
SUZANNE MICHEL, Google Inc., Washington, DC, for
amicus curiae Google Inc.
BARBARA A. FIACCO, DONALD ROSS WARE, SARAH BURG,
Foley Hoag LLP, Boston, MA, for amici curiae 3M Com-
pany, Caterpillar Inc., Eli Lilly and Company, General
Electric Company, Johnson & Johnson, The Procter &
Gamble Company, Amgen Inc., BP America, Inc., Glax-
osmithkline LLC, Illinois Tool Works, Inc., Pfizer Inc.,
Qualcomm Incorporated, Sanofi US.
______________________
Before NEWMAN, PLAGER, and HUGHES, Circuit
Judges.
Opinion for the court filed by Circuit Judge PLAGER.
Opinion concurring in part and dissenting in part
filed by Circuit Judge HUGHES.
PLAGER, Circuit Judge.
INTRODUCTION
This is a covered business method (“CBM”) patent
case, under § 18 of the Leahy-Smith America Invents Act
(“AIA”), Pub. L. No. 112-29, 125 Stat. 284 (2011). It
comes to us as an appeal of a final written decision of the
4 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
Patent Trial and Appeal Board (“PTAB”), 1 the recently-
created adjudicatory arm of the United States Patent and
Trademark Office (“USPTO” or “Government”). 2 The case
originated as a petition to the USPTO, submitted by
appellees SAP America, Inc. and SAP AG (collectively,
“SAP”), pursuant to the provisions of the AIA.
SAP requested that the USPTO institute review of the
validity of certain claims in U.S. Patent No. 6,553,350(“’350 patent”). The ’350 patent is owned by the appel-
lant, Versata Development Group, Inc. (“Versata”), who
had sued SAP for infringing the patent. In its petition to
the USPTO, SAP alleged that the patent was a covered
business method patent.
Covered business method patents are subject to the
special provisions of AIA § 18. See 125 Stat. at 329–31. 3
Section 18 establishes a separately-designated transition-
1 For oral argument purposes, this case, denomi-
nated as Versata I, was consolidated with Case No. 2014-
1145, on appeal from the United States District Court for
the Eastern District of Virginia, involving the same
parties, the same patent, and essentially the same issues.
That case will issue as Versata II.
2 The PTAB, established by § 7 of the AIA, is the
successor to the Board of Patent Appeals and Interfer-
ences (“BPAI”). Compare 35 U.S.C. § 6 (2006) (concerning
the BPAI) with 35 U.S.C. § 6 (2012) (concerning the
PTAB).
3 In general, the AIA is codified in various parts of
35 U.S. Code. Section 18 of the AIA is not however codi-
fied; it is found in 125 Stat. References to § 18 in this
opinion are to pages 329–31 of 125 Stat.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 5
al program 4 under which the USPTO conducts post-grant
review proceedings concerning the validity of covered
business method patents. As the title suggests, the
special program provided by § 18 is available only for
“covered business method patents,” as that term is de-
fined by the statute. However, for purposes of conducting
proceedings thereunder, § 18 is considered a part of the
broader chapter 32 provisions of title 35, U.S. Code,
governing post-grant review (“PGR”), 35 U.S.C. §§ 321–
329; § 18 expressly incorporates, with certain exceptions
not relevant here, the standards and procedures found in
that chapter. 5 § 18(a)(1).
In addition to the merits of the decision rendered by
the PTAB (which held the claims at issue invalid), the
parties to the appeal dispute several predicate issues.
These include:
4 The program is called ‘transitional’ because it is
scheduled to ‘sunset’ eight years after implementing
regulations are issued. § 18(a)(3)(A).
5 A note on terminology: The potential under the
AIA for more than the usual confusion that accompanies
new congressional mandates stems in part from inci-
dental features of the AIA. In particular, various new
procedures intersect with earlier procedures of a similar-
sounding kind, e.g., inter partes review (“IPR”) has re-
placed inter partes reexamination, compare 35 U.S.C.
§§ 311–318 (2006) (concerning inter partes reexamina-
tion), with 35 U.S.C. §§ 311–319 (2012) (concerning IPR).
The statute also employs identical terminology to mean
different things, e.g., the heading of AIA § 6 is entitled
“Post-Grant Review Proceedings,” 125 Stat. at 299, while
one of the programs thereunder shares the same name—
“Chapter 32—Post-Grant Review.” It is not uncommon
for the entirety of AIA proceedings to be referred to in-
formally as ‘post-grant review.’
6 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
• if the PTAB makes an initial determination
under § 18 of the AIA that the patented in-
vention qualifies for “covered business
method” treatment under § 18, may a court
review that issue when reviewing as part of
a final written decision the invalidation of
claims under the authority of § 18?
• if the answer is yes, for purposes of post-
grant review by the USPTO how is the term
“covered business method patent” to be un-
derstood, and does the patent at issue here
qualify as a CBM patent?
• if the PTAB correctly determines that un-
der § 18 of the AIA a patent comes within
the definition of a CBM patent, what are
the criteria for determining whether the pa-
tent is excluded from review under § 18 be-
cause the patent falls within the
statutorily-excepted category of “technologi-
cal invention,” and how do those criteria
apply to the ’350 patent?
• if, in deciding the merits of the case—the
validity of the challenged claims in the pa-
tent—the PTAB is called upon to engage in
claim construction, does the PTAB apply
the USPTO’s general rule of the “broadest
reasonable interpretation,” or does it apply
the judicial standard of the “one correct
construction”?
• finally, on appeal at the final written deci-
sion stage to this court, during which we
must decide whether the PTAB applied the
substantive tests for validity correctly, may
a court determine whether as an initial
matter the PTAB chose the correct substan-
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 7
tive tests to apply, and did the PTAB apply
them correctly here?
After determining the answers to these queries, con-
tested by the parties, as explained below, we address their
application to the ’350 patent at issue.
BACKGROUND
The ’350 Patent
Versata owns the ’350 patent, entitled “method and
apparatus for pricing products in multi-level product and
organizational groups.” ’350 patent, col. 1, ll. 1–3. The
“invention operates under the paradigm of WHO (the
purchasing organization) is buying WHAT (the product).”
Id. at col. 3, ll. 24–25. An example of the WHO/WHAT
paradigm, known in the prior art according to the patent,
is depicted in Figure 1 of the ’350 patent, reproduced
below:
See id. at col. 4, ll. 17–18.
The ’350 patent, however, states that prior art pricing
tables for WHO/WHAT required large data tables. See id.
at col. 1, ll. 52–59. The patent is said to improve upon the
prior art and reduce the need for large data tables by,
8 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
inter alia, arranging customers (purchasing organiza-
tions) into a hierarchy of customer groups and products
into a hierarchy of product groups. Id. at col. 3, ll. 24–27,
41–42, 66 – col. 4, l. 14. WHO is defined by the creation of
an organizational hierarchy of organizational groups,
where each group represents a characteristic of the organ-
izational group. Id. at col. 3, ll. 24–27. Figure 4A of the
patent, below, shows an example of an arrangement of an
organizational group:
See id. at col. 4, ll. 24–25.
Similarly, a product group hierarchy is defined that
can be applied to products (WHAT). Id. at col. 3, ll. 41–
42. Pricing information is then associated with the cus-
tomer and product groups. Id. at col. 8, ll. 17–25. Special
pricing adjustments may be defined as applying to all
members of a specific customer group or a specific product
group. Id. at col. 3, ll. 26–49.
We are concerned with claims 17 and 26–29. Claim
17 recites a “method for determining a price of a product
offered to a purchasing organization” comprising certain
steps. Id. at col. 20, l. 66 – col. 21, l. 29. Claim 26 recites
a “computer readable storage media comprising: computer
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 9
instructions to implement the method of claim 17.” Id. at
col. 21, ll. 61–62. Claim 27 recites a “computer imple-
mented method for determining a price of a product
offered to a purchasing organization” comprising certain
steps. Id. at col. 21, l. 63 – col. 22, l. 12. Claim 28 recites
a “computer readable storage media comprising: computer
instructions to implement the method of claim 27.” Id. at
col. 22, ll. 13–14. Claim 29 recites an “apparatus for
determining a price of a product offered to a purchasing
organization” comprising certain limitations. Id. at col.
22, ll. 15–35.
Claim 17 is representative:
A method for determining a price of a product of-
fered to a purchasing organization comprising: ar-
ranging a hierarchy of organizational groups
comprising a plurality of branches such that an
organizational group below a higher organization-
al group in each of the branches is a subset of the
higher organizational group; arranging a hierar-
chy of product groups comprising a plurality of
branches such that a product group below a high-
er product group in each of the branches in a sub-
set 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 or-
ganization, 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 or-
ganization is a member; sorting the pricing infor-
mation according to the pricing types, the product,
the purchasing organization, the hierarchy of
10 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
product groups, and the hierarchy of organiza-
tional groups; eliminating any of the pricing in-
formation that is less restrictive; and determining
the product price using the sorted pricing infor-
mation.
Id. at col. 20, l. 66 – col. 21, l. 29.
Prior Litigation
On April 20, 2007, Versata, along with Versata Soft-
ware, Inc. and Versata Computer Industry Solutions, Inc.,
sued SAP for, inter alia, infringement of the ’350 patent in
the U.S. District Court for the Eastern District of Texas.
The case proceeded to trial, and a jury found infringement
and awarded damages. The district court upheld the
infringement verdict but reversed other rulings unrelated
to the ’350 patent, resulting in a new trial on damages. A
jury then found that SAP’s post-patch software continued
to infringe and awarded lost-profits damages and reason-
able royalty damages. The district court upheld those
awards.
SAP appealed the district court’s final judgment to
our court. In Versata Software, Inc. v. SAP Am., Inc., 717
F.3d 1255 (Fed. Cir. 2013), we affirmed the jury’s in-
fringement verdict and damages award, but vacated as
overbroad a permanent injunction entered by the district
court. Id. at 1258. The case was remanded for the dis-
trict court to enter an order conforming to our opinion.
Id.; see also Versata Computer Indus. Solutions, Inc. v.
SAP AG, 564 F. App’x 600 (Fed. Cir. 2014) (per curiam).
Covered Business Method Patent Review
While all that was going on, SAP on September 16,
2012, petitioned the PTAB to institute a covered business
method review of Versata’s ’350 patent on the grounds
that claims 17 and 26–29 of the patent were unpatentable
for failure to comply with 35 U.S.C. §§ 101, 102, and 112,
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 11
1st and 2nd paragraphs. On January 9, 2013, the PTAB
granted SAP’s petition and instituted a covered business
method review of the ’350 patent. In accordance with the
statutory standard for instituting a review, the PTAB
determined that claims 17 and 26–29 were more likely
than not unpatentable under 35 U.S.C. §§ 101 and 102.
The PTAB declined to review the claims under § 112
because, in the PTAB’s view, SAP had not met the stand-
ard in that regard. Versata did not seek rehearing of the
decision to institute.
Subsequently, at SAP’s request, the PTAB agreed to
forego the § 102 review and expedite the § 101 review. On
June 11, 2013, the PTAB issued its final written decision
cancelling claims 17 and 26–29 as unpatentable under
§ 101. Versata sought rehearing of the final written
decision, which the PTAB denied. Versata then appealed
the final written decision to this court; that is the case we
decide here.
Proceedings Before the District Court
Before turning to the case before us, there is one addi-
tional litigation to be noted which is of direct relevance to
this case. On March 13, 2013, while the PTAB was con-
ducting its CBM review, Versata sued the USPTO in the
U.S. District Court for the Eastern District of Virginia,
seeking to set aside the PTAB’s decision to institute CBM
review. SAP filed a motion to intervene, which the dis-
trict court granted. On August 7, 2013, the district court
granted the USPTO’s motions to dismiss for lack of sub-
ject matter jurisdiction and failure to state a claim, and
SAP’s motion to dismiss for lack of subject matter juris-
diction.
The district court held that it lacked subject matter
jurisdiction “because the AIA’s express language, detailed
structure and scheme for administrative and judicial
review, legislative purpose, and nature of the administra-
12 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
tive action evince Congress’s clear intent to preclude
subject matter jurisdiction over the PTAB’s decision to
institute patent reexamination [sic] proceedings.” Versata
Dev. Corp. v. Rea, 959 F. Supp. 2d 912, 915 (E.D. Va.
2013). The district court also held that “the decision to
institute post-grant review is merely an initial step in the
PTAB’s process to resolve the ultimate question of patent
validity, not a final agency action as contemplated by 5
U.S.C. § 704. . . . Plaintiff retains an alternative adequate
remedy through appeal to the Court of Appeals for the
Federal Circuit.” Id. On October 5, 2013, the district
court denied Versata’s motion to alter or amend the
judgment. Versata appealed the district court’s judgment
to this court; that appeal is pending as Versata II.
We have jurisdiction over this case, Versata I, pursu-
ant to 28 U.S.C. § 1295(a)(4)(A).
