United States: Versata: The Federal Circuit Explains The Parameters And Appealability Of CBM Proceedings

Last Updated: July 17 2015
Article by Richard S.J. Hung and Barbara Barath

On July 9, 2015, the Federal Circuit decided its first appeal of a covered business method ("CBM") patent review. In Versata Development Group Inc. v. SAP America, Inc. et al., Case No. 14-1194 (Fed. Cir. July 9, 2015) ("Versata I"), the court addressed four issues relating to CBM proceedings generally: (1) the scope of judicial review; (2) the definition of a "CBM patent"; (3) the applicable claim construction standard; and (4) whether 35 U.S.C. § 101 arguments are available. The court ultimately affirmed the decision of the Patent Trial and Appeal Board ("PTAB") that a product-pricing patent was invalid as claiming only abstract ideas.

In a separate decision issued on July 13, 2015, the Federal Circuit further held that a patentee may not file a lawsuit in federal district court to challenge the PTAB's initial decision to institute CBM review. Versata Development Group Inc. v. Lee, Case No. 2014-1145 (Fed. Cir. July 13, 2015) ("Versata II").


In 2007, Versata Software Inc. sued SAP America, Inc. for allegedly infringing U.S. Patent No. 6,553,350 ("the '350 patent"). After a 2011 trial, a jury found that SAP infringed the '350 patent and awarded Versata $391 million in damages. In May 2013, the Federal Circuit affirmed the jury verdict.

While the initial appeal was pending, SAP petitioned for CBM review of Versata's patent under AIA Section 18. In granting SAP's petition, the PTAB concluded that the '350 patent qualified as a CBM patent and that Section 101 applied during CBM proceedings. In June 2013, the PTAB issued a final written decision, holding the patent invalid under Section 101 as covering only the abstract idea of calculating a product price.

In March 2013, Versata separately sued the U.S. Patent Office ("PTO") in the Eastern District of Virginia, seeking to set aside the PTAB's decision to institute. The district court dismissed the case for lack of subject matter jurisdiction and for failure to state a claim. It did so because "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." Versata Dev. Corp. v. Rea, 959 F. Supp. 2d 912, 915 (E.D. Va. 2013). The court further noted that Congress clearly intended "to preclude subject matter jurisdiction over the PTAB's decision to institute patent reexamination [sic] proceedings." Id.

Versata appealed both the PTAB's final decision and the district court's decision to the Federal Circuit. The cases were consolidated for argument but decided separately in Versata I and II, respectively.


In the Versata I and II cases, the Federal Circuit addressed four key issues relating to CBM proceedings generally.

1. Scope of Judicial Review

35 USC § 324(e) bars the appeal of the PTAB's determination as to whether to "institute" CBM review. Accordingly, a preliminary question on appeal was whether Versata could challenge the PTAB's conclusions that (1) the '350 patent is a CBM patent and (2) Section 101 applies during CBM proceedings. The PTO took the position that, because the determination that the '350 patent is a CBM patent was made at the institution stage, it was immune from judicial review under Section 324(e). SAP argued that the same was true of the PTAB's decision to apply Section 101, which the PTAB also made at the institution stage.

In Versata II, the Federal Circuit agreed that Section 324(e) "barr[ed] judicial review of the initial decision to institute." Versata II at 5. For this reason, the court affirmed the district court's dismissal of Versata's lawsuit challenging the PTAB's initial decision to institute CBM review.

In Versata I, however, the Federal Circuit confirmed that it can review the PTAB's final written decision, including whether the '350 patent is a CBM patent and whether Section 101 applies during CBM proceedings. This is true even though Section 324(e) precludes appeals of the PTAB's institution decision. The court reasoned that it "may review issues decided during the PTAB review process" – "regardless of when they first arose in the process, if they are part of or a predicate to the ultimate merits." Versata I at 57. Judge Hughes dissented on this point, arguing that the majority was impermissibly expanding the Federal Circuit's jurisdiction and scope of review.

2. Definition of Covered Business Method Patent

Section 18(d)(1) of the AIA defines a CBM patent as one "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 . . . ." In Versata I, the Federal Circuit held that the definition of a CBM 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." Id. at 35.

The court further wrestled with Section 18(d)'s exception to the definition of a CBM patent. Under Section 18(d), a CBM patent "does not include patents for technological inventions." PTO regulations attempt to clarify that a "technological invention" is one in which the claimed subject matter as a whole (i) "recites a technological feature that is novel and unobvious over the prior art" and (ii) "solves a technical problem using a technical solution." 37 C.F.R. § 42.301(b).

As the court noted, these clarifications are unhelpful. The first requirement is itself "rather obvious, and not novel," and the second requirement "defin[es] a term in terms of itself" in a way that "does not seem to offer much help." Id. at 37.

The court ultimately concluded that the '350 patent "does not fall within the exception for technological innovations" – "whatever that exception may otherwise mean." Id. at 39. It explained that the claimed invention is "not a technical solution, but more akin to creating organizational management charts." Id. Although Versata argued that all claims require the use of a computer, the court emphasized that the "presence of a general purpose computer to facilitate operations through uninventive steps does not change the fundamental character of an invention." Id. at 38 (citing Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014)).

3. Claim Construction Standard in CBM Proceedings

Noting that the "broadest reasonable interpretation" claim construction standard applies in post-grant proceedings, the Federal Circuit saw "no basis for distinguishing between the two proceedings for purposes of the PTAB's use of BRI in claim construction here." Id. at 41. The court commented, however, that it was "less than clear" that the outcome would have changed even under a different claim construction regime. Id.

4. Availability of Section 101 in CBM Proceedings

The court affirmed that Section 101 challenges are available in CBM proceedings. Id. at 45.


While recognizing that each abstract idea case "requires separate analysis," id. at 56, the court concluded that the PTAB correctly invalidated Versata's patent as claiming only the abstract idea of determining a price using a computer. The court held that the claims do not improve an existing technological process, as they are directed to improving the performance of price determination – not the performance of a computer. Id. at 54.


The Versata cases together confirm the extensive authority of both the PTAB and the Federal Circuit. Versata II confirms that a patentee may not challenge the PTAB's decision to institute CBM proceedings via parallel district court proceedings. After the PTAB has rendered its final written decision, however, the Federal Circuit may review the PTAB's underlying determinations (e.g., whether a patent qualifies as a CBM patent and whether Section 101 is an available ground for invalidity) on appeal of that final decision.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Richard S.J. Hung
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions