Versata v SAP Federal Circuit Oral Arguments Transcript – December 3, 2014

Argued by Mr. Evan Langdon for Versata
Argued by Ms. Melissa Patterson for the Patent Trials and Appeals Board
Argued by Ms. Erika Harmon Arner for SAP
Before Judges Newman, Plager and Hughes

 

 

Oral Arguments Audio Recording

 

 

Oral Arguments Written Transcript

 

Arguments of Mr. Langdon for Versata

 

Mr. Langdon

Thank you and may it please the court. The board in this case exceeded its authority under the CBM provision when it construed the phrase financial products and services to include anything relating to monetary matters including

Judge Plager

Right at the outset let me be sure we are all on the same page. Your doing 1194 the merits case is that correct?

Mr. Langdon

Yes.

Judge Plager

That’s where we are on this one.

Mr. Langdon

Yes. I understand the two have been combined so I’m arguing them together but we’re leaning primarily on the 1194 review of the board’s decision and the APA provison act where the AT action is simply a backup for us in the event the court would conclude that it doesn’t have jurisdiction in the 1194 action review of the board. So, the short answer is yes, 1194 is my primary argument.

Judge Plager

Thank you.

Mr. Langdon

And in that action, this court has jurisdiction to address the board’s final written order which exceeds its authority as well as the final written decision insofar as it reaches the wrong substantive result on patentability.

Beginning with this court’s jurisdiction, section 329 the judicial review provision says that any party that is dissatisfied with the board’s final written decision under section 328 can seek review in this court. Here, Versata is dissatisfied with the board’s decision. Not merely because of the merits but because the board exceeded its authority when it issued that decision. For example, the board has authority only to invalidate covered business methods under this provision and then arguably this is not a covered business method.

This court has authority to review the fact that the board exceeded its authority in issuing its final written decision – authority Congress did not give them. We don’t need to challenge the institution’s decision at all. It is enough that the final decision is something the board did not have the authority to issue. Especially given the strong presumption of judicial review. It’s enough – this court has authority to review that final written order. In the district court and the PTO SAP conceded this court would have authority to review the board’s authority to review it’s final written decision in fact they said that the statute not only could be read that way but should be read that way.They told the court that nothing in the statutory scheme limits the reasons a party might be so dissatisfied and this could include the fact that the PTAB lacked the authority to issue a written determination rejecting Versata’s patent claims because in Versata’s view the 350′ patent is not a covered business method patent for the purposes of the AIA.

Judge Plager

Let’s parse these arguments and you can lump them all together and come up with a lot of phrases but that doesn’t help me anyway. The question – the first question we ask is what is a covered business method and did your invention fall within the meaning of that term. That’s an important question. But there’s a predicate question isn’t there as to whether we can ask that question. Now it’s sort of a chicken-and-egg problem that is how do we ask the question until we know we can ask the question? So I’m not sure what the right order is to take that question up in, but let’s assume hypothetically that we think we have jurisdiction to ask the question – was the board correct when it said this was a covered business method case? You’re argument is to say we’re not correct,

Mr. Langdon

They were not correct

Judge Plager

Why not address that as a narrow issue of statutory construction

Mr. Langdon

Certainly.

Judge Plager

And leaving aside for a moment whether we are actually going to ask that question. That’s a separate question.

Mr. Langdon

Certainly.

Judge Plager

OK.

Mr. Langdon

I was starting with this court’s jurisdiction but let’s start with the board’s statutory authority, which under the CBM provision extends to claims – I’m going to shorten it a little bit – used in a financial product or service. Financial product or service. That has a ordinary meaning. In Dodd-Frank, for example, they define the exact phrase to include such things as – extending credit, servicing loans, real estate settlement, deposit taking, selling stored value instruments, finding financial advisory services. Googling the terms reveals things like banking, insurance, credit advise, investment management, other financial services. It doesn’t include software that helps you determine prices or calculators or spreadsheets. Before this case – before this

Judge Plager

You would confine covered business method to the financial services industry?

Mr. Langdon

No I would not. I think Senator Schumer is correct that for example if a car dealer sells me a car and then provides financing he is not in the financial sector or in the financial industry, but he has provided credit to me and that is a financial product or service. So I would include that. So it’s not the financial sector, but it is the services and products we traditionally consider financial products and services. You can’t just take the term financial and strip it away from the terms product and services, and I think that is the core of where the board went wrong. When the board looked at this and determined financial is an adjective which means relating to monetary matters and then equated that to anything complementary to financial activity. And it may well be when you are using the phrase financial activity, that could include anything that involves the exchange of money. Buying a house is financial activity, buying gum could be financial activity, but a financial product or service – when you think of that in ordinary meaning, that doesn’t include just purchasing a pack of gum. That…

Judge Newman

Are you sure? Because my impressions tell me this is wrong but as this was working it’s way through the system, that the intention was to include the kinds of transactions represented in Bilski and in Alice. And that you can redefine or define financial transactions as you ask us to define this one in the same way?

Mr. Langdon

No. I think that’s exactly what this was going after was Bilski and Alice. Bilski is for example hedging. Hedging is clearly a type of financial activity. It involves the traditional things that if you typed in financial products and services, began to do hedges, or buy securities or commodities, all those things those investor type activities are covered

Judge Hughes

So what if there is a business method to more efficiently deal with purchases on using credit card transactions – you know the swipe thing or something like that. Is that a covered business method?

Mr. Langdon

Because credit cards are an extension of credit, the answer would be yes that is, and in fact I think the PTO in its trial handbook refers to that type of machinery as the type of thing that would be

Judge Hughes

The method covered by that patent is not necessarily related to the credit card itself, but the method by which the store owner handles those purchases.

Mr. Langdon

If it’s – I’m not sure I follow the question – but I think the answer is – if it’s a covered business method it relates to the financial activity and it involves what we typically think of as a financial product or service, then it’s arguably within the CBM if it’s a technological solution then it’s excluded by definition. But the one thing I can tell you is anything that involves the transfer of money can’t be enough because that just means all the business transactions are covered and that’s just not the meaning that the phrase financial products or services that anybody before this case ever ascribed to it.

Judge Plager

What distinction do you draw between a product and a service? Obviously Congress thought these were two different things because the statute says a financial product or financial service – I inserted financial there but that’s the proper reading of the phrase. What do you think they meant when they distinguished between a product and a service?

Mr. Langdon

In vernacular you often hear things like a financial product includes derivatives as a type of financial product, when you are talking about the markets derivatives. For example banking is traditionally considered a financial service. You have a relation to the bank and they cash your checks and hold your money and pay you interest. And so there is a distinction between buying financial products and securities might be a financial product – you own the securities – own a portion – that’s a financial product – financial service – banking so that’s the distinction between the two. The one thing the Congress wasn’t doing and that was when you go and buy a pack of gum, that is not automatically a financial product or service. If I buy a car for cash, no one would say you just bought a financial product or service. And no one would tell the dealer you just sold a financial product or service, even if you priced it using our invention.

Judge Hughes

This isn’t talking about buying a car, it’s not even talking about buying a certain product, it’s talking about establishing I assume software or something like that that’s a pricing mechanism for the – and why isn’t selling a pricing mechanism selling a financial service to these companies – it makes them more efficiently manage their business.

Mr. Langdon

Yeah. And I think the short answer is the ordinary meaning of financial product or service when you look at it is the traditional things like banking, investments and things like that. A software product or .. for example

Judge Hughes

Let me ask you this hypothetical – if there was a program to automatically price stocks and bonds and stuff like that, and you sold it to consumers or to brokerage firms or things like that, and said this will make it much more easy for you to advise your customers and choose among the most efficient investments and its the same kind of there is all kinds of different tiers and stuff like that – it’s the same exact patent you have it involves bonds and stocks. Would that be a financial product?

Mr. Langdon

It would fit in the phrase “if used in the practice, administration or management of a financial product, management or service.” So the stocks and bonds are a financial product and your practicing the sale, practicing the management of stocks or bonds, something that…

Judge Hughes

Something that’s helping you price tangible goods is not a financial service, but something that helps price stocks and bonds is?