DISCUSSION
Ultimately the issue to be decided on appeal concerns
the substantive merits: whether the PTAB ruled correctly
that the challenged earlier-issued claims of the ’350
patent are invalid for the reasons given by the PTAB,
namely, non-compliance with 35 U.S.C. § 101. Before
addressing this ultimate merits issue, however, we must
address the several predicate issues of process and proce-
dure that the parties raise—issues that could have deci-
sive effect on the outcome of the case regardless of its
substantive merits.
Issue Number 1—Judicial Review
The initial decision to institute review in response to a
petition is the first step in the post-grant review process.
In this case, the PTAB at the initial decision to institute
stage determined that the petition to review the ’350
patent should be granted. In making that determination,
the PTAB’s three-judge panel concluded:
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 13
• that the ’350 patent was a “covered busi-
ness method patent” as that term is defined
in the statute;
• that it was not a “technological invention,”
a statutorily-stated exception to that defini-
tion;
• that § 101 was applicable to patents re-
viewed under the CBM process;
• and that, as required by § 324(a), “it is more
likely than not that at least 1 of the claims
challenged in the petition is unpatentable.”
In its patent owner’s preliminary response at the de-
cision to institute stage, Versata had challenged each of
these propositions. The PTAB addressed Versata’s argu-
ments and rejected them.
After a review is instituted, the review proceeds to a
trial before the PTAB, and concludes with the PTAB’s
‘final written decision’: “the [PTAB] shall issue a final
written decision with respect to the patentability of any
patent claim challenged by the petitioner.” § 328(a).
Section 329 further provides for appeal of that decision to
the Court of Appeals for the Federal Circuit pursuant to
§§ 141–144; section 144 provides that “[t]he United States
Court of Appeals for the Federal Circuit shall review the
decision from which an appeal is taken on the record
before the Patent and Trademark Office.”
Before us then are the merits of the final written
decision rendered by the PTAB in this case. To be clear, it
is the merits of the final written decision that are on
appeal; we are not here called upon to review the deter-
mination by the PTAB whether to institute a CBM re-
view, and indeed the statute expressly instructs that we
may not:
14 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
The determination by the Director whether to in-
stitute a post-grant review under this section shall
be final and nonappealable.
35 U.S.C. § 324(e) (emphasis added). As noted, this
statute is applicable to post-grant reviews and CBM
proceedings; the PTAB acts for the Director in deciding
whether to institute a review, see 35 U.S.C. § 326(c); 37
C.F.R. § 42.4 (2014).
Turning to the merits, the PTAB, in its final written
decision, held Versata’s CBM patent claims 17 and 26–29
unpatentable under 35 U.S.C. § 101, and ordered them
cancelled. Versata on appeal challenges that holding on
multiple grounds:
• Versata’s patent does not claim a “covered
business method,” and in any event falls
within the safe harbor of a “technological
invention”;
• The PTAB does not have authority to re-
view CBM patents for subject-matter eligi-
bility under 35 U.S.C. § 101;
• The PTAB’s claim construction is wrong, it
applied the “broadest reasonable interpre-
tation” to its claim construction, which it
should not have, and had it correctly ana-
lyzed § 101 under the proper claim con-
struction it would not have reached the
holding it did.
SAP responds that, absent a finding that these issues
are either non-appealable or waived, on the merits the
USPTO correctly held that the ’350 patent is a “covered
business method patent” under § 18(a)(1)(E), and that the
AIA authorizes § 101 subject-matter eligibility as a
ground for CBM review.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 15
The USPTO entered the case as intervenor, as author-
ized by § 143. The USPTO devotes a substantial part of
its brief to the argument that this court lacks jurisdiction
to review the Director’s decision to institute a post-grant
review of the ’350 patent. On its face that argument
would appear curious, since as earlier explained the issue
on appeal before the court is only the merits of the final
written decision. However, the USPTO makes the point
that the question of whether the patent at issue here falls
within the scope of the PTAB’s authority under § 18 as a
“covered business method patent” (not one claiming a
“technological invention”) was decided by the PTAB at the
decision to institute stage, and on that basis it is immun-
ized from later judicial review at the final decision stage.
SAP, but not the USPTO, makes the additional ar-
gument that, under the specific terms of the judicial
review bar in § 324(e), supra, we do not have authority to
review any questions decided by the PTAB in the course
of making its initial decision to institute review, including
whether ineligibility under § 101 is a permissible ground
for invalidation under the CBM authority invoked by the
PTAB.
Thus, the USPTO contends that the CBM-specific in-
validation here must be upheld even if the PTAB incor-
rectly interpreted the statute regarding what is a CBM
patent and the patent is not a CBM patent under the
correct law, and SAP further contends that the invalida-
tion under § 101 must be upheld even if the PTAB’s CBM-
invalidation authority does not permit invalidation under
§ 101.
This is the first case challenging the scope of § 324(e)
at the final written decision stage. There are, however,
several recent cases decided by this court construing a
parallel statutory review bar—§ 314(d) under separate
chapter 31 of the AIA, Inter Partes Review. With one
16 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
exception to be addressed later, these cases have arisen in
the context of attempts at interlocutory review of PTAB
IPR decisions to institute.
In St. Jude Medical, Cardiology Division, Inc. v. Vol-
cano Corp., 749 F.3d 1373 (Fed. Cir. 2014), the first of the
interlocutory review cases, the patentee had initiated an
infringement suit. The defendant in the suit counter-
claimed, asserting infringement of the defendant’s patent
by the initiating patentee. The initiating patentee then
sought post-grant review of the defendant’s patent under
the IPR provisions. The PTAB decided not to institute
review, a decision the patentee appealed directly to this
court.
We held that the patentee’s appeal of the PTAB deci-
sion was statutorily barred by § 314(d), and granted the
motion by the defendant and the USPTO to dismiss the
appeal. In its decision to deny direct review, our court
examined the application of § 314(d) to the case. As
noted, this section—314(d)—is the counter-part to the one
with which we are concerned here—§ 324(e), except that
314(d) applies specifically to IPR cases, whereas 324(e)
applies to PGR and CBM (§ 18) cases.
The court commented that § 314(d) “may well pre-
clude all review by any route, which we need not decide.
It certainly bars an appeal of the non-institution decision
here.” 749 F.3d at 1376. The court thus distinguished the
question of the availability of immediate “appeal” under
35 U.S.C. §§ 141(c) and 319, which it was deciding, from
the question of “review” (in the course of bringing other
actions, such as appeals from final decisions or APA
actions in district court), which it expressly said it was
not deciding. The court based its holding “on the struc-
ture of the inter partes review provisions, on the language
of section 314(d) within that structure, and on our juris-
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 17
dictional statute read in light of those provisions.” Id. at
1375.
The same day the court issued St. Jude, we issued two
other opinions reaching the same result under the same
statute, though in different procedural contexts. See In re
Dominion Dealer Solutions, LLC, 749 F.3d 1379 (Fed. Cir.
2014) (PTAB declined to institute IPR review; held, for
the reasons explained in St. Jude, we did not have juris-
diction to hear petitioner’s mandamus action challenging
the PTAB’s decision); In re Procter & Gamble Co., 749
F.3d 1376, 1377 (Fed. Cir. 2014) (PTAB granted rather
than refused to institute IPR review; held, that for the
same reasons, the difference between a denial and a grant
of review made no difference to our mandamus jurisdic-
tion—“immediate review of such a decision is not availa-
ble in this court.”).
In its opinion in In re Procter & Gamble Co., the court
explained what it was not deciding:
It is a separate question whether section 314(d)
means that the decision to institute the review is
unchallengeable later—if the Board reaches a de-
cision under section 318(a) and an appeal is taken
under section 319 [appeal to this court of the final
written decision of the PTAB]. Perhaps section
314(d)’s broad language precludes all judicial re-
view of the institution decision, even in an even-
tual section 319 appeal. We need not decide that
question, which can be addressed in a section 319
appeal. Nor need we address whether an imme-
diate challenge could be brought in district court
[through an APA action].
749 F.3d at 1379.
Again, the statutory references are to the IPR ch. 31
provisions, which, though not directly applicable to CBM
18 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
cases, parallel those of the PGR ch. 32 provisions with
which we are concerned here.
Two other recent opinions by this court warrant com-
ment since they arise directly under chapter 32 and § 18,
and, though they involve different fact settings from those
discussed above, they cast light on how we are to under-
stand § 18. 6 In VirtualAgility Inc. v. Salesforce.com, Inc.,
759 F.3d 1307 (Fed. Cir. 2014), the issue was whether a
district court had properly denied a request for a stay of
previously-commenced litigation. The defendant in the
district court litigation had petitioned the USPTO for
post-grant review of an alleged CBM patent under § 18.
The PTAB had instituted review, and trial by the PTAB of
the validity of the patent claims was on-going when the
stay was requested.
This court reversed the district court’s denial of the
stay. We noted that the district court had erred to the
extent it had undertaken a review of the merits of the
PTAB decision to institute review. We said:
Indeed, a challenge to the PTAB’s “more likely
than not” determination at this stage amounts to
an improper collateral attack on the PTAB’s deci-
sion to institute CBM review, and allowing it
would create serious practical problems. . . . Con-
gress clearly did not intend district courts to hold
mini-trials reviewing the PTAB’s decision on the
merits of the CBM review. . . . The stay determi-
nation is not the time or the place to review the
PTAB’s decisions to institute a CBM proceeding.
6 See also GTNX, Inc. v. INTTRA, Inc., Nos. 15-
1349, -1350, -1352, -1353, 2015 WL 3692319 (Fed. Cir.
June 16, 2015) (a third case).
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 19
Id. at 1313. 7
And in Benefit Funding Systems LLC v. Advance
America Cash Advance Centers Inc., 767 F.3d 1383 (Fed.
Cir. 2014), the question was whether a district court
decision to grant a stay of proceedings was proper pending
the outcome of an on-going post-grant review at the
PTAB.
The patentee’s sole argument on appeal was that the
USPTO could not institute review proceedings of a CBM
patent on the grounds of a violation of § 101. Section 101
specifies the kinds of inventions that are patentable and
is an issue in this case as well. In affirming the district
court’s stay determination, we said “‘[t]he stay determina-
tion is not the time or the place to review the PTAB’s
decisions to institute a CBM proceeding.’” Id. at 1386
(quoting VirtualAgility, 759 F.3d at 1313). We then
added:
This is not to say that a patent owner could never
attack the PTAB’s authority to conduct CBM re-
view. Indeed, Appellants might potentially chal-
lenge that authority in the context of a direct
appeal of the PTAB’s final decision. . . . They
simply cannot mount such a challenge as a collat-
eral attack in opposition to a stay. Having reject-
ed Appellants’ argument as an impermissible
collateral attack, we do not address the underly-
ing merits of that attack, namely whether § 101 is
a valid ground for CBM review.
Id.
7 Judge Newman dissented on the ground that the
district court in its decision was not given the deference to
which it was entitled.
20 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
Returning to the case before us, Versata, as earlier
noted, had brought an action in the U.S. District Court for
the Eastern District of Virginia, under the Administrative
Procedure Act (“APA”), to prevent the PTAB from pro-
ceeding with the § 18 CBM review of the ’350 patent at
issue in this case. Versata challenged the authority of the
PTAB to have instituted the review of the ’350 patent
under § 18; SAP and the USPTO moved to dismiss the
complaint.
In support of its motions to dismiss, the USPTO ar-
gued, consistent with the suggestion noted supra in
Benefit Funding, that there was an available remedy
under the AIA statute—the issues decided by the PTAB
at the institution stage are preserved for review at the
time of an appeal to the Federal Circuit of the PTAB’s
final written decision. The district court granted the
USPTO’s motions and SAP’s motion and dismissed Versa-
ta’s APA complaint on two alternative grounds, including
that “an adequate remedy exists by way of direct appeal
[of the final written decision] to the Federal Circuit.”
Versata Dev. Corp., 959 F. Supp. 2d at 927.
The district court suit involved essentially the same
parties, the same patent, and the same basic issues.
Accordingly, based on the USPTO’s representations to the
district court, despite (or in accordance with) the provi-
sions of § 324(e), this court should entertain and decide
the predicate questions raised by the parties regarding
the USPTO’s authority over this patent, and whether the
proper law was applied. This is so even though the chal-
lenged decisions were initially made at the decision to
institute stage.
The USPTO, however, now represented in this appeal
by the Department of Justice Civil Division Appellate
Staff, advises the court that the Government has recon-
sidered its position. The Government now argues for
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 21
what it characterizes as a “jurisdiction[al]” bar on this
court’s review of at least some of the issues decided at the
initial decision to institute stage. Intervenor’s Br. at 13.
Some of the Government’s language suggests a bar on
reviewing any PTAB determination made when institut-
ing review. This language would seem to cover even
whether § 101 is an available ground of invalidation, but
the Government does not expressly make that contention.
Its nonreviewability argument is limited to the contention
that we may not review whether the ’350 patent is a CBM
patent under § 18. (Judge Hughes likewise limits his
Dissent in Part to the CBM question.)
In response to the Government’s new position, Versa-
ta argues that the Government is estopped from reconsid-
ering its position in the district court APA action, citing
New Hampshire v. Maine, 532 U.S. 742, 749 (2001). The
Government responds that it is better that it acknowledg-
es its errors rather than compound them.
