On June 11, 2013, the Patent Trial and Appeal Board (PTAB) rendered its first decision in a case under the new AIA procedures for administratively contesting patents.  In the case of SAP America, Inc. v. Versata Development Group, Inc., CBM2012-00001, Paper 70 (June 11, 2013), the PTAB found Versata’s patent claims ineligible for patent protection because they were drawn to “abstract ideas.”

The petition for review was brought under the Covered Business Method (CBM) post grant review rules, which permit free-wheeling challenges to patents under essentially all grounds that are available (sections 101, 102, 103 and 112 of the US Patent Laws).  (Similar rules for non-business method patent will not kick-in until patents start issuing with effective filing dates on or after March 16, 2013.)

Interestingly, the same parties litigated this same patent (U.S. Patent No. 6,553,350 ) a few years ago in the Eastern District of Texas (Versata Software, Inc. v. SAP America, Inc., 2009 U.S. Dist. LEXIS 45751 at 16-18 (E.D. Tex. 2009)).  In the district court case, the patent was found valid and infringed – and Versata was awarded a $391 million infringement judgment.  Apparently, SAP had not raised the issue of patent ineligibility under 35 U.S.C. 101 during the jury trial.  The district court judgment was affirmed by the Court of Appeals for Federal Circuit (Versata Software, Inc. v. SAP America, Inc., 2013 U.S. App. LEXIS 8838; 106 U.S.P.Q.2d 1649 (Fed. Cir. 2013)).  The Federal Circuit will probably also wind up with an appeal of the PTAB decision since SAP had asked the Federal Circuit to stay the damage award and injunctive relief until the PTAB conducted its review.

An appeal of the PTAB decision to the Federal Circuit is likely to raise thorny issues under the doctrines of collateral estoppel, res judicata, and finality of judgments.  The appeal may also heat-up a long-simmering conflict between the courts and the USPTO over claim construction.  In U.S. district court litigation, claims are often construed so that they remain valid, e.g., narrowing them if necessary in view of prior art.  The PTAB, on the other hand, applies the PTO’s “broadest reasonable” interpretation standard when construing a claim.

This dissonance in claim construction and the likelihood that it may lead to contradictory results was known to the PTO when it drafted its rules governing claim construction in PTAB proceedings.  Nonetheless, the PTO stands by its longstanding practice, reasoning in the comments to the final rules that the broader interpretation should apply because during inter partes and post grant review the patent owner has the opportunity to amend claims to remove ambiguities.