Mr. Langdon

I think the answer is that something that helps you price is not itself a financial product or service. Remember this has to be something that is used in the practice, administration or management of a financial product or service…

Judge Hughes

Shouldn’t we be ??? method to determine whether ??? product or service not ??? sale of whether – what it’s selling?

Mr. Langdon

I think.. well the question is – what is the method, what is the invention used in? And the invention is used in…

Judge Hughes

So can I just ask ??? if you have two identical method claims – one is to sell stocks and bonds one is to sell tangible goods. Is the one a financial product because it sells stocks and bonds and the other not because it sells tangible goods?

Mr. Langdon

I think they’re both gonna fall outside

???

Sorry I didn’t hear that

Mr. Langdon

I think they are both going to fall outside for slightly different reason. When the statute says it has to be used in the practice, administration or management of a financial product or service, that means doing things like calculating the value of an insurance policy. How you manage or operate or practice ??? how the bank operates – it isn’t how selling

Judge Newman

???

Mr. Langdon

how it sells ?? engages in financial transactions when it gets…

Judge Newman

Are those covered or not covered?

Mr. Langdon

I don’t think they would be? I don’t think simply pricing anything you sell somebody is but I would admit because you’re in the land of something that is a financial transaction, product or service it’s closer. It turns on the phrase “used in the practice, operation or management” instead 0f financial product or service – but when you’re merely setting the price of cars or widgets or whatever you have that’s just not within the meaning of “used in the product..” excuse me “practice or management”

Judge Hughes

What if you sell an accounting program, to a company that uses it to track inventory and the like, is that a financial product?

Mr. Langdon

No your honor it would not be. It may be a product used in business, but it’s not a financial product or service because it’s not what we all understand it to be. If you Google those terms you’re not going to come up with accounting software. You’re going to come up with investment management advise, banking, insurance…

Judge Hughes

Let me ask you this. Suppose we agree with you on that. And we think that the board was right, here in determining that this was a covered business method, do we need to reach that jurisdictional question you started with about whether the board – whether we can review that or not, or can’t we put that aside for another day if we find that it doesn’t matter because the board was correct here?

Mr. Langdon

I think the ordinary rule is that the court cannot assume the answer to a question it jointly has to address whether it has jurisdiction first, you don’t get what the Supreme Court has called drive-by-jurisdiction. In practice however, courts have sometimes done precisely that. So if the court were to disagree with us it probably go and do that. But ordinarily the Supreme Court says is first thing you ask is do you have jurisdiction to ask the question then decide the question. You don’t assume you have jurisdiction and then decide the question assuming ???? you have it. And one of the problems is you’re creating precedent on the assumption you have jurisdiction to decide it.

Judge Newman

You’re telling us that there is no bright line by which one could predict which side a particular system is on. But if that’s so, and I suppose that’s true in the law in general there is always some place where the competing interpretations about. But what I am not at all sure about – I’ve heard is how to define the extremes as well as to be confident for at least a great majority of these situations whether you are or aren’t, within the statutory purpose. Can you provide such a definition?

Mr. Langdon

I think I would have to do it by example because it’s a phrase that’s used and it has a well established meaning in the sense that everybody knows what it is. So for example, it would be things like banking. The traditional things you think of when you are talking about buying financial products, securities, banking, insurance, credit, real estate settlement. All the things for example listed in Dodd Frank. The one thing it isn’t and the one thing I know is it isn’t everything related to financial activity. And that’s what the board said and that’s wrong. Whatever the – at the far extremes difficult cases might exist, the board’s definition is so far off from anything that’s reasonable or plausible, it can’t be sustained, the court cannot affirm on that basis.

Judge Plager

You don’t put much weight at all on the other phrases in that statute. The other phrases being performing data processing or other operations used in the practice, administration or management – those are terribly broad phrases suggesting that they encompass a whole range of activities, but then you narrow it down despite the breadth of those sweeping terms to a very limited field.

Mr. Langdon

I do because the statute does. The statute starts with data processing and things like that and then it narrows – it says, “not all of them, just the ones used in the practice administration or management” very specific activities, of a very specific set of things – actual products and services. It narrows it down…

Judge Plager

Used in practice, administration or management can cover almost anything you do.

Mr. Langdon

I’m not sure it does, your Honor because I think something in the – if you simply say – I would not for example say that in the practice of law I use something that sets price. I do lots of things in practice in law but setting a price isn’t part of the practice of law. Same thing is true when it comes to financial management or financial products. There’s all sorts of things do actuarially or go through for insurance for example, or calculate for the purposes of loans, or do things to calculate hedging strategies, or intermediate settlement – they’re all financial in nature in the sense of being a financial product or service. But simply setting a price for an ordinary product – your widget, your car, your anything – that is not a financial product.

Judge Plager

If you wanted to patent a method for determining lawyers’ fees in a competitive market based on the nature of the claim and the financial strength of the client, and you came up with a way to do that through a data processing invention that you wanted to patent, would that be a – within the scope of a business method?

Mr. Langdon

I don’t think so because again remember it has to say if something in the practice, administration or management of a financial product or service and that’s just a well known term that financial products or serviced you typed in to Google what does it say? Banking, it says insurance, it say credit. No one until this case has ever thought that anything involving a financial activity or the setting of price or having exchange automatically becomes a financial product or service.

Judge Plager

Is there a footnote in your copy of this statute that says “check with Google?”

Mr. Langdon

No your honor (laughing). But when you’re looking at ordinary meaning you look out to the universe to see what it is and you know why won’t you also look at all the agency statutes and how agencies have defined it. No agency has ever defined it as being so expansive. If the Federal Reserve were given authority to regulate financial institutions, you wouldn’t expect them to regulate everybody who has accounting software. Or everybody who charges a price.

Judge Hughes

Well you’re moving a little bit though when you talk about financial institutions, which is a much more confined universe than financial products or services. Somebody that’s not a financial institution can generally use a financial product.

Mr. Langdon

I think that’s right but what I’m trying to illustrate is that when you put the word financial next to something else…

Judge Hughes

Oh I understand what you are trying to do but every example you bring us back to involves something that actually is in the banking industry or is in the financial industry that would be linked back to those financial institutions so I’m not sure what much more leeway we have beyond that…

Mr. Langdon

I think even if you’re not in the sector as may car dealer who gives credit example shows. Even if you are not in the financial sector, you may have financial products or services, you may use financial products or services. So it’s not just the sector. The key point is that when you put the word financial next to certain things it has a well understood meaning and financial products services does.

Judge Hughes

Can I ask you, why is this something that is ultimately kind of tied in with the merits that we should review? Why isn’t this part of the decision to initiate?

Mr. Langdon

Right. And I think the answer is under Section 329 which is the provision that give this court authority to review, it says that if you are dissatisfied with the decision under Section 328 you can seek review.

Judge Hughes

But the provision is ultimately whether you’re patents invalid or not. And you get to argue whether you’re patent is invalid or not…

Mr. Langdon

But you can be dissatisfied for multiple reasons, your honor. You can be dissatisfied because you thought they got it wrong on the merits, but you can also be dissatisfied because the decision maker had no authority to issue that decision and that’s precisely our point, especially given…

Judge Hughes

You can be dissatisfied that your invalid patent shouldn’t have been invalidated because the board didn’t have authority to invalidate it.

Mr. Langdon

You can be dissatisfied that the person whether they are right or wrong had no authority to do what they did. For example, if a court assumes authority over a case where there is no cause of action – you may have done the wrong and you probably should be liable in state court if that court lacks authority because of no cause of action, it’s reviewable at the end of the day.

Judge Hughes

You’re ?? that to our review decision, but you’re not noting the statute, the statutory provision that precludes us from reviewing initiation decisions.

Mr. Langdon

Correct, but we don’t need to review the initiation because the question we put before the court is “does the – was the final written order within the board’s authority, and under 1881 the board does not have the authority to issue regulations or address anything other than a covered business method. Under section 1882 its regulation can’t apply to anything other than a covered business method. So if it’s final decision is applied to something that’s not a covered business method, that final decision is ??? regardless of what one might think of the initiation.

Judge Newman

Let’s move on to the merits. So we could – we may continue this with the other side I think it’s becoming quite clear that what needs to be deciphered is the legislative purpose in the statute that’s embodied in the statute.

Mr. Langdon

Right.