Ordinarily, the Government’s willingness to confess
error should be encouraged. However, given the fact that
the district court action and this appeal share the same
parties, the same patent, and the same contested issues,
there is a ‘bait-and-switch’ aspect to the Government’s
newly-arrived-at position: when it helps the Government’s
position, a predicate issue, they argue, can be reviewed on
appeal; but when it might hurt, the issue becomes not
reviewable.
Fortunately, we need not judge the astuteness of the
Government’s confession. Nor, in deciding the question of
reviewability, need we decide the strength of Versata’s
estoppel position. This is because the Government was
right the first time—for the reasons we shall next explain,
its original position on reviewability, with some clarifica-
tion, was the correct one.
22 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
We have before us Versata’s appeal from the final
written decision of the PTAB invalidating Versata’s
patent under § 18 authority, an authority limited to CBM
patents. On the reviewability issue that divides Versata
and the Government, Versata argues that the invalida-
tion must be reversed as beyond the § 18 authority be-
cause the ’350 patent is not actually a CBM patent under
the law if properly understood, and so is outside the
PTAB’s invalidation authority under § 18. The Govern-
ment contends to the contrary: as a threshold matter, we
may not review—indeed, we have no “jurisdiction” to
decide—whether the ’350 patent is a CBM patent since
that was initially decided by the PTAB at the institution
stage. Intervenor’s Br. at 13.
To determine this reviewability issue, two related
questions must be answered: first, does the § 324(e)
judicial review bar permit judicial review, when conduct-
ed with regard to the final written decision, of PTAB
compliance with any requirement that involves the ulti-
mate authority of the PTAB to invalidate a patent; sec-
ond, if yes, is the restriction of § 18 to CBM patents such
a limit. We answer both questions in the affirmative, and
therefore reject the contention that we may not review
whether the ’350 patent is a CBM patent covered by § 18.
As to the first question: what § 324(e) says is that
“[t]he determination by the [PTAB] whether to institute a
post-grant review under this section shall be final and
nonappealable.” 35 U.S.C. § 324(e) (emphasis added).
That language does not by its terms apply to limits on the
authority to enter a “final written decision” invalidating a
patent. Institution and invalidation are two distinct
actions by the PTAB. In addition to being deeply embed-
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 23
ded in federal administrative law, 8 the distinction is built
into the structure of this particular AIA statute, as ex-
plained above, and § 324(e) applies only to the decision to
institute.
The distinct agency actions do not become the same
just because the agency decides certain issues at both
stages of the process. Nor do they become the same just
because the agency chooses, or even follows a congres-
sional directive, to decide an issue determining final-
action authority at the initiation stage and then does not
revisit the issue later. Early-stage decision of a basic
authority question can make sense as an efficiency mat-
ter. There is no good reason to launch a proceeding if it is
clear that the agency will have no authority to act at its
conclusion. On the other hand, some determinations
normally made at the initiation stage may not affect
authority to render a final decision whenever made.
Overlap of issues is not determinative, neither is the
timing determinative. Indeed, the Government implicitly
agrees. Unlike SAP, it pointedly does not contend that
8 Under the APA, an agency initiation of proceedings
is an agency action, 5 U.S.C. § 702, but it commonly is not
a reviewable “final agency action,” id. § 704. See Bennett
v. Spear, 520 U.S. 154 (1997); FTC v. Standard Oil Co. of
Cal., 449 U.S. 232 (1980); S. Ry. Co. v. Seaboard Allied
Milling Corp., 442 U.S. 444, 452 (1979); Automated
Merch. Sys., Inc. v. Lee, 782 F.3d 1376 (Fed. Cir. 2015)
(adopting the Government’s argument that even a deci-
sion to continue a proceeding is not a final agency action,
which generally will occur only upon conclusion of the
proceeding); see also Sackett v. EPA, 132 S. Ct. 1367(2012); 16 Charles Alan Wright et al., Federal Practice &
Procedure § 3942; 32 Charles Alan Wright et al., Federal
Practice & Procedure § 8220.
24 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
§ 324(e) bars our review of whether § 101 is an available
ground for invalidation under § 18, regardless of when the
PTAB considered that issue.
It would not only run counter to the language of
§ 324(e) to read it as barring review of whether the PTAB
exceeded statutory limits on its authority to invalidate. It
would also run counter to our long tradition of judicial
review of government actions that alter the legal rights of
an affected person, a hallmark of the distinction between
(generally reviewable) final agency action and (generally
unreviewable) agency action that merely initiates a
process to consider such an alteration. See Bennett, 520
U.S. at 177–78.
It has long been the law that “[a]dministrative deter-
minations must have a basis in law and must be within
the granted authority. . . . An agency may not finally
decide the limits of its statutory power. That is a judicial
function.” Soc. Sec. Bd. v. Nierotko, 327 U.S. 358, 369
(1946). The Supreme Court has repeatedly emphasized
“the strong presumption that Congress intends judicial
review of administrative action,” and that “[f]rom the
beginning ‘our cases [have established] that judicial
review of a final agency action by an aggrieved person will
not be cut off unless there is persuasive reason to believe
that such was the purpose of Congress.’” Bowen v. Mich.
Acad. of Family Physicians, 476 U.S. 667, 670 (1986)
(quoting Abbott Labs. v. Gardner, 387 U.S. 136, 140
(1967)). 9
More specifically, when doubt about congressional in-
tent exists, the general presumption favoring judicial
9 See Shalala v. Illinois Council on Long Term
Care, Inc., 529 U.S. 1 (2000), for the Court’s refinement of
Bowen’s application to specific Medicare statutes.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 25
review of rights-changing administrative action is control-
ling. Block v. Cmty. Nutrition Inst., 467 U.S. 340, 351
(1984). As a result, an agency seeking to overcome this
strong presumption faces a “heavy burden” and must do
so by “clear and convincing” evidence. Bowen, 476 U.S. at671–72. The Supreme Court recently reiterated the
agency’s heavy burden to overcome the strong presump-
tion against unreviewability. See Mach Mining, LLC v.
E.E.O.C., 135 S. Ct. 1645, 1651 (2015).
Congress explained the anomalous nature of a bar to
judicial review of final agency action:
Very rarely do statutes withhold judicial review.
It has never been the policy of Congress to prevent
the administration of its own statutes from being
judicially confined to the scope of authority grant-
ed or to the objectives specified. Its policy could
not be otherwise, for in such a case statutes would
in effect be blank checks drawn to the credit of
some administrative officer or board.
S. Rep. No. 79-752, at 26 (1945); H.R. Rep. No. 79-1980, at
41 (1946) (same); Bowen, 476 U.S. at 671 (quoting same).
Here, nothing in § 324(e) meets the high standard for
precluding review of whether the PTAB has violated a
limit on its invalidation authority under § 18.
As to the second question implicit in the Govern-
ment’s nonreviewability contention: one of the limits on
§ 18 invalidation authority is that the patent at issue be a
CBM patent. Congress created a special review regime,
over and above any other authority the PTAB might have,
for reviewing and invalidating patents that qualify as
CBM patents. And it put a time limit (eight years) on the
PTAB’s authority under that regime. This requirement
defines the PTAB’s authority to invalidate under § 18. If
a particular patent is not a CBM patent, there is no
26 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
proper pleading that could be filed to bring it within the
PTAB’s § 18 authority.
In so concluding, we need not and do not consider all
of the various determinations the PTAB may make to
initiate proceedings and which may constitute limits on
ultimate invalidation authority, reviewable on appeal
from a final written decision invalidating a patent. It is
enough for us to determine here that the defining charac-
teristic of a patent as a CBM patent, subjecting it to a
special PTAB power to invalidate, is such a limit. 10
The Government and SAP have not identified any
reason to draw different conclusions. It is clear from the
legislative history of the AIA that Congress purposely set
out to create a relatively simple and expedited adminis-
trative process. See, e.g., H.R. Rep. No. 112-98, at 48
(2011). However, nothing in that purpose precludes or
argues against this court, in an appeal of a final written
decision, deciding contested questions regarding premises
necessary to the agency’s ultimate relied-on authority to
take the action on appeal—here, invalidation of the
patent claims under the CBM authorization—just because
the agency first addressed those premises at the initiation
stage of the proceeding. The appeal process, with its
inherent delays, is already committed. Any further delay
caused by having the court decide as part of the basic
merits case a predicate issue such as raised here, would
be limited. Indeed, when the answers to these predicate
issues are decided as a matter of precedent, further delay,
if any, will be minimal, if not essentially disappear.
10 The Government and SAP argue that the PTAB
found Versata waived this issue during the trial. As we
have explained, this is a predicate issue, and a necessary
part of the record on appeal.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 27
The parties, digging through the legislative record,
come up with competing statements from various legisla-
tors with regard to the possible scope of the issues to be
heard on appeal. Even assuming such statements are
thought to be relevant, the variety of conflicting views
illustrates why we must focus on the structure and lan-
guage of the act, not on what its advocates and detractors
may say about it.
Looking at the structure of § 18, the Government, in
support of its new-found position against judicial review,
notes that the only provision of the AIA that allows an
appeal to this court from a post-grant review proceeding is
§ 329; that section authorizes judicial review of the “final
written decision” of the PTAB made pursuant to § 328(a).
The government reads this as limiting review to only the
final written decision, and not anything in the initial
decision to institute. But that of course begs the ques-
tion—what aspects of the final written decision are sub-
ject to review?
The Government finds significance in the fact that
§ 328(a) directs the PTAB to issue a decision with respect
to the patentability of any patent claim. Putting this
provision together with § 329, the Government argues
that on appeal the court is limited to only what the PTAB
is directed to do. But that is a non-sequitur. The statuto-
ry description of an agency’s decisional duties does not
necessarily define the scope of an appellate court’s ulti-
mate merits considerations.
The Government also draws parallels between this is-
sue under the AIA and the USPTO’s practice in the prior-
established ex parte reexamination proceedings, and in its
prior practice under the now-superseded provisions for
inter partes reexamination. We do not find that either of
those proceedings, established under different statutory
provisions and dealing with different issues, is controlling
28 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
here. It is worth noting, however, that the pre-AIA case
law made clear that limitations on the scope of reexami-
nation authority were reviewable upon the final decision
even though the USPTO considered such limitations
solely at the initiation stage and initiation itself was long
held to be unreviewable. See In re NTP, Inc., 654 F.3d
1268 (Fed. Cir. 2011); In re Hiniker Co., 150 F.3d 1362(Fed. Cir. 1998); In re Portola Packaging, Inc., 110 F.3d
786 (Fed. Cir. 1997), superseded by statute as recognized
in In re NTP, Inc., 654 F.3d at 1277; In re Recreative
Techs. Corp., 83 F.3d 1394 (Fed. Cir. 1996).
In short, we do not find that the Government’s argu-
ments approach meeting the “heavy burden” of persuasion
needed to overcome the “strong presumption” of judicial
review. Congress, by limiting the scope of the review bar
in § 324 as we have described, struck a balance between
Congress’s desire for a prompt and efficient review pro-
cess at the USPTO, on the one hand, and, on the other,
the necessary recognition of the traditional role of judicial
review of final agency action. We find that balance care-
fully crafted and consistent with the roles the Constitu-
tion assigns to the Judicial and Executive Branches.
In re Cuozzo Speed Technologies, LLC, No. 14-1301
(Fed. Cir. July 8, 2015), decided by the court after the
briefing had concluded in this case, is not to the contra-
ry. 11 The court in Cuozzo did not answer either of the two
questions we decide in concluding that we may review
whether Versata’s patent is a CBM patent. That is clear
11 The original opinion and dissent in Cuozzo issued
on February 4, 2015. 778 F.3d 1271 (Newman, J., dis-
senting). A revised panel opinion and dissent issued on
July 8, 2015. On the same day, the court denied a peti-
tion for rehearing en banc with a concurrence and two
dissents to the denial.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 29
even putting aside any difference there might be between
§ 314(d)—at issue in Cuozzo—and § 324(e)—at issue here.
To take the two questions in reverse order: Cuozzo did
not decide whether status as a CBM patent was a limit on
invalidation of authority under § 18. It could hardly have
done so. Cuozzo did not involve a purported CBM patent
or the PTAB’s § 18 authority.
More broadly, Cuozzo did not address, and had no oc-
casion to address, the question whether (despite § 314(d))
a final written decision can be reviewed for compliance
with a limit on the PTAB’s invalidation authority. Recog-
nizing the distinction between initiation and final invali-
dation, Cuozzo, slip op. at 5–8, the court ruled only on
review of the initiation decision itself, not about whether
the final decision breached any limit on invalidation
authority.
And that focus was inherent in the substance of the
challenge, for a reason Cuozzo noted. The challenge was
simply that the IPR petition at issue had not cited partic-
ular prior art the PTAB ultimately relied on for invalida-
tion. A proper petition undisputedly could have cited it,
thereby plainly giving the PTAB authority to invalidate
the patent at issue in the IPR. Id. at 7–8. The alleged
error in initiation was “irrelevant” because it was like the
error that was “washed clean” in Hiniker. Id. The court
in Cuozzo did not rule on or have before it an asserted
violation of a limit on the PTAB’s ultimate authority to
invalidate that could not have been cured by a proper
pleading. 12
12 In that light, and following the issuance of the
original opinion in Cuozzo, Versata, in a letter citing
supplemental authority, requested that if necessary its
30 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
For the foregoing reasons, we hold that we have au-
thority to review whether the ’350 patent is within the
PTAB’s § 18 authority.
