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IP Alert: Federal Circuit Upholds Broadest Reasonable Interpretation in CBMs but Revisits Reviewability of Institution Decisions

July 14, 2015

In its second case in as many days touching on both the broadest reasonable interpretation (BRI) standard and the reviewability of institution decisions, the U.S. Court of Appeals for the Federal Circuit both agreed and disagreed with itself. On July 9, 2015, in Versata Development Group, Inc. v. SAP America, Inc., the court again upheld the Patent Trial and Appeal Board’s (PTAB’s) practice of applying the broadest reasonable interpretation (BRI) standard used in claim construction, but concluded that it was able to review the propriety of the PTAB’s determination of covered business method (CBM) eligibility. This latter holding is somewhat surprising in light of the contemporaneous decision on July 8 in In re Cuozzo Speed Technologies, LLC, which appeared to foreclose reviewability of the PTAB’s institution decisions. On July 13, in a companion case, Versata Development Group, Inc. v. Lee, the court again affirmed the district court’s attempt to seek judicial review of the PTAB’s decision to institute a CBM.

In the underlying CBM, trial was granted on a petition by SAP America, Inc. and SAP AG (collectively, “SAP”) against U.S. Patent No. 6,553,350, owned by Versata Development Group, Inc. (“Versata”). The PTAB issued a final decision finding claim 17 to be directed to non-statutory subject matter.

At the outset the Federal Circuit noted that under 35 U.S.C. § 324(e), “the determination by the Director whether to institute a post-grant review under this section shall be final and nonappealable.” However, the court noted that in an earlier action in the U.S. District Court for the Eastern District of Virginia, under the Administrative Procedures Act, the U.S. Patent and Trademark Office (USPTO) had argued, consistent with the decision in Benefit Funding, that there is an available remedy under the America Invents Act in that questions “are preserved for review at the time of an appeal to the Federal Circuit of the PTAB’s final written decision.” And, despite the fact that in the present case the USPTO argued for a “jurisdictional bar,” the court concluded that “the Government was right the first time.”

The court held that “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,” i.e., the limitation that section 18 invalidation authority requires that the patent at issue is a CBM patent. As such, the court reaches a decision that is seemingly at odds with the court’s holding in Cuozzo on the question of reviewability of PTAB institution decisions in IPRs.

In doing so, the court drew two distinctions between the present case and the Cuozzo decision: (1) Cuozzo did not decide whether status as a CBM patent was a limit on invalidation of authority under section 18 in that Cuozzo involved an IPR, not a CBM; and (2) Cuozzo did not address the question whether (despite section 314(d)) a final written decision can be reviewed for compliance with a limit on the PTAB’s invalidation authority, holding that Cuozzo ruled only on review of the initial institution decision itself. 

Having reached its decision on reviewability, the court went on to evaluate the question of whether the PTAB had properly decided that the ’350 patent was a CBM. Along the way, the court again upheld the PTAB’s use of the broadest reasonable interpretation standard in determining claim scope (following Cuozzo), determined that section 101 is a proper basis on which the PTAB may determine the patentability of a patent claim in a CBM review, and concluded that Versata’s claims are not patentable under section 101 and the Alice/Mayo framework. This, despite agreeing with Versata’s analysis that a strict adherence to the section titles within the statute would support a conclusion that section 101 is not a “condition of patentability,” and instead turning to past Federal Circuit and Supreme Court opinions as a basis for its conclusion. The court based its decision regarding section 101 ineligibility on the PTAB’s analysis that the Versata claims are directed to the abstract idea of determining price and found insufficient additional limitations, either in the claim steps individually or as an ordered combination to transform the abstract idea into patent-eligible subject matter. Based on these holdings on the facts presented, the court upheld the PTAB’s invalidity determination.

The Versata and Cuozzo cases illustrate the evolving law at the Federal Circuit in the area of review of PTAB decisions. Fitch Even attorneys will post future alerts as the law continues to develop.

For more information on these cases, please contact Fitch Even partner Thomas E. Lebens, the author of this alert.

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