Judge Newman

So do assume that we are appropriately here this afternoon and continue with the merits.

Mr. Langdon

Certainly, certainly. And, so turning to the merits, I believe that Alice indicates, the Supreme Court’s decision indicates, that computer implemented processes are patent eligible if they improve the functioning of the computer itself or otherwise solve a technological problem. As this court’s earlier Versata decision recognized, the claims here do just that. They make the process of computing prices faster and more efficient using less data. There were computerized price engines before ours, they happen to be slower, they happen to have ?? might take several days to get an accurate price. But Versata’s invention dramatically changed the technology. It’s hierarchical pricing engine – and I’m quoting this court’s decision – use less data than prior art systems and offer dramatic improvements in performance.

Judge Plager

Are you arguing that you fall within 101, is that what you are arguing?

Mr. Langdon

Yes that’s what we’re arguing this is patentable subject matter under the Supreme Court decision…

Judge Plager

Under 101.

Mr. Langdon

Yes.

Judge Plager

You’re not challenging the question whether 101 is a valid standard for the PTAB to have applied are you?

Mr. Langdon

Well. I am not waiving that argument, but I was not addressing that argument unless the court had questions about it. I was planning on to move to the merits as Judge Newman suggested as opposed to the board’s authority which was – involves is it a CBM patent – is 101 a valid basis and finally whether or not there was a claim preclusion.

Judge Newman

I think – are you willing to assume that we can proceed to the merits, and we’ll wait for a higher authority to explain 101 t0 us?

Judge Plager

Ahh well yes I am if that’s where the panel wants to go. But I thought the question of whether 101 was within the scope of PTAB’s authority in judging a CBM – I thought that was a live issue…

Mr. Langdon

It is indeed your honor, and we have briefed on that. I’m happy to address it, I just transitioned

Judge Newman

Take a few minutes to address it now ?? come up.

Mr. Langdon

Certainly. Certainly. The post-grant review.

Judge Plager

I just wanted to add I think I understand the argument from your briefs but I wanted to be sure – I wanted to know whether you were waiving that issue or whether that issue yet has to be decided because that also raises the same question of whether we can reach the question of whether in their institution decision they said the problem with your patent is it doesn’t – likely or not – whatever their phrase is – it’s not going to meet 101’s requirements. Now, can we reach that question?

Mr. Langdon

Ahh well whether or not there was…

Judge Plager

Is that more probable than not we can hear an appeal?

Mr. Langdon

No. I think that is washed away. You cannot review the initiation decision itself – you can only review the final decision. And the final decision doesn’t encompass a more-probable-than-not analysis, it just says, this is not patentable subject matter, so that’s what you would review. Now, whether or not the final decision is on an authorized basis – whether section 101 is an authorized basis, that is reviewable.

Judge Plager

The board held only the 101 issue. Everything else went away.

Mr. Langdon

That is correct. 102 was waived by …

Judge Plager

Doesn’t that mean that the question of whether 101 is properly within their reach has to of necessity be reviewable?

Mr. Langdon

I would think that is. I don’t think it would in anybody’s estimation be covered by section 324 the preclusion or review provision we have been talking about earlier. That is

Judge Plager

No … ??

Mr. Langdon

They had authority or they didn’t…

Judge Plager

I wanted to be sure where we stood because I want to talk to the government about that. Why don’t you go to the merits

Judge Newman

On the assumption which I think we’ll bring us to the merits is that it was alright for the board to say to rely on 101, and let’s argue about whether their decision under 101 was correct or not.

Mr. Langdon

Sure. Assuming for the sake of argument – for the sake of argument – that it was OK the answer is no, they made a mistake here. Because Alice indicates that if you improve the functioning of the computer itself, that should be patentable subject matter and that’s precisely what these claims do as the court has recognized. Abstract ideas don’t make the computer run faster, they don’t get you results faster, this invention does. So in that sense it’s very much like, for example, a compression technique. A patented compression technique that compresses data much faster or more accurately, than it’s predecessors, or a technique for encryption, or a more accurate, less resource intensive technique for error correction in computers. All of these things make the computer run faster through software rather than changing the hardware. A huge swath of the technological progress today comes from not increases in the hardware but from making the software that turns a general purpose computer into a specific purpose computer, work faster, and better. There is no reason why innovations in that art should not rewarded equally and protected by the patent laws just as much as innovations in the hardware itself.

Judge Hughes

Do you agree that if you have a business method, that this method is more efficient and goes faster on a computer, assuming that method is abstract, that’s not eligible under on 101? That’s what Alice says.

Mr. Langdon

Yeah. I think the answer is that if you have a business method that might go faster on a computer that would be correct, but it sort of depends on

Judge Hughes

You’re flipping it, I think, I’m trying to distinguish your argument, is that it’s not the computer that makes the business method better, it’s the business method that makes the computer better.

Mr. Langdon

I actually think we are not a business method we are a technological solution to an existing problem. The existing problem was you had too many tables, too many queries, and it resulted in too much difficulty maintaining things and the results were very slow, and we re-vamped in a completely counterintuitive way of doing – the software

Judge Hughes

I understand that point. So, if that’s the case then if you explain – if the claim explains this business method will program a computer to work faster, that seems like it may escape the 101 problems. I have a hard time finding that in your claims. I looked at claim 17 and it seems like the only reference to a computer at all is the word data source which I understand is construed to be a computer, it doesn’t really speak in terms of this is – these are methods for organizing data on a computer to make it work better. It seems like methods for organizing data that references a computer and in some of the other claims says computer instructions to implement this method.

Mr. Langdon

And I think claim 17, because it’s talked about the data sources, and because it has the typical functionalities of storing and retrieving, it’s clearly directed to a computer and experts have testified that you would never want to do this on anything but a computer and the reason for this is it’s not just limited as you said towards  the means of storing the data using the hierarchical structure in the first place, but you also have the specific mechanisms in totally counterintuitive ways of retrieving that data that was totally different from the prior art. The prior art you went from table to table  you would do individual person country, state ???

Judge Hughes

Can I ask you this? If the phrase, “in a data source” ?weren’t include in? 17 would it be passable under 101?

Mr. Langdon

Yeah. I think it still would be ??

Judge Hughes

It doesn’t refer to anything about a computer. I mean it doesn’t necessarily have to done on a computer.

Mr. Langdon

It doesn’t necessarily have to be done a computer because there is just no way to get the advantages of the claim except on a computer.

Judge Hughes

This is what I was asking you about earlier though in that, methods that theoretically could be done by hand but just practically speaking can’t be done by hand because of the amount of time it would take are like saying, this method done a computer is patentable is something I think that the Supreme Court has rejected. So that’s kind of what I was trying to get at – is 17 that or is 17 is – this is how to program a computer to do something better.

Mr. Langdon

I think 17, 26 ?9 are all ways of programming the computer to do it better, we didn’t touc.. claim the two hundred thousand lines of code but we claim the technique used in that code.

Judge Hughes

But the problem for you, at least in 17 is the only reference to a computer is this vague term “in a data source.”

Mr. Langdon

I think that may be the primary thing in there, but written in light of all the spec and everything that’s out there it is clearly directed to computer implementation. In fact the board itself in its decision says this is directed to a computerized technique for – so I don’t think there is any other way to read it. But even so, if you take a look at steps 4 from 4 down, it’s clearly talking about a computerized technique because what’s different from the prior art and what’s so revolutionary is the prior art went and got the exact right answer by going to the exact right table and it stopped. What this does is it takes a hierarchical ?table? and it sweeps through the table and pulls up multiple wrong answers and multiple right answers, one you’ll use and one’s you don’t, and you have to add another step as a result, sorting – figuring out which ones are where under the hierarchy and finally eliminate the ones you don’t want. That was a revolutionary contribution because counterintuitively pulling out too much data and then sorting works much faster than the old method of going through table after table after table til you find the precise adjustment that you want.

I think I am well into my rebuttal time at this point. Unless the court has further questions I think I’ll find my seat. Thank you.

Judge Newman

OK. Thank you Mr. Langdon. Ms. Patterson?

 

Arguments of Ms. Patterson for SAP

Ms. Patterson

Thank you. May it please the court. Melissa Patterson for the Patent and Trademark Office.