Issue Number 2—Is the ’350 Patent a “Covered
Business Method Patent”?
AIA section 18 establishes a post-grant review pro-
ceeding “for review of the validity of covered business
method patents.” § 18(a)(1). In case anyone wished to
argue the question, Congress left no doubt about the scope
of § 18: “The Director may institute a transitional pro-
ceeding [under § 18] only for a patent that is a covered
business method patent.” § 18(a)(1)(E).
The statute defines a “covered business method pa-
tent” as:
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 . . . .
§ 18(d)(1).
A basic disagreement between the parties to this case is
how broadly this language should be read, and according-
ly, whether it encompasses the invention set out in the
’350 patent.
In addition to the boundaries inherent in the statuto-
ry definition, Congress also provided a specific exception:
“the term [covered business method patent] does not
include patents for technological inventions.” Id. Unhelp-
fully, Congress did not then define a “technological inven-
tion,” but instead instructed the USPTO to “issue
regulations for determining whether a patent is for a
appeal be treated as a mandamus petition. In view of our
disposition of the case, the request is moot.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 31
technological invention.” § 18(d)(2). The USPTO has by
regulation promulgated its version of a definition of a
“technological invention.” 37 C.F.R. § 42.301(b). The
parties disagree as to whether the invention in this case is
such an excepted “technological invention.”
Congress, in addition to the specific authorization to
the USPTO to adopt regulations defining the meaning of
“technological invention,” also gave the USPTO broad
authority over the entire § 18 program—authority to
“issue regulations establishing and implementing a
transitional post-grant review proceeding for review of the
validity of covered business method patents.” § 18(a)(1).
Pursuant to that broad authority, the USPTO adopted
extensive regulations governing the § 18 program. See 37
C.F.R. §§ 42.300–.304. Thus the regulations, in addition
to a definition of “technological invention,” id. § 42.301(b),
also contain a definition of “covered business method
patent,” id. § 42.301(a).
We first consider what, under the statute and the is-
sued regulations, is a “covered business method patent,”
and whether the term applies to the patent at issue in
this case. Subsequently we consider what the USPTO
regulations, in the absence of a statutory definition,
understand the exception for a “technological invention”
to be, and again its application to this patent.
The Scope of the Term “Covered Business Method Patent”
We set out above the statutory definition of a “covered
business method patent” found in § 18(d)(1). The
USPTO’s regulation, defining the same term, restates
verbatim the statutory definition and nothing more.
Though that avoids any question of whether the regula-
tion is consistent with the statute, regrettably it adds
nothing to our understanding of the scope question.
32 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
In response to Versata’s objection that the ’350 patent
was not a covered business method patent, the PTAB was
therefore left to its own devices. The PTAB undertook an
analysis regarding whether Versata’s claims 17 and 26–
29 must necessarily be directed to “financial products or
services,” as these terms are used in the definition. 13 The
PTAB noted that, as part of the process of implementing
§ 18, the USPTO had published notices of proposed and
final rulemaking, and that among the rules proposed and
subsequently adopted was the definition of “covered
business method patent” contained in 37 C.F.R.
§ 42.301(a), the definition described above.
The PTAB observed that in its notices the USPTO
considered the legislative debates and history, as well as
the overall transitional program itself. See J.A. 21–22
(citing Transitional Program for Covered Business Meth-
od Patents—Definitions of Covered Business Method
Patent and Technological Invention, 77 Fed. Reg. 48734,
48735 (Aug. 14, 2012)). Also, the PTAB observed that in
its final notice of rulemaking the agency explained that
the legislative history supported the proposition that the
definition be broadly interpreted to “encompass patents
claiming activities that are financial in nature, incidental
to a financial activity or complementary to a financial
activity.” Id.Further, in the Federal Register notice explaining the
agency’s decision to adopt its final rule, the agency notice
observes that one commentator responding to the rule
proposal suggested that the regulatory definition of
covered business method should be limited specifically to
the products and services of the financial services indus-
13 As noted earlier, this issue was addressed in the
PTAB’s decision to institute review, not in its final writ-
ten decision.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 33
try. 77 Fed. Reg. at 48736. Another suggestion was that
the agency should make specific reference in the defini-
tion to Class 705 of the United States Classification
System, used by USPTO examiners. Id. (This classifica-
tion is generally considered to be focused primarily on
financial institutions as such.) 14
The PTAB noted that the agency summarily rejected
these proposals. Instead, the USPTO stated that:
The suggestion to clarify that the term “financial
product or service” is limited to the products or
services of the financial services industry is not
adopted. Such a narrow construction of the term
would limit the scope of the definition of covered
business method patents beyond the intent of sec-
tion 18(d)(1) of the AIA.
Id.
The PTAB thus declined to interpret the statute as
requiring that the patent’s invention literally comprehend
a financial product or service: “The term financial is an
adjective that simply means relating to monetary mat-
ters.” J.A. 23. The PTAB concluded that “Versata’s ’350
patent claims methods and products for determining a
price and that these claims, which are complementary to
a financial activity and relate to monetary matters, are
considered financial products and services under
§ 18(d)(1).” Id.
14There is a considerable amount of history regard-
ing Class 705—the technology class associated with the
volume of business method patents that issued in the
early 2000s. See, e.g., 157 Cong. Rec. 3432 (2011). Class
705 itself apparently served as the original template for
the definition of a “covered business method,” but was
thought to be too narrow. Id. at 13167.
34 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
In its appeal here, Versata renews its argument
against the PTAB position. Versata takes the position
that Congress used the phrase “financial product or
service” for a reason and that the plain meaning of the
text of the statute limits the PTAB’s jurisdiction to prod-
ucts or services from the financial sector—i.e., banks,
brokerages, holding companies, insurance, and similar
institutions with a finance focus. If Congress had intend-
ed the scope of the definition to capture other things
incidental to commerce, it could have said so, and it would
have used different words.
SAP responds that the ’350 patent claims “[a] method
for determining a price of a product offered to a purchas-
ing organization.” Appellees’ Br. at 45 (quoting ’350
patent col. 19, ll. 57–58). Under any interpretation of the
statutory definition, argues SAP, price calculations plain-
ly fall within the “practice, administration, or manage-
ment of a financial product or service” language of AIA
§ 18(d)(1). Even if Congress’s intent in this regard could
be considered unclear, the USPTO’s interpretation of
§ 18(d)(1) as broadly interpreted and “encompass[ing]
patents claiming activities that are financial in nature,
incidental to a financial activity or complementary to a
financial activity,” is, according to SAP, entitled to defer-
ence under Cooper Technologies Co. v. Dudas, 536 F.3d
1330, 1337 (Fed. Cir. 2008). According to SAP, the patent
claims a “method for determining price,” ’350 patent, col.
20, l. 66, not something Versata calls a “hierarchical
pricing engine.” Appellees’ Br. at 49. The PTAB made
specific findings that the claimed steps “could be per-
formed . . . with pencil and paper,” and “no specific, un-
conventional software, computer equipment, tools or
processing capabilities are required.” J.A. 27–28. These
findings, argues SAP, support its determination.
The USPTO in its brief as intervenor notes that the
PTAB’s interpretation of “financial” as “relating to mone-
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 35
tary matters” comports with the dictionary definition,
citing The Random House Dictionary of the English
Language 719 (2d ed. 1987) (defining, according to the
USPTO, “financial” as “pertaining or relating to money
matters”). This interpretation, it is said, readily embraces
the ’350 patent which expressly claims a “method for
determining a price of a product” in claim 17. ’350 patent,
col. 20, l. 66. According to the USPTO, nothing in the text
of the statute limits AIA § 18(d)(1) to any one sector or
industry. Further, the legislative history supports the
broader definition. Thus, argues the USPTO, the PTAB’s
interpretation was not arbitrary or capricious.
We agree with the USPTO that, as a matter of statu-
tory construction, the definition of “covered business
method patent” is not limited to products and services of
only the financial industry, or to patents owned by or
directly affecting the activities of financial institutions
such as banks and brokerage houses. The plain text of
the statutory definition contained in § 18(d)(1)—
“performing . . . operations used in the practice, admin-
istration, or management of a financial product or ser-
vice”—on its face covers a wide range of finance-related
activities. The statutory definition makes no reference to
financial institutions as such, and does not limit itself
only to those institutions.
To limit the definition as Versata argues would re-
quire reading limitations into the statute that are not
there. This understanding of the text is reinforced by the
scope of the entire § 18 program, and the general concern,
including within the halls of Congress, regarding litiga-
tion abuse over business method patents. These concerns
caused Congress to create a special program for these
patents in the first place.
Furthermore, the expertise of the USPTO entitles the
agency to substantial deference in how it defines its
36 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
mission. Congress recognized this by its broad delegation
of rulemaking authority in the establishment and imple-
mentation of this transitional post-grant review proceed-
ing. See § 18(a)(1). It might have been helpful if the
agency had used that authority to elaborate on its under-
standing of the definition provided in the statute. Never-
theless, for the reasons we have explained, we conclude
that the ’350 patent and the invention it comprises fall
well within the terms of the statutory definition of a
“covered business method patent.”
The Meaning of “Technological Invention”
Section 18(d) states that the term “covered business
method patent” does not include patents for “technological
inventions.” The parties dispute whether the ’350 patent
is for a technological invention. This requires that we
first determine what is meant by that term, and then
whether the PTAB was correct in finding this patent is
not such an invention. As earlier noted, Congress did not
define the term, but left it to the USPTO to do. The
USPTO followed Congress’s instructions, and in 37 C.F.R.
§ 42.301(b) promulgated its definition.
According to the regulation, a “technological inven-
tion” is one in which “the claimed subject matter as a
whole recites a technological feature that is novel and
unobvious over the prior art; and solves a technical prob-
lem using a technical solution.” Id. The regulation speci-
fies that these criteria will be considered “on a case-by-
case basis.” Id. This definition is notable as much for
what it does not say as for what it does say.
First, the requirement that a technological invention
should be novel and nonobvious over the prior art could be
said to be rather obvious, and not novel. This is because
in order to be eligible for patenting in the first place, any
invention must be novel (35 U.S.C. § 102) and nonobvious
(35 U.S.C. § 103); presumably the invention under review,
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 37
since it has already been covered by an issued patent, was
earlier determined by the USPTO to be novel and nonob-
vious. At this early stage of the process, when the
USPTO is first determining whether the patent at issue is
even a CBM, there would seem to be little cause to deter-
mine what will be one of the ultimate questions if review
is granted—did the USPTO err in the first instance when
it originally determined that the invention was novel and
nonobvious?
Putting this part of the regulation’s definition aside,
we are left with a definition of a “technological invention”
as essentially one having a “technological” feature that
solves a “technical” problem using a “technical” solution.
Defining a term in terms of itself does not seem to offer
much help. In short, neither the statute’s punt to the
USPTO nor the agency’s lateral of the ball offer anything
very useful in understanding the meaning of the term
“technological invention.”
Thus the PTAB, in concluding that it had jurisdiction
over the ’350 patent as a covered business method patent
that was not within the exception for a technical inven-
tion, had to craft its own understanding of what is meant
by a “technological invention.” First, the PTAB recited
the fact that the USPTO had adopted a definition and had
published a related notice, see Office Patent Trial Practice
Guide, 77 Fed. Reg. 48756, 48763–64 (Aug. 14, 2012). The
notice listed certain characteristics which, if present, did
not help support a finding that the invention was within
the “technological invention” exception from CBM treat-
ment. These are: 1) mere “recitation of known technolo-
gies”; 2) “reciting the use of known prior art technology”;
and 3) “combining prior art structures to achieve the
normal, expected, or predictable result of that combina-
tion.” Id. at 48764.
38 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
The PTAB, taking the position that the presence of a
single qualifying claim is sufficient to institute covered
business method review, selected claim 17 for closer
analysis. (Claim 17 is set out in extenso in the ‘Back-
ground’ section, supra.) Versata, in its effort to avoid
CBM review of the ’350 patent, argued that claim 17, like
all the claims in the patent, recited a novel and nonobvi-
ous technological feature. This was described as a “hier-
archical data structure” used in combination with a
software-implemented pricing procedure. Versata further
contended that the claims all require the use of a comput-
er and the use of “denormalized” numbers that are to be
determined in “run time.” SAP responded that claim 17
lacked a novel and nonobvious technological feature as
the claim was merely directed to a business process of
determining product prices that lack even minimal com-
puter-related recitations. The PTAB concluded that claim
17 did not recite a technological invention.
We accept the PTAB’s use of claim 17 as representa-
tive. As the PTAB correctly noted, even if the invention
required the use of a computer, the claim did not consti-
tute a technological invention. As we are now instructed,
the presence of a general purpose computer to facilitate
operations through uninventive steps does not change the
fundamental character of an invention. See Alice Corp.
Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
The PTAB viewed the invention typified by claim 17
as basically a method of determining a price. This was a
determination that could be achieved “in any type of
computer system or programming or processing environ-
ment,” and accordingly “no specific, unconventional
software, computer equipment, tools or processing capa-
bilities are required.” J.A. 28 (citing Dealertrack, Inc. v.
Huber, 674 F.3d 1315, 1333 (Fed. Cir. 2012)).
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 39
We agree with the PTAB’s determination that claim
17 does not solve a technical problem using a technical
solution. Indeed, contrary to Versata’s argument that the
invention “‘leveraged the hierarchal data structures used
by large companies to organize pricing information,’” we
agree with the PTAB that this is not a technical solution
but more akin to creating organizational management
charts. Id. (citation omitted). Like the PTAB, and for
many of the same reasons, we conclude that whatever
may be the full sweep of the term “technological inven-
tion,” the invention that comprises the ’350 patent is
essentially not a technological one as that term ordinarily
would be understood.
Accordingly, we affirm the PTAB’s conclusion that
Versata’s ’350 patent is a covered business method patent,
and that it does not fall within the exception for techno-
logical inventions, whatever that exception may otherwise
mean. 15
Issue Number 3—Claim Construction Standards
When addressing the ultimate merits in this case—
the question of compliance by the patent with the re-
quirements of § 101—the PTAB faced an issue of claim
construction. The PTAB applied its “broadest reasonable
interpretation” (“BRI”) standard to the issue, the stand-
ard adopted in 2012 by the USPTO for AIA post-grant
proceedings, and generally used in USPTO office actions.
Versata challenges application of that standard to its
claims in this case. 16
15 See also Brief of The Internet Association as Ami-
cus Curiae in Support of Appellees.
16 See also Amici Curiae Brief of 3M Company et al.
in Support of Neither Party. But see Brief of Dell Inc. et
al. as Amici Curiae in Support of Appellees and Interve-
40 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
The PTAB, in its final written decision, construed four
claim terms of which the parties sought construction. On
appeal, Versata points out, correctly, that the PTAB
applied the BRI standard to each of its claim construc-
tions. Versata consequently challenges generally the
PTAB’s use of the BRI standard, and in particular its
effect on the meaning of the term “pricing information,”
and whether that term should be construed to require
“denormalized numbers.” 17
According to Versata, both Versata and SAP agreed at
the outset of the proceedings that the term did require
denormalized numbers. The PTAB declined to so con-
strue the term, and, based on application of the BRI
standard, decided that the invention in the ’350 patent
did not require denormalized numbers.
Versata argues that such a claim construction is not
permissible for a number of reasons, and that its use
adversely impacted the validity determination of the ’350
patent under the PTAB’s § 101 analysis. Accordingly,
argues Versata, on appeal one alternative for the court is
to reverse and remand for a new § 101 analysis under a
proper claim construction.
SAP, whatever its position in the earlier litigation
may have been, takes the position in this appeal that the
PTAB, applying BRI, properly construed the claims
broadly as not limited to “denormalized numbers.” SAP
points to the fact that the dependent claims recite
nor; Brief of Amici Curiae Intel Corp. et al. Supporting
Intervenors and Affirmance of the Agency’s Decision.
17 Denormalized numbers, according to Versata, do
not have fixed units and may assume a different meaning
and different units, determined by the software during
run time and depending on the pricing operation that is
being performed.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 41
“denormalized numbers” and the independent claims do
not, and the written description describes this feature as
only “‘[o]ne aspect’ of the purported invention.” Appellees’
Br. at 57–58 (quoting ’350 patent, col. 8, l. 39). Further,
argues SAP, even if the PTAB erred in its construction,
the error is harmless because its correction would not
change the result.
On the basic question of the propriety of the PTAB
applying the BRI standard in its decision-making, this is
an issue on which we need not elaborate here. In Cuozzo,
a case that issued after argument in this case, the majori-
ty approved the USPTO’s use of the BRI in PTAB claim
construction. Slip op. at 10–19. As a general rule, we are
bound by our own prior precedents, and, though the rules
governing IPR matters at issue in Cuozzo will not neces-
sarily govern all PGR/CBM matters, we see no basis for
distinguishing between the two proceedings for purposes
of the PTAB’s use of BRI in claim construction here.
Furthermore, on careful review of the record in light
of the parties’ arguments, it is less than clear that the
outcome in this case would be different under a different
claim construction regime. This is because, even applying
the usual court-utilized “one correct construction” formu-
la, we conclude that the PTAB’s interpretation of the
claims, for the same reasons given by the PTAB after
careful consideration, is correct. This is particularly the
case regarding claim 17, which, in light of the principles
of claim differentiation and the understandings derived
from the written description, as described above, is not
limited to denormalized numbers.
Thus, even without the guidance provided by Cuozzo,
under either formulation of the claim construction stand-
ard the result is likely the same in this case. The PTAB’s
claim constructions are affirmed.
42 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
Issue Number 4—The Merits Determination
In its final written decision, the PTAB held that
claims 17 and 26–29 of the ’350 patent were unpatentable
under 35 U.S.C. § 101 as “abstract ideas.” In response,
Versata first challenges whether, under the governing
statutes, it is within the authority of the PTAB to invoke
§ 101 as a test of validity. In Versata’s view, the statutes
authorize the PTAB to test the validity of challenged
claims in a CBM review on the basis of the requirements
set forth in §§ 102, 103 and 112, but not on the basis of
the requirements set forth in § 101. Second, even if § 101
is a permissible test, Versata argues that the PTAB erred
in finding these claims nothing more than an “abstract
idea,” as that is understood in § 101 jurisprudence.
Is Section 101 of the Patent Act a Proper Referent in CBM
Cases, and Is That Question Open to Judicial Review?
As a preliminary matter, we address the question of
whether we can review, as a matter of law, whether the
PTAB is authorized to invoke § 101 as a test of validity in
CBM cases. It was at the decision to institute stage when
the PTAB determined there was a § 101 issue. All the
same arguments for and against judicial review of an
issue first decided at the institution stage presumably are
available. The question again is whether we can reach
this issue now on appeal of the final written decision. The
answer is yes, and for essentially the same reasons.
First, on an appeal of the PTAB’s final written deci-
sion, all questions that relate to the ultimate merits of the
case are before us. Since the merits of this case turn on
an application of § 101 law, a first step in deciding those
merits is necessarily satisfying ourselves that the PTAB’s
merits decision was based on a correct understanding of
the law. Thus we must assure ourselves that compliance
with § 101 is the applicable test for the PTAB to have
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 43
used in judging the validity of the claims in the ’350
patent.
Second, for all the same reasons we discussed earlier,
§ 324(e) does not bar this court from reviewing and decid-
ing this predicate issue when raised. The authority of the
PTAB under the relevant statutes to apply § 101 law to
the claims under review goes to the power of the PTAB to
decide the case presented to it. Thus, like the issue we
discussed in Issue Number 1, supra, it engages the same
analysis as did that issue. And for the same reasons set
forth there, the answer must be the same. We have
jurisdiction to decide the question even though it is decid-
ed, as it was in this case, initially by the PTAB at the
decision to institute stage.
We turn then to the more challenging question of
whether the PTAB was within its statutory invalidation
authority when it chose to apply § 101 jurisprudence in
determining the validity of the challenged claims. Admit-
tedly, the statutory text is subject to competing under-
standings. Under chapter 32, governing post-grant
review and § 18 cases, the PTAB “shall issue a final
written decision with respect to the patentability of any
patent claim challenged . . . .” § 328(a) (emphasis added).
At the same time, § 321(b), entitled “Scope,” states that a
petitioner in a PGR review “may request to cancel as
unpatentable 1 or more claims of a patent on any ground
that could be raised under paragraph (2) or (3) of section
282(b) (relating to invalidity of the patent or any claim).”
(Emphasis added.)
Section 282(b) in turn specifies the defenses that may
be raised in an action involving the validity or infringe-
ment of a patent. Among the defenses listed are:
(b)(2)—invalidity of the patent or any claim on
any ground “specified in part II as a condition for
patentability”;
44 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
(b)(3)—invalidity of the patent or any claim for
failure to comply with any requirement of § 112
(except best mode) or § 251.
Versata argues that a CBM post-grant review must be
limited to a ground that could be raised under paragraph
(2) or (3) of section 282(b). Versata then reasons that
§ 282(b)(2) authorizes defenses on any ground “specified
in part II as a condition for patentability,” and that the
part II reference includes under the headings in the
compiled statutes only “conditions for patentability,” i.e.,
§§ 102 and 103, but not § 101. Based on the headings in
part II of the statutes, Versata draws a distinction be-
tween the heading under which § 101 appears, “inven-
tions patentable,” and “conditions of patentability” under
which §§ 102 and 103 are listed.
SAP counters that it is generally understood that
§ 101 is an invalidity defense under § 282, and that Ver-
sata’s reliance on the headings is improper. SAP also
argues that the legislative history suggests that any
ground of validity may be raised, including § 101.
The USPTO echoes these arguments, and cites to
Graham v. John Deere Co., 383 U.S. 1, 12 (1966), for the
statement that the Patent Act “sets out the conditions of
patentability in three sections,” 101, 102, and 103. The
USPTO adds that this court rejected Versata’s argument
regarding § 101 in Dealertrack, Inc., 674 F.3d at 1330 n.3,
and adds that it would be particularly anomalous to
conclude that Congress foreclosed consideration of § 101
issues in CBM reviews since the very purpose of the
special CBM process was to permit the USPTO to recon-
sider the validity of a salient category of business method
patents.
Versata is correct that a strict adherence to the sec-
tion titles can support an argument that § 101 is not
listed as a “condition of patentability,” but rather has the
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 45
heading of “inventions patentable.” However, as noted by
the USPTO, both our opinions and the Supreme Court’s
opinions over the years have established that § 101 chal-
lenges constitute validity and patentability challenges.
See also Standard Oil Co. v. Am. Cyanamid Co., 774 F.2d
448, 453 (Fed. Cir. 1985); Aristocrat Techs. Austl. Pty. Ltd.
v. Int’l Game Tech., 543 F.3d 657, 661 n.3 (Fed. Cir. 2008).
It would require a hyper-technical adherence to form
rather than an understanding of substance to arrive at a
conclusion that § 101 is not a ground available to test
patents under either the PGR or § 18 processes. Section
101 validity challenges today are a major industry, and
they appear in case after case in our court and in Su-
preme Court cases, not to mention now in final written
decisions in reviews under the AIA. The numerous cases
in our court and in the Supreme Court need no citation;
for a sample of PTAB cases, see, e.g., Search America, Inc.
v. Transunion Intelligence, LLC, CBM2013-00037 (Feb. 3,
2015); U.S. Bancorp v. Retirement Capital Access Man-
agement Co., CBM2013-00014 (Aug. 22, 2014).
It is often said, whether accurate or not, that Con-
gress is presumed to know the background against which
it is legislating. Excluding § 101 considerations from the
ameliorative processes in the AIA would be a substantial
change in the law as it is understood, and requires some-
thing more than some inconsistent section headings in a
statute’s codification. We agree with the USPTO and SAP
and we so hold that, looking at the entirety of the statuto-
ry framework and considering the basic purpose of CBM
reviews, the PTAB acted within the scope of its authority
delineated by Congress in permitting a § 101 challenge
under AIA § 18.
Finally, the Merits of the PTAB Decision
Having determined that the PTAB had authority to
test the validity of the challenged claims under § 101, we
46 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
turn now to the question of whether the conclusion
reached with regard to that test was correct: that the
challenged claims were invalid as constituting an “ab-
stract idea” as that term is understood. The PTAB de-
termined that “each of the challenged claims involves the
use of an abstract idea: determining a price using organi-
zation and product group hierarchies, which are akin to
management organizational charts.” J.A. 72. According
to the PTAB, Versata’s concept of organizational hierar-
chies for products and customers is abstract because it
represents a disembodied concept, a basic building block
of human ingenuity—it is little more than determining a
price, essentially a method of calculating.
The PTAB further analyzed whether the claims incor-
porated “sufficient meaningful limitations” to ensure that
they recited more than an abstract idea, and determined
that the claims did not add meaningful limitations beyond
the abstract idea. As part of this analysis, the PTAB
concluded that, although the claims were drafted to
include computer hardware limitations, the underlying
process “could also be performed via pen and paper.” J.A.
73. The PTAB determined that the recitation of generic
general purpose computer hardware in the claims repre-
sented routine, well-understood conventional hardware
that failed to narrow the claims relative to the abstract
idea. The PTAB also credited the testimony of SAP’s
expert, Dr. Siegel, over that of Versata’s expert, Dr.
Liebich, and found that the additionally claimed steps of
storing, retrieving, sorting, eliminating, and receiving
were “well-known, routine, and conventional steps.” J.A.
75–77.
We review questions concerning compliance with the
doctrinal requirements of § 101 of the Patent Act (and its
constructions) as questions of law, without deference to
the trial forum. Ultramercial, Inc. v. Hulu, LLC, 772 F.3d
709, 713 (Fed. Cir. 2014). As a necessary predicate to our
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 47
conclusions, we must briefly summarize the applicable
law.
