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Federal Circuit Affirms PTAB in First Appeal From a Decision in a Covered Business Method Patent Review

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In Versata Development Group, Inc. v. SAP America, Inc, the Federal Circuit affirmed the Patent Trial and Appeal Board’s (PTAB) decision that Versata’s patent, directed to methods for determining prices for products, was invalid under 35 U.S.C. § 101. No. 2014-1194, slip op. at 57 (Fed. Cir. 2015). The case marks the first time the Federal Circuit has issued a decision on an appeal of a covered business method (CBM) review (see America Invents Act § 18). In addition to affirming the PTAB’s ultimate decision concerning validity, the Federal Circuit ruled (1) that the court can consider whether the PTAB properly instituted the CBM review in an appeal from a ‘final written decision’; (2) that the requirements of § 101 do apply in CBM patent reviews; and (3) that the PTAB properly applied the broadest reasonable interpretation (BRI) standard during claim construction.

As an initial matter, the Federal Circuit held that the PTAB’s decision to institute the review is challengeable on appeal from a final written decision. Circuit Judge Hughes’ sharply criticized this position in his dissent, noting that the plain language of 35 U.S.C. § 324(e) states, “The determination by the Director whether to institute a post grant review under this section shall be final and nonappealable.” Versata, at 4 (Hughes C.J., dissenting). However, the majority ruled that although the determination of whether to institute the review is not reviewable initially, the question may be reviewed in an appeal of a final written decision when the decision to institute the review is a necessary basis for the PTAB’s final action on appeal (e.g., invalidation of the claims). Versata, at 26. With respect to the instant case, the Court held that the PTAB had properly instituted its review. Id. at 39.

The Court also found that § 101 issues can be raised in CBM reviews given “the entirety of the statutory framework and considering the basic purpose of CBM reviews.” Id. at 45. Indeed, the court noted “[i]t 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 . . . § 18 processes.” Id. at 45. Additionally, the Court held that the BRI standard is appropriate based on recent Federal Circuit precedent. Id. at 41. Applying these predicate findings to the case at hand, the Court affirmed the PTAB’s decision that the patent at issue was invalid as directed to unpatentable subject matter. Id. at 56. Specifically, the Court walked through a variety of § 101 cases, and ultimately concluded that the PTAB properly applied the proper test as provided in Alice and Mayo. Id.

Baker Botts will continue to monitor this important area of law, and will provide future reports as the law continues to develop.

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