In the AIA Congress set out two phase procedures for three different types of new post-issuance proceedings. In each one of those, there is a final and non-appealable bar for the first phase, for the decision whether to institute. With respect to the culmination of the second phase, the merits phase, where you actually look at the patentability of the claims before you, that culminates in a final decision with respect to patentability. Statute provides for a specific appeal right and what do you get to appeal? You get to appeal the final written decision with respect to patentability. Statute also has a provision called no appeal.

Judge Hughes

What happens when the PTO makes a clearly wrong decision on whether to cover a business method in its initiation decision?

Ms. Patterson

I think all institution decisions are only for the agency and there is no judicial review of those.

Judge Hughes

So if somebody comes in and says, please initiate a review of this method to produce a computer chip, and the patent office inexplicably says that sounds like a business method to us, we can’t review that question?

Ms. Patterson

That’s right your honor. But I want to point out you’ve just used the word “inexplicably.” We don’t construe statutes on the presumption that agencies will go rogue – will start behaving inexplicably.

Judge Plager

Yes, that may be true but there are unique occasions that have come before this court when an agency has made a mistake. You would concede that?

Ms. Patterson

I am certain that is true your honor.

Judge Plager

Alright. If you concede that possibility then you have to concede Judge Hugh’s hypothetical case. What do we do if the agency – there are certain statutory provisions that are prerequisites, or preconditions if you will, to the PTO’s review under this post-grant process. One is a time limit in one set of them. What do we do if the agency decides inexplicably, simply because they haven’t told us why, we want to ignore that particular requirement. We realize they don’t meet it but this is an important case we are going to take it under review anyway and we will initiate. And they initiate and then it comes up here on final written decision. Is it the agencies view, is it the government’s view that you can come up here with a case in your favor over which by everybody’s reading you never had statutory to deal with?

Ms. Patterson

Yes your honor. I think that’s a function of the judicial review bar. Let’s note, if you actually – if we actually declare something with a patent unpatentable if you disagree with us about patentability you certainly have review of that. We can’t say you can’t review the merits. But if you think that we have erred in starting the proceeding that lead to the unpatentability declaration, no you can’t say no matter how invalid that patent might be we are going to let the patent owner keep it and enforce it against the public because we think there was an error in how the PTO decided to initiate its process. That’s what we think section 324e does.

Judge Plager

You are saying we can do that.

Ms. Patterson

You can review the final decision with respect to patentability, and anything

Judge Plager

We’ll review it not on the grounds of whether there was prior art, or whether it met 101, but on the grounds that you had no business taking it up at all. Is that correct?

Ms. Patterson

I think we are agreeing your honor. I do think the 101 is relevant to the merits phase to phase II that leads to the final written decision with respect to patentability…

Judge Hughes

I’m not sure you are. I want to make that clear. I think – and I don’t want to rephrase – but I think your position is whether the initiation decision and whether the PTO’s decision about whether this is a covered business method or not, is not reviewable by us.

Ms. Patterson

That is correct. I…

Judge Hughes

Not even after a final board decision.

Ms. Patterson

Absolutely your honor. I heard Judge Plager refer to section 101. I just want to make clear I think we’re in agreement…

Judge Plager

Forget 101 because that’s peculiar animal, particularly in this case, because it’s both a jurisdictional issue and it’s a merits issue.

Ms. Patterson

Yes your honor.

Judge Plager

Because you happen to have held on the merits in that they fail 101. Clearly we can reach it in this case because that’s what your merits case happens to be. Whether that would be true in another case we don’t need to go there. But what I’m reaching for and what I think Judge Hughes is reaching for is you’ve just written off a couple of centuries of doctrine called ultravirus. And what you’ve told us is that doesn’t apply to the PTO. The PTO can do any darn thing it wants, and there’s nothing the courts can say that you people had no business doing that.

Ms. Patterson

You’re honor.

Judge Plager

That seems to me to be a rather interesting reach for an administrative agency.

Ms. Patterson

Your honor the idea that judicial review bars have not some flaws of agency action and no court ever touches it is very familiar outside of the patent context. And very familiar to this court too. For example on the field service reform act, this court has jurisdiction over a very small sliver of MSBP decisions. Even if the MSBP erred in other decisions, if it doesn’t fall within the category of things appealable to this court, that administrative decision stands. The APA itself provides for a ?? of such action, it says you don’t get APA review when statutes preclude initial review. That is a function of a judicial review bar, it’s not a block

Judge Plager

That’s fine over the range of things over which we would normally have – not have jurisdiction over – in other words, Congress is free to say I don’t want the court’s dabbling in how we treat our staff and for many years that was their decision. They changed it, which is just as well. But, that was not a problem for us, that was a problem for Congress. Now in this case what Congress has said to us is, you people review the final written decision of this PTAB operation, right?

Ms. Patterson

Yes.

Judge Plager

How can we review a final written decision if it isn’t final. And how can it be final if you never had authority to make it?

Ms. Patterson

Your honor, I think when you have a thing – a piece of paper saying “final written decision” you get to review that. And if we have made any errors in our patentability analysis you can tell us we’re wrong.

Judge Plager

And how bout if you made an error in even thinking you had authority to decide it?

Ms. Patterson

I think that’s what 324e is addressed to. It says that that decision, whether to institute, shall be final and non-appealable. And if we’re trying to…

Judge Newman

I shall help you. The reason that seems to become clear, excruciatingly clear, in the legislative history, that the reason for that threshold, no you can’t appeal, this threshold question is expedition. If you can appeal every stage as you go along you will never get through this post-grant review. You’ll exhaust the life of the patent, which is always in the interest of one side or another on the debate. So it is just a pragmatic business – leave us alone until we get to the end. And I’d always thought that that was what it was about. And to me it’s the only reason for justifying what seems to be very peculiar for the reasons Judge Plager has mentioned. But it also occurs to me but I haven’t heard you say that the same substance is decided anyway after the board decides. If the board says you lose under application of the CBM rules then they should have jurisdiction. If we can get across this threshold, complex though it is, and figure out some pragmatic solution, it would be very helpful now to get to the merits that are before us of the decision and let us figure out which if these divergent policies we think the legislators had in mind.

Ms. Patterson

Your honor, I can address the merits, although I know counsel for SAP is prepared to do that too. I do want to address your supposition about 324e means and says when its final and non-appealable what that means is you get appeal later, you get appeal at the end of the day. That would render that provision entirely superfluous because that is the background principle, that is a basic background bedrock of APA review is that you don’t get to stop an administrative proceeding midstream as in FDC v Standard Oil, the FDC was initiating a proceeding and the Supreme Court said

Judge Plager

Well you’re just jumping around because what I heard Judge Newman say is that the purpose of this non-reviewable provision is exactly what this court has been telling the interlocutory petitioners for several months – no interlocutory review – don’t come up here just at the end of the first step because we are not going to hear you. And it seems to me that’s a perfectly sensible thing because that brings about expedition and consolidation of the issues. However, I thought heard Judge Newman say that at the end you get to review everything.

Ms. Patterson

But even if you didn’t have 324e, that would be sensible, and that would be the regime required by the APA. You don’t get to stop an administrative proceeding mid-stream.

Judge Plager

But not stopping. Nobody’s asking – there’s no issue here about interlocutory review mid-way through the process. The question before us is at the end of the process, what issues remain to be reviewed?

Ms. Patterson

And if the ??

Judge Plager

And if I understand you correctly your answer is, one issue that’s not to be reviewed is whether you all had any right to decide the case in the first place.

Ms. Patterson

That is right your honor. If you just wanted to delay review until the very end, you would not need section 324e.

Judge Hughes

Do you think – it may be arguing over whether that bar is clear enough. Or it may be we are arguing over whether Congress has the power to impose such a broad bar at all. So let me just ask you that. Do you think assuming this bar – this statutory bar is read broadly enough to say “any decision connected to the initiation including whether it is a CBM covered method is not reviewable on appeal. Does Congress have the authority to do that?