Section 101 of the Patent Act defines patent-eligible
subject matter: “Whoever invents or discovers any new
and useful process, machine, manufacture, or composition
of matter, or any new and useful improvement thereof,
may obtain a patent therefor, subject to the conditions
and requirements of this title.” 35 U.S.C. § 101. The
Supreme Court has found in § 101 an implicit exception
for laws of nature, natural phenomena, and abstract
ideas. 18 Alice, 134 S. Ct. at 2354 (citing cases dating to
1853).
Generally, the courts have found that the task of ap-
plying the first two of these judicially-crafted exceptions—
laws of nature and natural phenomena—not particularly
difficult; 19 there are a number of cases providing more or
less clear guidance on how to apply these concepts. The
third exception—abstract ideas—is more of a problem, a
problem inherent in the search for a definition of an
“abstract idea” that is not itself abstract.
Under current thinking about how to understand an
“abstract idea,” inventions that are thought to be based on
an abstract idea as such are not per se unpatentable. All
inventions, at some level, “embody, use, reflect, rest upon,
or apply laws of nature, natural phenomena, or abstract
18 The Supreme Court has alternately referred to
the “three specific exceptions” to section 101, see Bilski v.
Kappos, 561 U.S. 593, 601 (2010), or to “the [single] § 101
exception” encompassing all three exceptions together, see
Alice, 134 S. Ct. at 2354.
19 But see Ass’n for Molecular Pathology v. Myriad
Genetics, Inc., 133 S. Ct. 2107 (2013) (naturally occurring
DNA segment is not patentable, but not naturally occur-
ring DNA segment is patentable).
48 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
ideas.” Id. (citation and quotation marks omitted).
Consequently, determining whether the section 101
exception for abstract ideas applies involves distinguish-
ing between patents that claim the building blocks of
human ingenuity—and therefore risk broad pre-emption
of basic ideas—and patents that integrate those building
blocks into something more, enough to transform them
into specific patent-eligible inventions. Id. at 2354–55.
Thus the Supreme Court has identified a two-step
framework. First, determine whether the claims at issue
are directed to one of the patent-ineligible concepts. Id. at
2355; see also Mayo Collaborative Servs. v. Prometheus
Labs., Inc., 132 S. Ct. 1289, 1296–97 (2012) (setting forth
the same two-step framework). Second, if the claims are
directed to patent-ineligible subject matter, ask “‘[w]hat
else is there in the claims before us?’” Alice, 134 S. Ct. at
2355 (quoting Mayo, 132 S. Ct. at 1297).
To answer the second question, we consider the limi-
tations of each claim both individually and as an ordered
combination to determine whether the additional limita-
tions transform the nature of the claim into a patent-
eligible application of a patent-ineligible concept. Id. The
Supreme Court has described this second step as a search
for an inventive concept—a limitation or combination of
limitations that is sufficient to ensure that the patent in
practice amounts to significantly more than a patent upon
an ineligible concept itself. Id.In other words, a claim reciting an abstract idea must
include additional features to ensure that the claim is
more than a drafting effort designed to monopolize an
abstract idea. Id. at 2357. This requires more than
simply stating an abstract idea while adding the words
“apply it” or “apply it with a computer.” See id. at 2358.
Similarly, the prohibition on patenting an ineligible
concept cannot be circumvented by limiting the use of an
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 49
ineligible concept to a particular technological environ-
ment. Id.
This court in its efforts to make an “abstract idea” less
abstract developed the machine-or-transformation test.
The Supreme Court has said the test can serve as a useful
clue for determining whether some inventions are eligible
processes under section 101, but that this test is not the
sole test for deciding whether an invention is a patent-
eligible process. Bilski, 561 U.S. at 604.
In recent years the Supreme Court and this court
have examined claims directed to abstract ideas on a
number of occasions. Extensive discussion of these cases
appears in many opinions, and we do not repeat that
litany here. It may be helpful, nevertheless, to highlight
briefly a few salient points as a means of comparison to
the invention and claims in the ’350 patent.
In Alice, the Court held that claims directed to the ab-
stract idea of intermediated settlement were unpatenta-
ble, even though some of the claims required generic
computer implementation. In Bilski, the Court held that
claims directed to the abstract idea of risk hedging were
unpatentable. In Parker v. Flook, 437 U.S. 584 (1978),
the Court held that a mathematical formula for computer
alarm limits in a catalytic conversion process was a
patent-ineligible abstract idea. In Gottschalk v. Benson,
409 U.S. 63 (1972), the Court held that claims involving
an algorithm for converting binary-coded decimal numer-
als into pure binary form were unpatentable since the
patent was, in practical effect, a patent on the algorithm
itself.
These cases may be contrasted with Diamond v.
Diehr, 450 U.S. 175 (1981), in which the Court held that a
computer-implemented process for curing rubber was
patent eligible even though it employed a well-known
mathematical equation. It used the equation in a process
50 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
to solve a technological problem in conventional industry
practice.
Our court on numerous occasions has examined
claims directed to abstract ideas. In Content Extraction &
Transmission LLC v. Wells Fargo Bank, National Ass’n,
776 F.3d 1343 (Fed. Cir. 2014), we found that claims
directed to the abstract idea of collecting data from hard-
copy documents, recognizing certain information within
the collected data, and storing that information in
memory were ineligible. This was true despite noting
that, if the claims were construed in the most favorable
manner to the appellants, the claims would require scan-
ning and processing technology.
In Ultramercial, we found that claims directed to the
abstract idea of using an advertisement as an exchange or
currency were ineligible even though the claims were tied
to a general purpose computer and invoked the Internet.
In buySAFE, Inc. v. Google, Inc., 765 F.3d 1350 (Fed. Cir.
2014), we found that claims directed to the abstract idea
of creating a contractual relationship—a transaction
performance guaranty—were ineligible despite the recita-
tion of a computer that received and sent information over
a network.
In Bancorp Services, L.L.C. v. Sun Life Assurance Co.
of Canada (U.S.), 687 F.3d 1266 (Fed. Cir. 2012), we
found ineligible claims directed to the abstract idea of
managing a stable value life insurance policy. And in
CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366(Fed. Cir. 2011), we found that a broadly worded method
claim and a claim reciting a computer readable medium
for executing the method claim were ineligible. We con-
cluded the claims were drawn to a method of verifying the
validity of credit card transactions over the Internet, and
the steps in the method could be performed in the human
mind or by a human using a pen and paper.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 51
These cases may be contrasted with instances in
which we have found patents directed to patent-eligible
subject matter. For example, in DDR Holdings, LLC v.
Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014), we found
that claims reciting a solution that was necessarily rooted
in computer technology to overcome a problem specifically
arising in the realm of computer networks were eligible.
We drew a distinction between the patent-eligible claims
at issue and patent-ineligible claims in the past that had
merely recited commonplace business methods aimed at
processing business information, applying known busi-
ness processes to particular technological environments.
Id. at 1259.
Applying the first step of the Alice/Mayo framework,
we agree with the PTAB’s analyses of the claims at issue.
Claims 17 and 26–29 of the ’350 patent are directed to the
abstract idea of determining a price, using organizational
and product group hierarchies, in the same way that the
claims in Alice were directed to the abstract idea of in-
termediated settlement, and the claims in Bilski were
directed to the abstract idea of risk hedging. More specif-
ically, claim 17 is directed to a method of determining a
price. Claim 27 is directed to a computer-implemented
method of determining a price, and claims 26 and 28 are
directed to computer-readable storage media comprising
computer instructions to implement the methods of claims
17 and 28. Claim 29 is directed to an apparatus for
determining a price that includes computer program
instructions capable of performing the same method steps
recited in claim 27. Using organizational and product
group hierarchies to determine a price is an abstract idea
that has no particular concrete or tangible form or appli-
cation. It is a building block, a basic conceptual frame-
work for organizing information, similar to the claims
involving collecting, recognizing, and storing data in
Content Extraction and the claims in CyberSource.
52 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
Applying the second step of the Alice/Mayo frame-
work, we agree with the PTAB that, after considering the
limitations of each claim individually and as an ordered
combination, none of the claims have sufficient additional
limitations to transform the nature of any claim into a
patent-eligible application of an abstract idea. Taking the
claim limitations separately, the function performed by
the computer at each step is purely conventional. For
example, the limitations of claim 17 involve arranging a
hierarchy of organizational and product groups, storing
pricing information, retrieving applicable pricing infor-
mation, sorting pricing information, eliminating less
restrictive pricing information, and determining the price.
All of these limitations are well-understood, routine,
conventional activities previously known to the industry.
The same is true of the limitations in claims 26–29.
The limitations are either inherent in the abstract idea of
determining a price using organization and product group
hierarchies—e.g., arranging the hierarchies—or conven-
tional and well-known limitations involving a computer—
e.g., storing pricing information. The PTAB specifically
examined this issue and credited the testimony of SAP’s
expert over Versata’s expert to determine that the addi-
tionally claimed steps of storing, retrieving, sorting,
eliminating and receiving were “well-known, routine, and
conventional steps.” J.A. 77.
Similarly, when considered as an ordered combina-
tion, the components of each claim add nothing that is not
already present when the steps are considered separately.
Viewed as a whole, the claims simply recite the concept of
price determination by using organizational and product
group hierarchies as performed by a generic computer.
This court found similar claims to be ineligible despite
the recitation of a general purpose computer or the Inter-
net in Content Extraction, Ultramercial, buySAFE, Ban-
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 53
corp, and CyberSource. See also Intellectual Ventures I
LLC v. Capital One Bank (USA), Nat’l Ass’n, No. 14-1506,
2015 WL 4068798 (Fed. Cir. July 6, 2015); OIP Techs.,
Inc. v. Amazon.com, Inc., No. 12-1696, 2015 WL 3622181(Fed. Cir. June 11, 2015). The Supreme Court found
similar claims to be ineligible despite recitation of a
general purpose computer in Alice, Flook, and Benson.
Moreover, the claims at issue are not sufficiently similar
to the claims in Diehr and DDR Holdings to demonstrate
that Versata’s claims are patent eligible.
Unlike Diehr, the claims at issue do not improve some
existing technological process or solve some technological
problem in conventional industry practice. Unlike DDR
Holdings, the claims at issue are not rooted in computer
technology to solve a problem specifically arising in some
aspect of computer technology. Instead, the claims at
issue are more like the claims we summarized in DDR
Holdings as insufficient to reach eligibility—claims recit-
ing a commonplace business method aimed at processing
business information despite being applied on a general
purpose computer.
Versata raises several arguments to support its posi-
tion that its claims are patent eligible under section 101,
but these arguments are not persuasive and are effective-
ly countered by the USPTO and SAP. First, Versata
argues that the PTAB erred by improperly dissecting the
claims and by failing to consider the claims as a whole.
The record reflects that this is not so. The PTAB in its
analysis followed the dictates of the Supreme Court in
Alice and Mayo by examining the claims as a whole and in
terms of each claim’s limitations.
Versata argues that its claims recite “a specific ap-
proach to determining the price of a product on a comput-
er, using hierarchies so as to enable the desired benefit for
the computing environment: fewer software tables and
54 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
searches, leading to improvements in computer perfor-
mance and ease of maintenance.” Appellant’s Br. at 43–
44. However, all of the parties—including Versata—
recognize that these supposed benefits are not recited in
the claims at issue. Versata contends that the benefits
are relevant under Genetics Inst., LLC v. Novartis Vac-
cines & Diagnostics, Inc., 655 F.3d 1291 (Fed. Cir. 2011),
but this case is inapposite since it does not concern section
101.
Examination of the claims—as a whole and in terms
of each claim’s limitations—reveals that the claims are
not directed to improving computer performance and do
not recite any such benefit. The claims are directed to
price determination and merely use a computer to im-
prove the performance of that determination—not the
performance of a computer.
Versata argues that its claims are tied to a machine
and that this favors patent eligibility. As we previously
noted, the machine-or-transformation test can be a useful
clue in determining the eligibility of method claims.
However, the claims at issue do not transform a general
purpose computer into a specific machine. The steps in
Versata’s claims (e.g., arranging, storing, retrieving,
sorting, eliminating, determining) are conventional,
routine, and well-known. They involve the normal, basic
functions of a computer. “In order for the addition of a
machine to impose a meaningful limit on the scope of a
claim, it must play a significant part in permitting the
claimed method to be performed, rather than function
solely as an obvious mechanism for permitting a solution
to be achieved more quickly, i.e., through the utilization of
a computer for performing calculations.” SiRF Tech., Inc.
v. Int’l Trade Comm’n, 601 F.3d 1319, 1333 (Fed Cir.
2010); see also Bancorp, 687 F.3d at 1277–78. Versata’s
claims do not meet this test, and instead function solely
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 55
as a mechanism for permitting the price determination to
be performed more quickly.
Versata asserts that the PTAB construed the claim
term “data source” in claim 17—and found in claims 17,
27, and 29—as a “computer storage medium” and that
this is inconsistent with the PTAB’s finding that the
underlying process could be performed via pen and paper.
However, there is no inconsistency. Courts have exam-
ined claims that required the use of a computer and still
found that the underlying, patent-ineligible invention
could be performed via pen and paper or in a person’s
mind. See, e.g., Benson; CyberSource, 654 F.3d at 1373(noting, in the context of the claims in that case, that “a
method that can be performed by human thought alone is
merely an abstract idea and is not patent-eligible under
§ 101.”).
Versata’s other arguments are similarly unavailing.
The PTAB did not shift SAP’s burden of proof onto Versa-
ta. The PTAB did not conflate the inquiries of §§ 102 and
103 with the inquiry of § 101, and the PTAB did not err
by failing to consider any alleged commercial success of
Versata’s invention. Versata improperly conflates im-
provements to technologies with commercial success.
Commercial success is not necessarily a proxy for an
improvement in a technology nor does it necessarily
indicate that claims were drawn to patent eligible subject
matter.
Finally, both Versata and SAP cite Ultramercial to
support their respective positions. Versata argues that its
claims are not directed to an “entrepreneurial objective”
and are instead “technological” because they use fewer
tables and searches than prior-art software thereby, in
Versata’s words, “‘offer[ing] dramatic improvements in
[computer] performance.’” Appellant’s Citation of Sup-
plemental Authority at 2 (citation omitted). The language
56 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
Versata cites is from Versata Software, 717 F.3d at 1259;
however, as Versata knows, the word “computer” is not in
the original quotation, and we did not address section 101
in that opinion. As we have already noted, the claims at
issue do not recite any improvement in computer technol-
ogy.
After weighing the arguments and evidence submitted
by the parties, and following an oral hearing, the PTAB
issued its final written decision on patentability. In its
decision, the PTAB correctly applied the Supreme Court’s
test in Alice and Mayo. Versata identifies no persuasive
basis for disturbing the PTAB’s determination, which was
amply supported by the record before it. The section 101
analysis applied by the PTAB was not legally erroneous
under Mayo and Alice. And its underlying fact findings
and credibility determinations are supported by substan-
tial evidence in the record. See Microsoft Corp. v. Proxy-
conn, Inc., Nos. 14-1542, -1543, 2015 WL 3747257, at *2
(Fed. Cir. June 16, 2015) (noting that as a general matter,
we review the PTAB’s findings of fact for substantial
supporting evidence in the record).
We recognize that any given analysis in a § 101 “ab-
stract idea” case is hardly a clear guidepost for future
cases arising under § 101—each case stands on its own,
and requires separate analysis by the judges who must
make the decision. Taking that into account, and for the
reasons we have explained, we affirm the decision of the
PTAB that claims 17 and 26–29 of the ’350 patent were
unpatentable as abstract ideas under 35 U.S.C. § 101.
Additional arguments were raised by the parties re-
garding waiver and claim preclusion, potential issues
arising in the long course of their litigation. We have
examined these issues, and find nothing in them to per-
suade us that we should reach different conclusions than
those expressed herein.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 57
SUMMARY
With regard to the issues in the case, we conclude:
• On appeal in a § 18 case to this court of a
final written decision by the PTAB, as a
general principle we may review issues de-
cided during the PTAB review process, re-
gardless of when they first arose in the
process, if they are part of or a predicate to
the ultimate merits.
• The invention claimed in the ’350 patent is
a covered business method patent as that
term is understood, and it does not fall
within the meaning of a “technological in-
vention.”
• The PTAB’s claim constructions are af-
firmed.
• The requirements of § 101 of the Patent Act
apply in a § 18 review.
• The ’350 patent claims at issue were
properly held invalid under § 101.
CONCLUSION
For the reasons set forth herein, the decision of the
PTAB in its final written decision is affirmed.
AFFIRMED
United States Court of Appeals
for the Federal Circuit
______________________
VERSATA DEVELOPMENT GROUP, INC.,
Appellant
v.
SAP AMERICA, INC., SAP AG,
Appellees
UNDER SECRETARY OF COMMERCE FOR
INTELLECTUAL PROPERTY, DIRECTOR OF THE
UNITED STATES PATENT AND TRADEMARK
OFFICE,
Intervenor
______________________
2014-1194
______________________
Appeal from the United States Patent and Trademark
Office, Patent Trial and Appeal Board, in No. CBM2012-
00001.
______________________
HUGHES, Circuit Judge, concurring-in-part, dissenting-in-
part.
I agree with the majority that the Patent Trial and
Appeal Board properly held that the ’350 patent claims at
issue were invalid under § 101. I also agree that, in this
case, we need not reach whether the Board is authorized
to apply its “broadest reasonable interpretation” rule in a
2 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
post-grant review. Thus, I agree that we should affirm
the Board’s decision on the merits.
In reaching that conclusion, however, the majority
impermissibly expands this court’s jurisdiction and our
scope of review to second-guess the Board’s initial deter-
mination that the patent at issue is a “covered business
method patent.” Our review of that question is barred by
the plain language, structure, and purpose of the post-
grant review provisions; and by our recent precedent
interpreting an identical statutory bar on review in the
inter partes review provisions. I cannot agree with the
majority’s evasion of the statutory bar by its mere refram-
ing of the issue for review as a question of the Board’s
“ultimate authority to invalidate,” rather than the Board’s
authority to institute. That approach defeats Congress’s
clearly expressed intent. And the majority offers no
compelling reason why its approach is desirable, other
than its appetite for arrogating to the court the Board’s
statutory authority to finally decide which patents are
“covered business method patent[s]” suitable for review.
Because the statute precludes review of the Board’s
institution decision that Versata’s patent is a “covered
business method patent,” I respectfully dissent-in-part.
I
At the outset, it is important to note that this is not a
case about whether Congress has precluded “judicial
review of government actions that alter the legal rights of
an affected person.” Maj. Op. at 24. To the contrary, the
statute clearly provides for review of the Board’s invalidi-
ty decision, which is the government action that alters the
legal right of the patent holder. See 35 U.S.C. § 329.
Rather, this case is about whether Congress can, and did,
preclude review of whether the Board rightfully under-
took that review in the first place. Our authority to
review that type of decision, whether framed in terms of
the Board’s institution authority or its ultimately authori-
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 3
ty to invalidate, is separate and distinct from our authori-
ty to review the invalidation itself.
“To determine whether a particular statute precludes
judicial review, we look to its express language, the
structure of the statutory scheme, its legislative history
and purpose, and the nature of the administrative action
involved.” Pregis Corp. v. Kappos, 700 F.3d 1348, 1357–
58 (Fed. Cir. 2012) (citing Block v. Cmty. Nutrition Inst.,
467 U.S. 340, 345 (1984)).
The presumption of judicial review noted by the ma-
jority is not insurmountable. “Congress can, of course,
make exceptions to the historic practice whereby courts
review agency action.” Bowen v. Mich. Acad. of Family
Physicians, 476 U.S. 667, 672–73 (1984); see also 5 U.S.C.
§ 701 (“This chapter applies . . . except to the extent that
. . . statutes preclude judicial review . . . .”). To overcome
the presumption of review, we must find “clear and con-
vincing evidence” of legislative intent to preclude review.
Abbott Labs. v. Gardner, 387 U.S. 136, 141 (1967). For
example, the presumption may be overcome by “specific
language or specific legislative history that is a reliable
indicator of congressional intent, or a specific congres-
sional intent to preclude judicial review that is fairly
discernible in the detail of the legislative scheme.” Bow-
en, 476 U.S. at 673 (internal quotation marks omitted);
see, e.g., Lindhal v. Office of Pers. Mgmt., 470 U.S. 768,
779–80 n.13 (1985) (recognizing that 5 U.S.C. § 8128(b)
precludes all review of the Secretary of Labor’s compensa-
tion decision under the Federal Employee Compensation
Act); Collins v. United States, 67 F.3d 284, 287–88 (Fed.
Cir. 1995) (finding that the plain language of the Military
Claims Act, which states that “the settlement of a claim
under [the Act] is final and conclusive,” provides clear and
convincing evidence of legislative intent to preclude
judicial review). Further, reviewability is not an all or
nothing question: Congress may allow review of some
issues underlying a decision, but prohibit review of others.
4 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
See, e.g., Lindhal, 470 U.S. at 779–80 (holding 5 U.S.C.
§ 8347(c) bars review of agency’s factual determinations,
but not questions of law and procedure); Harris v.
Shinseki, 704 F.3d 946, 948 (Fed. Cir. 2013) (noting that
38 U.S.C. § 7292 precludes review of the Veterans Court’s
factual determinations or applications of law to fact, but
allows review of questions of law).
Whether the presumption of review is overcome in
this case depends on two issues. The first is whether the
bar on judicial review of the Board’s institution decisions
in 35 U.S.C. § 324(e) is limited to interlocutory appeals, as
Versata argues, or whether it also applies to appeals from
the Board’s final written decision on the merits. The
answer to that question should end the inquiry. But the
majority has decided that some statutory requirements
for instituting review can be reframed, which raises a
second issue: whether an institution decision that falls
within the scope of § 324(e) is nonetheless reviewable as a
“predicate question” regarding the Board’s ultimate
authority to determine validity.
A
The plain language of § 324(e) unambiguously bars
judicial review—at any time—of the Board’s decision to
institute post-grant review. Section 324(e) states, “The
determination by the Director whether to institute a post-
grant review under this section shall be final and nonap-
pealable.” 35 U.S.C. § 324(e). Nothing in this language
suggests the bar is limited to interlocutory appeals.
There is no temporal limitation. Nor is there an exception
for appeals from a final written decision. In other con-
texts, when Congress desired to prohibit only interlocuto-
ry appeals, it included express language to that effect.
See, e.g., 8 U.S.C. § 1160(e) (“There shall be no . . . judicial
review of a determination respecting an application of
special status under this section except . . . in the judicial
review of an order of exclusion of deportation . . . .”); 12
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 5
U.S.C. § 1818(i)(1) (barring review of the Federal Re-
serve’s decision to proceed with an administrative en-
forcement action “except as otherwise provided in this
section,” including on review of a final cease-and-desist
order).
The plain language of related provisions in §§ 329 and
328 supports this interpretation. Those provisions au-
thorize a party to appeal the Board’s final written deci-
sion to this court, but only refer to issues addressed
exclusively during the merits phase of a post-grant re-
view. Section 329 states, “A party dissatisfied with the
final written decision of the [Board] under section 328(a)
may appeal the decision [to the Federal Circuit].” 35
U.S.C. § 329 (emphasis added). Section 328 defines the
“final written decision” as “a final written decision with
respect to the patentability of any patent claim challenged
. . . .” Id. § 328(a) (emphasis added). This language
reinforces Congress’s desire for this court to review the
substantive issues of patentability addressed by the
Board in a final written decision, not the various issues
decided during the decision to institute—which § 324(e)
deems “final and nonappealable.”
The structure of the post-grant review process further
clarifies the duration of the bar in § 324(e). Post-grant
reviews are divided into two distinct phases. First, the
Board determines whether to institute review, based on
the information in the petition for review and any re-
sponse by the patent owner. See id. § 324. Second, if the
Board grants review, the Board considers the merits of
the petitioner’s challenge and issues a final written deci-
sion on the validity of the challenged claims. Under this
divided structure, the requirements for instituting review
are not revisited during the merits phase of review.
Section 324(e) confirms that the decision to institute is
“final.” Id. § 324(e). In the same breath, § 324(e) states
that the decision is “nonappealable.” Id. To be consistent
with the clear division between the two phases Congress
6 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
imprinted into the statute, “nonappealable” is best inter-
preted to maintain this division at the appellate level by
insulating the various institution decisions from review,
even on appeal from the separate and distinct merits
phase.
This interpretation is also supported by the purpose of
post-grant reviews. Congress intended post-grant reviews
to provide a “quick and cost effective alternative[ ] to
litigation.” H.R. Rep. No. 112-98, pt. 1, at 47–48 (2011).
If we interpret § 324(e) to allow this court to second-guess
the Board’s institution decisions on appeal from a final
written decision, however, we will create the kind of
“unnecessary and counterproductive litigation costs” that
Congress intended these proceedings to avoid. Id. at 40
(2011). By the time the Board’s final written decision
reaches this court, the parties and the Board will have
devoted considerable resources to resolving the validity
issues in question. And district courts will often have
stayed related proceedings, in anticipation of a simplifica-
tion of the issues for trial. If this court has authority to
reverse the Board’s institution decision, thereby vacating
its final written decision on validity, all of this time and
expense will be wasted. The parties will have to return to
district court to litigate the same validity issues that the
Board decided—even if this court agrees with the Board’s
ultimate validity determination. Congress could not have
intended this result. To avoid creating a more costly and
less efficient process, we must interpret § 324(e) according
to its plain language to bar review of the decision to
institute even after a final written decision on the merits.