Ms. Patterson

Absolutely your honor. What Congress give with one hand it can take judicial review of from another. There is no – absolutely no problem, statutory, constitutional anywhere with Congress doing that. And in fact Congress routinely does that. That is what a judicial review bar does. So I think the real question here is, is that what Congress meant to do? And we don’t think there is a reading of 324e that leads to a contrary conclusion that doesn’t run into one intractable statutory interpretation problem or another. I you read it just to delay review, you run into a superfluidity problem. You wouldn’t need this bar if all you wanted to do is delay review. You don’t  need this  – you cannot confine this bar to the kind of non-institution decisions. And I think the interlocutory decisions that Judge Plager referred to, St. Jude Medical in particular, recognize that this might in fact be what Congress meant 214b, which is identical in all relevant respects to 324e, might well preclude judicial review by any route. Now the court did not need to decide that because of course it didn’t have before it a final written decision. But that certainly is a plausible reading of what Congress meant to do and we think it is the right reading because there is no other reason for 324e being in there.

I do want to turn to some of the other threshold issues.

Judge Newman

Please do.

Ms. Patterson

That ah

Judge Hughes

Could I ask you, particularly before you go ??? because I think this is probably you and not your friend as much. The broadest reasonable interpretation applied rule applied here. Is that an interpretive procedural type rule or is that a substantive rule?

Ms. Patterson

I think it’s a rule about how to conduct proceedings – they say – I think it was the PTAB

Judge Hughes

Well, is it a rule about how substantively patenting rights the scope of them are construed? I find this puzzling. I mean frankly, I don’t, I struggle and I’ve struggled not just hear but I’ve struggled for 20 years on your side on what the difference of substantive and procedural rules are. But it seems to me that this is a particularly perplexing one because if you read it as – “this is the procedures by which the PTO uses to adjudge patents” it’s procedural, but if you think of it in terms of – “this is a rule that dictates what the scope of the examination of a patent is” then it seems substantive.

Ms. Patterson

No matter what the label is – and I agree that the labels run into each other and don’t have a lot of meaning in some instances, this was a rule promulgated per PTO’s new grant of authorities – so this court of course has a line of authority about PTO’s scope of authority under section 2b. With the creation of these new proceedings, Congress gave PTO some very capacious new grants of rule making authorities, in section 18a1 you have to establish and implement the whole review. In section 326 you have to establish regulations governing and establishing these proceedings. So…

Judge Hughes

And you read that to extend to substantive standards for determining the scope of the patent.

Ms. Patterson

Certainly your honor. When you’re trying – whatever this particular rule is – whatever label applies, when you have been tasked with establishing, implementing and governing a process – when you say – OK here is how we’re going to go about doing our process, that has to be within your rule making authority. However that rule making authority is construed.

Judge Plager

So you’re basically arguing that your position I take it that the old substance versus procedural line that was so ?visibly? drawn under the old limited delegation of rule making authority doesn’t really work anymore.

Ms. Patterson

I think it’s not relevant anymore given the new grants of authority.

Judge Plager

OK.

Ms. Patterson

I see that I’m running into ?? as we keep time.

Judge Newman

Well let’s – we’ll extend your time because I think we haven’t raised this question of broadest reasonable interpretation, it’s really just a question that I’m interested in the office’s view and that is is isn’t really questioned at least not as rigorously has here, when we’re talking about the ex-parte examination process. The initial examination, or the routine re-examination when it was simpler. Now we have  system that’s supposed to substitute if it works the way the legislator had in mind, for litigation cheaper, faster, conducted by experts who are likely to come out right and then it’s over and we know where we stand. Is the office taking the same position for broadest reasonable interpretation now in this new in sense first impression context for this – I’ll call it a rule – or is the office keeping it’s mind open or flexible – I know you took a position here it was argued on all sides by several amicus briefs – are you drawing that distinction or is the position of the office that there is no distinction reasoning this is how the office should work?

Ms. Patterson

I think ?? your honor. We both think that prior reasons for having ?RI as the standard in the other earlier post-issuance procedures still hold here, you have the ability to amend, you still do not start with a presumption of validity, but it I think there is an additional reason why we need to use the RI in these new proceedings, which is that the statute specifically contemplates the joinder of any other post-issuance proceeding going on. So if you have both a re-examination, in which this court has already blessed the use of broadest reasonable interpretation standard, when simultaneously with a post-grant review, the statute specifically says the director has the discretion to join those. And it would be exceedingly strange if you had different standards of review going when you had your re-examination ??? as opposed to when you had your BRI or your ?? review ??? ??? in the very same proceeding.

Judge Newman

Your point of finally the judges who have to figure it out and presumably come up with the right answer. Is it even stranger that on exactly the same references and reasoning and everything else that you authorize a procedure in the trial court and a procedure in this new patent office trial court which by definition can come out differently.

Ms. Patterson

I don’t think that’s strange at all. And I think this court’s decisions in Ethicon, in Baxter say

Judge Newman

That wasn’t my question. Nevermind Ethicon and Baxter, and they weren’t dealing with (Judge may Plager laughing) and they weren’t dealing with the America Invents Act – these were all examination and at most ex-parte re-examination.

Ms. Patterson

But they all have the same features where you don’t start from a presumption of validity. You have a different standard of proof

Judge Newman

I wasn’t asking about the presumption of validity

Ms. Patterson

And the ability to amend where sister courts can’t narrow patent claims.

Judge Newman

We don’t know the rumors are that it’s so easy to amend under the America Invents Act.

Ms. Patterson

No…

Judge Newman

So the entire philosophy for the initiation in ex-parte examination as to why we’ll say yes we’ll let the we can read this reference in this screwy way because it doesn’t matter just fix it.

Ms. Patterson

Your honor, you certainly can move to amend your patent, if you think the PTO was being too stingy with motions to amend in the post-grant and inter-partes CBM context. There are cases coming up the line saying PTO has been too stingy. You could act there. You don’t read a statute that explicitly gives parties an ability to amend and say that we don’t really think that is a thing despite Congress’s provision for it – so we are going to say that the PTO acted arbitrarily and capriciously using the same standard in every post-issuance proceeding.

Judge Newman

Well I asked if there was a policy.

Ms. Patterson

Yes your honor I think it’s announced in the regulation and in the Federal Register notes that accompanies it and it says..

Judge Newman

Where is ????

Ms. Patterson

It says – pardon?

Judge Newman

There is a policy even though the ability to amend is ??? presumed significantly different.

Ms. Patterson

Yes. And I want to note that it’s not strange the the ability to amend would be different when you amend during an initial examination that doesn’t mean you have an issued amended patent that means you have a patent still in examination. As soon as the board, looking at ????? grants a motion to amend, that patent goes out the door. So you might be a lot more careful in how you grant motions to amend on an issued patent then you would on a patent under examination. I am concerned that I am taking too much of SAP’s time.

Judge Newman

Yes, we are running over but let’s are their anymore questions for the office? OK. Thank you Ms. Patterson.

Ms. Patterson

Thank you very much.

Arguments of Erika Harmon Arner for the PTAB

Ms. Arner

Thank you. May it please the court. We’ve had a lot of discussion about whether or not the 350′ patent is a covered business method and we’ve mentioned whether or not section 101 is a grounds for post-grant review. I’d like to just bring to the court’s attention that the patent owner waived those arguments by – they’ve admitted that the institution is not appealable.

Judge Hughes

On the 101 issue I think – to me the – I see what Melissa is saying – I find this very difficult here. It’s clear to us – it’s somewhat clear to me that the Supreme Court has said an abstract method done more efficiently on a computer is not eligible under 101 but that a method that improves functioning of a computer is eligible. Why isn’t claim 17 which talks about different ways to organize data on a computer to get faster pricing information an eligible business method?

Ms. Arner

Well. Versata argues that the claim makes the computer process faster or suggests that that changes the way the computer works – it doesn’t actually – it makes the pricing math happen faster. Those steps that the patent owner pointed out – those four steps of storing and retrieving and sorting and eliminating the data – that’s the price calculation itself. And so the computer doing those types of functions even actually retrieving data was one of the functions they looked at – the Supreme Court looked at in Alice and said that’s just a computer doing what it ordinarily does.

Judge Hughes

So you think this falls in the other line – that this is an abstract business method

Ms. Arner

I don’t think the court even needs to go to the line – yeah I think this one is so clearly a business method with a computer tacked on, if you look at the 350′ patent, it has an abstract idea, the patent owner has admitted there is an abstract idea of calculating prices. And the meaningful limitations are at most a general purpose computer although claim 17 doesn’t require a computer at all. But the other claims they recite a copy of abstract method 17 with the word apparatus or processor

Judge Hughes

In addition to the claims here in 17 they had something like a means for programming a computer to do this and then as a limitation they had specific algorithms or flow charts. Do you think that might change the outcome here?