In sum, the plain language, structure, and purpose of
the post-grant review provisions provide clear and con-
vincing evidence that Congress did not intend to limit
§ 324(e) to interlocutory appeals. Congress intended
§ 324(e) to bar review of the Board’s institution decisions
at any time, even on appeal from the final written deci-
sion. One such decision is whether the patent challenged
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 7
is a “covered business method patent.” America Invents
Act (AIA), Pub. L. No. 112-29, § 18(a)(1)(E), 125 Stat. 284,
330 (2011) (“The Director may institute a transitional
proceeding only for a patent that is a covered business
method patent.”). The Board makes this determination as
part of its decision to institute, and does not revisit the
issue during the merits phase. Thus, § 324(e) precludes
review of the Board’s covered-business-method determi-
nation in this appeal.
B
The majority agrees that § 324(e) bars review of the
Board’s decision to institute even after a final written
decision. Maj. Op. at 13 (“[T]he statute expressly in-
structs that we may not [review the decision to insti-
tute].”). But the majority refuses to end the inquiry with
Congress’s plainly expressed intent. To keep the final say
over the meaning of “covered business method patent,”
the majority reframes the issue as a “limit on [the
Board’s] invalidation authority under § 18,” which falls
outside the scope of § 324(e). Maj. Op. at 25. I cannot
agree with this approach.
The statute describes the “covered business method
patent” requirement (CBM requirement) as a limit on the
Board’s authority to institute review. Section 18 states
that “[t]he Director may institute a transitional proceed-
ing only for a patent that is a covered business method
patent.” AIA § 18(a)(1)(E). The statute then expressly
bars our review of the institution decision: “The determi-
nation by the Director whether to institute a post-grant
review under this section shall be final and nonappeala-
ble.” 35 U.S.C. § 324(e). Thus, under the plain language
of the statute, the Board has unreviewable authority to
decide whether a patent is a “covered business method
patent.”
The majority proposes that if we call the CBM re-
quirement something else—not only a limit on the Board’s
8 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
authority to institute review, as the statute says, but also
a limit on the Board’s ultimate authority to invalidate the
patent—then we can review the issue. But our task is to
apply the language of the statute, not to rewrite it. And
the language of the statute expressly ties the CBM re-
quirement to the Board’s unreviewable decision to insti-
tute, not the Board’s ultimate authority to invalidate. By
using different language than that which Congress em-
ployed, the majority expands the scope of our review to
include the same substantive issue—whether a patent is a
“covered business method patent”—that Congress barred
from review in § 324(e).
The majority fails to identify a statutory basis for its
proposed reframing of the issue. It summarily declares,
without any supporting citation, that the CBM require-
ment should be treated as a limit on the Board’s authority
to invalidate because it “defines the PTAB’s authority to
invalidate under § 18.” Maj. Op. at 25. But nowhere does
the statute describe the CBM requirement as a limit on
the Board’s authority to invalidate. Cf. Timken U.S.
Corp. v. United States, 421 F.3d 1350, 1357 (Fed. Cir.
2005) (“Not every agency violation of a statutory com-
mand results in the sanction of invalidating the agency
action taken pursuant to the statute.”). To the extent
that statement is accurate, it is only because the statute
provides that the Board “may institute a transitional
proceeding only for a patent that is a covered business
method patent.” AIA § 18(a)(1)(E). And any limit on the
Board’s authority to institute review is indirectly a limit
on its authority to invalidate a patent: If the Board cannot
institute review in the first place, it cannot issue a final
written decision.
This indirect relationship, however, cannot be enough
to find that Congress intended this court to review an
institution requirement as a limit on the Board’s ultimate
authority to invalidate. Taken to its logical conclusion,
this approach would eviscerate § 324(e) in the context of
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 9
an appeal from a final written decision. All aspects of the
Board’s decision to institute would be fair game for re-
view, because all statutory limits on the institution deci-
sion are also indirect limits on the Board’s final authority
to invalidate. As a result, § 324(e) would only bar review
of the Board’s decision to institute in an interlocutory
appeal, before the final decision has issued. The majority
agrees that § 324(e) is not so limited. Thus, the majority
cannot justify treating the CBM requirement as a limit on
the Board’s ultimate authority to invalidate solely be-
cause that requirement limits the Board’s authority to
institute. 1
The requirement of a “covered business method pa-
tent” is a limit on the Board’s institution decision. That is
how the plain language of the statute frames the CBM
requirement, not as a limit on the Board’s ultimate au-
thority to invalidate. The majority’s reframing of the
issue, while perhaps an interesting academic exercise, is
plainly inconsistent with congressional intent. There is
clear and convincing evidence that Congress intended
§ 324(e) to bar review of the Board’s institution decisions
at all times. And there is no evidence that Congress
intended to exclude from this provision the institution
decision of whether the patent is a “covered business
method patent.” Accordingly, I conclude that § 324(e)
precludes our review of whether Versata’s patent is a
“covered business method patent.”
1 Indeed, Congress likely intended the term “cov-
ered business method patent” not as a limitation on the
Board’s invalidation authority, but as a means of focusing
the Board’s resources on “low-quality business[-]method
patents,” which were of central concern in passing the
AIA. 157 Cong. Rec. 9952 (2011) (remarks of Rep.
Grimm).
10 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
II
The majority’s interpretation of § 324(e) to permit re-
view of whether Versata’s patent is a “covered business
method patent” directly conflicts with our precedential
decision in In re Cuozzo Speed Technologies, LLC, No. 14-
1301, slip op. at 5–10 (Fed. Cir. July 8, 2015). In that
case, we addressed the scope of the statutory bar on
judicial review in § 314(d), which provides that “[t]he
determination by the Director whether to institute an
inter partes review under this section shall be final and
nonappealable.” 35 U.S.C. § 314(d). We held that this
provision “bar[s] review of all institution decisions, even
after the Board issues a final decision.” Cuozzo, slip op. at
7. That holding controls our interpretation of the analo-
gous bar on review in § 324(e), which states, “The deter-
mination by the Director whether to institute a post-grant
review under this section shall be final and non-
appealable.” 35 U.S.C. § 324(e).
To avoid the holding in Cuozzo, the majority continues
to rely on its reframing of the CBM requirement as a limit
on the Board’s authority to invalidate. But even if that
reframing were appropriate, the holding in Cuozzo still
could not be distinguished. The relevant provision in
Cuozzo states that the Board may only institute an inter
partes review if “the information presented in the petition
. . . and any response . . . shows that there is a reasonable
likelihood that the petition would prevail.” Cuozzo, slip
op. at 5 (quoting 35 U.S.C. § 314(a)). The appellant
argued that the Board violated this provision by institut-
ing review on the basis of prior art not “presented in the
petition.” Id. If the appellant was correct, then the Board
exceeded its statutory authority to conduct an inter partes
review and issue a final written decision, because it
violated a statutory limit on instituting review in the first
place. Thus, Cuozzo addressed just as much a predicate
question of authority to invalidate as we are presented
with here.
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 11
The majority makes too much of a note in Cuozzo that
the alleged defect in that case could have been cured with
proper pleading. See Maj. Op. at 29. For the purpose of
determining whether Cuozzo involved a limit on the
Board’s authority to invalidate, it is irrelevant whether
the alleged defect could have been cured. The fact re-
mains that the pleading was actually defective and there-
fore the Board exceeded its statutory authority to
institute review. Thus, under the majority’s preferred
framing, the Board violated an indirect limit on its ulti-
mate authority to invalidate, at least to the same extent
that the Board allegedly did so here.
More importantly, the potential for a proper pleading
did not limit the holding in Cuozzo that the plain lan-
guage of § 314(d) bars review of the Board’s institution
decisions. It only noted this fact to establish an alterna-
tive ground for declining to review the Board’s decision to
institute, specifically by aligning that case with In re
Hiniker Co., 150 F.3d 1362 (Fed. Cir. 1998). In Hiniker,
the appellant alleged that the PTO violated a statutory
limit on its authority to institute ex parte reexamination.
Id. at 1367. This court found that the PTO corrected the
alleged error during the merits phase of review, and
therefore “[a]ny error in [the institution] decision was
washed clean during the reexamination proceeding.” Id.
at 1367. Accordingly, though no statutory provision
expressly barred review, the Court declined to review the
PTO’s institution decision. Id. The Cuozzo majority
suggested that the same was true on the facts there,
where “a proper petition could have been drafted.” Cuoz-
zo, slip op. at 8. But this comparison with Hiniker merely
“confirm[ed] the correctness” that the Court could not
review the Board’s institution decision in that case. Id. at
7. It did not limit its prior interpretation of § 314(d) to
bar review of all institution decisions. Thus, although the
Board’s error in assessing the CBM requirement may not
be “washed clean” in the merits decision—and therefore
12 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
may have been reviewable absent the express bar on
review in § 324(e)—that does not distinguish this case
from the unqualified holding in Cuozzo that the express
bar in § 314(d) “bar[s] review of all institution decisions,
even after the Board issues a final decision.” Id. at 7.
In light of Cuozzo, we are bound to interpret § 324(e)
to preclude review of the Board’s assessment of the CBM
requirement, even if we label that requirement a limit on
the Board’s ultimate authority to invalidate.
III
The bar on judicial review of institution decisions in
§ 324(e) does not mean that patent owners are without
recourse in the extreme case. Even when a statute clearly
demonstrates Congress intended to bar judicial review of
agency action generally, courts have recognized an “im-
plicit and narrow” exception for agency action that plainly
violates an unambiguous statutory mandate. Hanauer v.
Reich, 82 F.3d 1304, 1307 (4th Cir. 1996); see, e.g.,
Leedom v. Klyne, 358 U.S. 184 (1958); Key Med. Supply,
Inc. v. Burwell, 764 F.3d 955, 962–65 (8th Cir. 2011); Am.
Soc’y of Cataract & Refractive Surgery v. Thompson, 279
F.3d 447, 456 (7th Cir. 2002); Am. Airlines, Inc. v. Her-
man, 176 F.3d 283, 293–94 (5th Cir. 1999); Staacke v.
U.S. Sec’y of Labor, 841 F.2d 278, 281–82 (9th Cir. 1988);
Dart v. United States, 848 F.2d 217, 221–27 (D.C. Cir.
1988). In this case, however, the Board’s finding that
Versata’s patent constitutes a “covered business method
patent” does not violate an unambiguous mandate. The
Board reasonably interpreted an unclear statutory term
and properly applied its interpretation to Versata’s pa-
tent. See Hanauer, 82 F.3d at 1311 (“Because the [agen-
cy’s] interpretation of the statute is plausible, it does not
violate a clear statutory mandate.”). Accordingly, the
clear statutory mandate exception does not apply. We do
not have jurisdiction to review the Board’s determination
under 35 U.S.C. § 324(e).
VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC. 13
IV
At the end of the day, the majority does a lot of hand
waving about the presumption of judicial review and an
agency’s authority to take action. But nowhere does the
majority actually suggest that it would be inappropriate
for Congress to remove the CBM decision from our review.
Nor could it, since courts have approved far more drastic
limitations on our judicial review. See supra Part I.
But even if we could reasonably make the technical
distinction the majority proposes and therefore preserve a
narrow reading of the statutory bar, I cannot fathom why
we would want to do so. Surely the concern is not to
prevent the Board from instituting review of a patent so
far outside the meaning of “covered business method
patent” that it exceeds any reasonable interpretation of
that term. As discussed in Part III, supra, courts have
long recognized an exception to statutory bars on review
when an agency plainly violates an unambiguous statuto-
ry mandate. And in any event, that is not even remotely
the case here, where all three judges agree that the Board
properly exercised its discretion to institute review of this
CBM patent.
Rather, I fear the point of the majority’s position is to
wrest from the PTO the final authority to decide which
patents are “covered business method patent[s]” appro-
priate for § 18 review. But that is not how Congress
designed the AIA to work. Congress gave this court the
authority to review the merits of the Board’s validity
determinations and to ensure those decisions are correct
under prevailing law. And it gave the PTO authority to
decide which patents merit review in the first place, and
insulated that decision from our review.
The majority’s desire to revisit the CBM requirement
detracts from this statutory scheme and the intended
benefits of § 18 reviews. As Congress recognized, § 18
was intended to “provide a cheaper, faster administrative
14 VERSATA DEVELOPMENT GROUP v. SAP AMERICA, INC.
alternative for reviewing business method patents.”
Intellectual Ventures II LLC v. JP Morgan Chase & Co.,
781 F.3d 1372, 1380 (Fed. Cir. 2015) (Hughes, J. dissent-
ing). If this court may vacate the Board’s invalidity
decision on the basis of a threshold decision, the time and
resources spent by the parties and the Board in the ad-
ministrative proceedings will have been squandered, and
the parties will likely be forced to needlessly expend even
more resources re-litigating the validity issue in district
court. And that is true even if the Board’s ultimate
invalidity decision was correct.
Congress intended § 324(e) to apply at all times to
avoid these consequences. That is why when addressing
the issue, Congress plainly said that the Board’s determi-
nation was “final” and “nonappealable.” And nothing in
the statute suggests § 324(e) applies with less force to the
CBM requirement than any other institution require-
ments for § 18 reviews. We should not, therefore, employ
an unwarranted technical distinction to find authority to
review the Board’s initial assessment that a patent is a
“covered business method patent.”
Because we do not have jurisdiction to review the
Board’s determination that Versata’s patent is a “covered
business method patent,” AIA § 18(d), I respectfully
dissent-in-part.