Ms. Arner

You know, this court has been careful not to try and draw – in Ultramercial for example, not to try and draw the – not to figure out where the boundary is of abstract ideas and patentable…

Judge Hughes

Well I understand but

Ms. Arner

It’s not necessary here I think…

Judge Hughes

That’s why I ask you the hypothetical. I know you don’t want to answer and I .. I don’t know the answer to it myself. But it does seem to me that, that at some point out there, there has to be some kind of thing, unless what the Supreme Court has said is software and business methods are not ever eligible, which I think they haven’t, what would it take to get this eligible?

Ms. Arner

Well I think what the real question, and I agree it’s a very difficult question to answer, and the Supreme Court

Judge Plager

It’s actually an easy question to answer, it would take a court decision.

(Laughter in the court room.)

Ms. Arner

I can give you an example (laughing). Yes I would look at Ultramercial where this court looked at a very detailed claim with 11 ordered steps and said even with the 11 ordered steps this is an abstract idea and all of the parties agreed there was a computer and still it was just doing what computer’s do. I do think there may be a line as you suggest, between a business method with a computer tacked on, I think we have a whole line of cases, Bancorp is a good example, where that happened. But I think the thing that makes it a little easier is to analyze this case is to look at the claims themselves, which is what really matters for 101, and when you look at these claims they line up exactly with the types of claims in Alice and Ultramerical. An abstract method claim 17 that could be performed with a pencil and paper, we performed it ourselves in the hearing at the PTAB with the charts on a slide and then that method claim is too abstract to be patentable. And the rest of them add words like computer aided method or apparatus or processor, and it’s sort of a quintessential business method patent that never should have issued under section 101 and that’ really the board – it’s not even a close call really and I don’t think that this court needs to go to the edge of software patentability or something to resolve this here.

Judge Plager

Is this patent a technological invention?

Ms. Arner

It’s definitely not a technological invention and I might use that as a segway to the covered business method question if that’s OK with the court. Just like this case is not close to the edge of 101 it’s not close to the edge of a covered business method. It is plainly the type of patent Congress was talking about. It was filed in the wake of the State Street Bank case in the late 90’s early 2000’s, it has problems under 101 and it is being enforced against the public. That is exactly the kind of patent Congress is talking about when they wrote section 18.

Judge Hughes

They did – I mean if they just said you can initiate review of any covered business method then you would be on extremely firm ground here. They did at least have a qualifier a financial product or service.

Ms. Arner

I’m glad you brought that up. So, the patent owner was making a distinction between maybe what your pricing – that if your pricing things you sell in the corner store that’s not a business method but if you’re pricing services of some sort – financial services, well if you look at the 350′ patent, it actually says that a product for the purposes of this invention can include tangible products as well as intangible products such as services. So the pricing math that is being done by the claims, and in the 350′ patent can apply to services. So even under that sort of an interpretation, if it matters what you’re pricing which I don’t think it does – if you look at what Congress is talking about, the legislative history talks about pricing real property or appraising real property or personal property is the type of thing we’re talking about for covered business method. Congress talked about that.

Judge Hughes

Can I ask a hypothetical – I want to see where you go ?? .

Ms. Arner

Sure.

Judge Hughes

Suppose you’re a rental car company, and you have come up with a new method for making sure that the rental car are more efficiently distributed at the pickup and drop-off points, and that’s a bit abstract, but it has a bunch of different steps, look at this – look at this – look at this… we’re leaving aside all the 101 things – I’m trying to decide whether this falls under financial products or services, and the whole point of that is it makes your operations work better. And obviously if your operations work better, your operations are more efficient, it’s saving you money. So in that sense it’s a financial service. But is that the kind of financial product or service they meant here? Because just because it affects the company’s finances, or does it have to be something more?

Ms. Arner

I think that Congress said that the definition should be interpreted very broadly, and Judge Plager you noted some of the terms

Judge Hughes

I am going to press you to answer that. Do you think that the hypothetical ??? the covered business method held up for review ???

Ms. Arner

It’s something that’s practiced in commerce, that’s another word that Congress looked at, those are the types of things. And again, the covered business method determination is not a determination of whether it’s patentable, as you said, sort of setting aside 101, Congress

Judge Hughes

No, I understand, that

Ms. Arner

Congress said those are two different things.

Judge Hughes

So it seems like you are taking the financial product or service term about as far this way as your opponent was taking it that way.

Ms. Arner

Well, and I think that one

Judge Plager

Is there any boundary to where you are taking it?

Ms. Arner

We don’t have to get there today. Certainly, this patent is plainly a covered business method. Class 705 is one ?? the same

Judge Plager

Well. Plainly covered business method only if you take the boundary out to where you want it.

Ms. Arner

Well. And I don’t think we are even close to the boundary. I think if you read what Congress was talking about when they wrote section 18, the time frame that this patent came out, the problems with 101 after Bilski, this is exactly the type of patent they were talking about. Also, the technological invention is one way – you’re saying anything in the world could be a covered business method… I’m sorry you were saying?

Judge Hughes

OK. Do you think the boundary is anything to do with money?

Ms. Arner

We would defer to the patent office on their definition.

Judge Hughes

(Laughing.)

Ms. Arner

There is a large swath of things that Congress carved out which is technological inventions and they left it to the PTO to define technological inventions and the PTO did that. And this patent fails every prong of that test. And I think that’s further evidence that this is not certainly the outer boundaries case but a very clearly – for example one of the prongs is, is there a novel non-obvious technological feature? Look at claim 17, ahhh

Judge Plager

What do you understand they mean by a technological feature? What does that mean?

Ms. Arner

So Congress specifically directed the PTO to determine what that means.

Judge Plager

I understand and I found the PTO’s definition remarkable because what their defining is, what is a technological invention, right? And how do they define it? Is they say in determining whether a patent is for a technological invention is what you look at is the following will be considered – whether the claimed subject matter as a whole recites a technological feature!

Ms. Arner

(Laughing.)

Judge Plager

They use the term to define it, OK? That is novel and unobvious over the prior art and, guess what? Solves a technological problem using, guess what? A technological solution. So as long as you don’t need a definition of what a technological invention is that’s a wonderful explanation.

Ms. Arner

So I think what they were getting at there, is they’re looking for technology – novelty in the technology- some advance in technology. And while they said it’s not the same question as 101, I think there is some overlap there and there – I think they’re trying to

Judge Plager

You said this was clearly a technological invention.

Ms. Arner

Well it’s clearly not a technological invention. It fails all the prongs you just described. It failed every single one. Clearly not a tech…???non-obvious???

Judge Plager

Clearly not a technological invention?

Judge Plager

What do you understand a technological invention to be?

Ms. Arner

Well I don’t think you actually need to reach that in this case because the board found that there is not even a novel and non-obvious feature in the claims when they instituted they found every feature in the claims present in the prior art. So whether any of the features is technological or not, they’re not.

Judge Plager

You make very nice arguments, but…

Ms. Arner

(Laughing.)

Judge Plager

…you don’t want us to reach all the interesting issues.

(Laughter in the courtroom.)

Ms. Arner

Versata waived almost all of them at the patent office. Versata waived whether or not this is a covered business method and they waived the argument whether section 101 is not a proper grounds…

Judge Newman

Let me ask you a question that we haven’t gotten to

Ms. Arner

Please!

Judge Newman

It has to do with collateral estoppel. Now here we have a case where the district court in the jury trial, they found their patent valid and infringed by your client. And in the fullness of time, this court affirmed. Meanwhile, the patent office after the enactment of the America Invents Act was one of the first to put this patent back through the system and the office decided the patent was invalid for an assortment of reasons that we have been dancing around ???. Suppose we had a contrary situation. I think the position is, the position is pretty clear in your brief is that there is no estoppel against what the office did just because there was a trial and an affirmance that upheld the patent never mind the office could overturn that provided this procedure starts somewhere’s before the absolute finality for whatever reason.

I wanted to ask you the converse of that situation. Let’s say this is a trial where the district court holds that the patent is invalid and not infringed, and it’s going through the system, meanwhile for the double security perhaps, the defendant, the accused infringer goes to the office and the 0ffice upholds the patent. Does the same rule provide? Does that PTO ruling of validity and patentability override the prior decision of the district court?

Ms. Arner

So I think this court decided that issue in Fresenius which is not the issue here, which is that as long as there is something still alive in the district court proceeding, a patent, a final affirmed patent…

Judge Newman

They did decide in Fresenius that an office decision that the patent was valid overruled a court decision of invalidity. That’s my question to you.

Ms. Arner

Whether the patent office would be finding cancellation on…?

Judge Newman

I’m trying to understand where if anyplace, the lines are, the relationship, between the office and the courts

Ms. Arner

I think that…

Judge Newman

…in the context of this good example because…

Ms. Arner

I think we actually…

Judge Newman

went through it twice…

Ms. Arner

Yes. I think Congress actually spoke to this. There was in the inter-partes re-exam statute limitation. There was a specific estoppel that would apply and prohibit filing an inter-partes re-exam in the situation that you were talking about with the district court, once that judgement is final and affirmed, you couldn’t file an inter-partes re-exam thereafter…

Judge Newman

No no that doesn’t answer my question…

Ms. Arner

That was taken out of the statute in the AIA.

Judge Newman

That wasn’t my question. My question is on an identical sequence of events here except that the decisions are reversed. Is your view, your understanding of the statutory purpose, that the decision of the office under the America Invents Act will overturn and validate a patent that has been invalidated by the courts.

Ms. Arner

I think that Congress intended the PTO to reconsider CBM covered business method patents in exactly the situation you are talking about, where they have to have been sued on that. So this provision is narrowly tailored to business method patents. They will all covered business method proceedings will all necessarily have that litigation, and the point of

Judge Newman

So you don’t ?? answer the question.

Ms. Arner

I’m sorry…

Judge Hughes

I’m not sure you’re addressing the factual scenerio here.

Judge Newman

No. I would say not.

Judge Hughes

So you have a district court action filed on a business method patent, and the – either – leave aside all the statutory estoppel provisions. I can’t keep them straight in my head right now. Somebody. And the defense is going to be that it’s invalid from the accused infringer. The – somebody either the patent holder or the accused infringer goes to the patent office and challenges it there too. No. We have the reverse the situation here happens, and the district court finds the patent invalid and unenforceable. And therefore doesn’t award any damages. The patent office says that it’s valid and it is enforceable. Is the district court bound by the PTO’s decision that the patent is valid?

Ms. Arner

No, because the district court asked a different – the question at the district court is different. The question at the district court is whether the patent is proved invalid by a clear and convincing evidence, and under the statute a post-grant review requires only a preponderance of the evidence.

Judge Newman

Never mind the standard of review. Let’s say the standards are met. I think – let’s try to keep to this  – my thanks to Judge Hughes for trying to present a very simple question. It’s tried in the court ????, they hold the patent invalid and not infringed, and I appreciate here also we haven’t really gotten to the fine point that the validity wasn’t appealed, only infringement, but alright so the patent office holds that it invalid. Meanwhile, somewhere’s in the procedure before some final judgement, so we avoid the prosavius problem, someone puts in post-grant review, the office does what it does, adequately, competently, meets all of the burdens that are – the most stringent burden, and says this patent is valid. Does that override, in your view, what the ???

Ms. Arner

In my view that’s what the patent office did when it was i….

Judge Newman

??? statutory purpose here

Ms. Arner

Well that happens every time. Once the patent issues, that’s not something unique. Every time the patent office issues a patent, and it is later invalidated by a court, there is a disagreement between the two.

Judge Hughes

And so in your view it is not any different under these new CBM

Ms. Arner

No I think there’s court cases on re-exam are really clear on claim preclusion not applying.

Judge Hughes

Even if a patent is re-examined during a pendancy of the district court litigation, and found to be valid by the patent office – doesn’t have to pay any attention to what the patent office said on validity.

Ms. Arner

Well the questions are different. And this court says so.

Judge Hughes

Yeah. Just – I know. I understand that. Assume the questions aren’t different.

Ms. Arner

Um-hm.

Judge Hughes

We’re trying to get at collateral estoppel, we’re not trying to get at standards and all of that stuff, I understand that plays into effect, but I think your answer is the district court doesn’t have to pay attention to the PTO’s validity decision.

Judge Newman

Right. My question was, does the PTO have to pay attention to the district court decision. That’s what….

Ms. Arner

And I think that was answered by this court in Florenson and Construction Equipment where even on the same prior art, even after

Judge Newman

???? those were all different and they were not America Invents Act. They were not post-grant review. They were not full inter-partes with all of the safeguards that we have here. I mean I would like to see this system work the way I understand it was designed to work. That there will be an easy quicker, less expensive and system on which you can have confidence, decided by experts, who know what they are doing, who have the time, and all of the rest of it. And I’m trying to understand if we’re talking about one-way estoppel, or no-way estoppel, or if this is totally independent and no one can figure it out, or what?

Ms. Arner

I think that the covered business method is a much more limited situation and it is this is an example of it working just as it should.

Judge Newman

??? what?

Ms. Arner

That the covered business method – that the AIA is working as it should. The cvered business method provision in particular.

Judge Newman

And when you say working as it should, you’re saying that the office can overrule an invalidity decision by the court, because the office has the last word.

Ms. Arner

That’s not different than under re-exam either and the statute, Congress spoke to this when it

Judge Newman

… the office did not overrule the decision of the district court. This is a different situation with a different statute designed to impart finality through the body that is best equipped to make the decision.

Ms. Arner

That’s right. I’m over my time. I’m happy to keep talking. But I didn’t want to take the courts time.

Judge Newman

I’m going to ask you the question yes or no.

Ms. Arner

(Laughing.) I’m sorry and I ?? so I know… Can you ask the question one more tihme?

Judge Newman

Is it your position that the later decision of the office holding the patent invalid, overrules the prior decision at the district court that the patent is invalid.

Ms. Arner

I think under Fresenius as long as that first case  is still alive, there are can be an affect. But that’s not the question here.

Judge Newman

That’s not my question.

Ms. Arner

Versata’s argument here is that you couldn’t file the post-grant review petition after a final judgement and this court’s law on re-exam and the fact that Congress removed the statutory estoppel from inter-parte re-exam and the covered business method section specifically targeting patents that are being sued – people are being sued on, that’s exactly what this section 18 is about.

Judge Newman

Well I appreciate it’s not this case, but I think the principle in converse are things that we have to think about as well.

Ms. Arner

I think that there are a lot of issues that this case has raised that don’t need to be decided for you to decide this case. Many of them were waived by Versata, at the patent office. Claim construction, for example, was moot.

Judge Hughes

Can you address – I think you’re – maybe I’m putting words into your mouth – but I think your answer seems to be that there is not really estoppel on either side here. But assuming that is your answer, how do you deal with – I can’t say this right, the  Nasilit?? case involving the t-tabs – the Napsiloft? – again I’m not sure of the pronunciation either. Naciloft, again it was a trade mark case, as you noted – and so in effect the nature of the challenge at the patent office is slightly different. Under – everyone agrees that under statutory claims preclusion doesn’t apply here so we are talking about common law claim preclusion, and for it to apply from the final judgement, there has to be the same question being claimed. And this court has explained, in Nasblock they explained that the same claim from a different patent standpoint is patent infringement was the question. Even the declaratory judgement action – the claim for the purposes of claim preclusion is the underlying accused devices, and so if the same devices are not accused in a second case, then they are not the same claim for these purposes of claim preclusion and the court said as much in Naslock even though it was a trade mark case they specifically said in a patent case, a prior finding of no validity

Judge Hughes

What about the second part of that opinion though that goes on then to say you also can’t go back to the t-tab to collaterally attack a prior judgement.

Ms. Arner

Right. And that’s not the situation here. That’s not the question here. Versata’s argument is that you can’t file a post-grant review after final judgement. And that’s a very clear question under common law principle that claim preclusion – by the way they waived claim preclusion – at the patent office.

Judge Hughes

I know. I understand that I’m not sure that you are going to get very far on your waiver argument. But ammm

Ms. Arner

We don’t need to we win on the merits

Judge Hughes

??? are you really doing a collateral attack on the injunction that was issued against your client

Ms. Arner

Because Congress created this law for the situation SAP found itself in. It was being sued for infringing a patent that the patent office has now said should have never been issued, should be cancelled..

Judge Hughes

Wait. That confuses me. Because that suggests to me that you think that Congress displaced this notion of collateral estoppel that’s a judge made rule. ?? you know, we’re not gonna require that respect be paid to district court judgements.

Ms. Arner

Well I don’t think that’s the case – but here Congress has talked about the coordination between these post-grant proceedings at the patent office, and the district court, there are several different provisions that you can’t go and raise the same provision you’ve raised in the covered business method

Judge Hughes

But the problem I think is that you were in litigation at the time this was passed, so you’re later in the game than I suspect Congress you know anticipated for most claims going forward. Is your argument on that – what if there was a complete and final judgement in the district court’s litigation. Nothing out there.

Ms. Arner

It wouldn’t matter. However final the judgement of the district court was, would not matter for the principles of claim preclusion. No one is arguing their statutory preclusion – Section 18 permits you to file

Judge Hughes

???? exactly ??? Answer this then. If that’s the case, and you go back and you get the patent declared invalid, under regular collateral estoppel principles, final estoppel principles or whatever, are you still precluded from going back to the district court and asking to have the injunction dissolved.

Ms. Arner

I think that in Fresenius this court ?? issues of the remedy

Judge Hughes

No but my hypothetical asks if this is the completely final judgement…

Ms. Arner

Oh. After the affirm???

Judge Hughes

?? going on and on

Ms. Arner

Right. No one argues that you can get your money back if a patent ??? later

Judge Hughes

That’s not what I .. injunction going forward

Judge Newman

?? talking about a refund of the damages?

Ms. Arner

It doesn’t matter here. The district court case

Judge Newman

????

Ms. Arner

That’s not the issue that’s actually raised in this

Judge Newman

Because there is a settlement, you mean?

Ms. Arner

Yes. A district court is completed in this case. So there’s the issue.

Judge Newman

You are saying because it is complete or because of the settlement? We say in the press how this actually finalized…

Ms. Arner

Yes. The district court case was settled.

Judge Newman

OK.

Ms. Arner

So the effect of the PTAB – that issue is not present in this case.

Judge Newman

OK.

Ms. Arner

If I could …

Judge Newman

?? time ???

Ms. Arner

Can I mention broadest reasonable interpretation you mentioned it earlier. It’s not – I just wanted to point out that lots of people want to talk about it, but even the amicus parties who filed briefs on this noted that it doesn’t matter here. The board found under either interpretation the claims would be invalid and under section 101 you don’t need claim construction so I would – the court doesn’t need to reach that issue here.

Judge Newman

OK. Thank you Ms. Arner. Mr. Lamkin?

Rebuttal by Mr. Lamkin for Versata

Mr. Lamkin

Thank you. Beginning with this court’s jurisdiction. I think the court’s recognized the enormous consequences of the board’s argument that this court has no authority to review whether or not the board was ultra virus. If the PTO were correct, then the board could subject every patent to post-grant review, not withstanding the nine month limitation period, by deeming each and every one of them a covered business method. And this court would be powerless to do anything about it. Never before has the PTO been granted the power to invalidate an issued patent – destroying property rights, with no court having authority to address whether it is ultra virus. And in that sense, that’s what ultra virus review is illustrated by and the strong presumption of judicial review which we cited which is called Wiley vs. OPM. And in Wiley the provision was quite similar, it said the decision of the OPM in these matters are final and conclusive and not subject to review.

Judge Hughes

Are you saying that the question I posed to your friend from the government, that if Congress actually made this bar very clear, that nothing pertaining to initiation, including the discretionary decision of whether it actually is a business method or not, is subject to review by the court, that they couldn’t do that?

Mr. Lamkin

I think it would at the very least raise serious due process issues that an agency would be sole adjudicator of its own statutory authority and no court would have

Judge Plager

The question is not whether it would be peculiar, nor is the question even whether a rational Congress might choose to do that. The question is, let’s assume Congress did it. Then what?

Mr. Lamkin

I think there are serious questions as to its constitutionality. But there is a strong presumption that Congress didn’t do that.

Judge Hughes

What is it depriving you of? You still have the right to due process, to challenge the PTO decision on the validity of your patent, which is your property right.

Mr. Lamkin

But it deprives you of the right

Judge Hughes

You don’t have a property right in the process do you? You have a property right in the patent.

Mr. Lamkin

That’s right. But in the … it deprives you of your right – that the legislature has provided, who determines whether you have a property right or not. And when the agency says I do it and no court can review it, and it’s beyond its statutory limits, that’s a significant problem. But the courts will not presume that Congress did that and the language here doesn’t come close to doing it. The PTO admitted that the language didn’t do that in the proceedings before the district court. It’s kind of incongruous for them to say no its sufficiently clear to do that here. And I just want to mention that the Wiley decision – it said, decisions are final, conclusive and not subject to review, but this court in Riley vs OPM said well that means we can’t get facts, we won’t look at factual definitions. But the court can still address a misconstruction of a governing legislation or some other like error going to the heart of administrative determinations. That’s exactly this – does the agency have statutory authority over these patents – are they CBM patents? Does it extend to section 101? Does it extend to – notwithstanding – claim preclusion. Those are issues that this court has authority to review.

If I could turn just for a moment to waivers since it came up a few times. There is no waiver here because we had no ability to raise these issues. At the trial stage. The PTO’s regulations make it clear the trial order here on JA43 was clear and the trial handbook are clear. The regulations say the patent owner may file a response to the petition addressing any grounds for unpatentability not already denied. No authority to address at the trial stage anything other than patentability. Congress meant, address anything you want, just not grounds already denied- it was said, you may address any issue, but not unpatentability already denied. The second is that the order here which appears at JA-43 is very very clear. It says, trials limited to the grounds identified 1 and 2 above, and no other grounds are authorized. And you look at the page to one and two above, and what do they say? 35 USC 101 for claims 17, 26 and 29. Point two, section 102 for claims 27 26-29. So there is no authorization in that order for us to address the board’s authority under CBM proceedings in the trial stage, claim preclusion, or estoppel, yet we can’t waive an argument that you have no right to make at that stage of the proceedings. And the PTO’s trial handbook makes it especially clear – it says any claim or issue not including the authorization for review, will not be part of the trial. The authorization for review in page 43 of the joint appendix doesn’t make say we can raise these issues – we couldn’t raise them at trial, there’s no waiver for failing to raise something at a time when it is prohibited.

Turning briefly to the argument about superfluidity. Section 24e by the terms of the jurisdiction of this court wouldn’t be superfluous if you could review the ultra virus actions of the board at the end of the day. It has two facts right off of the cuff – one non-initiation decisions, non-institution decisions, those would be final, and potentially reviewable under the APA but they’re not reviewable because – 1 it says they are not final and reviewable and two you get to the alternative provision section 329 and you don’t have a final written decision that’s reviewable under 328. So those become unreviewable by virtue of 324e. Another thing that has the effect of – if for some reason the grounds you say were error for initiation sort of get washed away – it was absolutely clear that it wasn’t unpatentable or more like unpatentable at the time the decision was issued because of the record, for example, but the record later improves, in the final decision there is enough evidence there you can’t say this shouldn’t have been issued in the first place if the record wasn’t good enough. You only get to challenge the final decision. But that final decision is ultra virus if it had – if the board had no authority to issue it. That is reviewable.

Turning very quickly to the issue of claim preclusion. This is a significant issue because after seven years of litigation and final district court judgement in this case, this action was brought in an effort to overturn that judgement. But the district court had reached final judgement, and nobody – the board never disputed that that has the claim – potentially claim preclusivity fact – page 19 it says flat-out

Judge Hughes

How do you reconcile – I understand the position – I understand the case – but how do you reconcile that with Fresenius?

Mr. Lamkin

Oh I think that’s actually fairly easy because Fresenius remember was an ex-parte re-examination, correct? There’s no other party to it other than the PTO and so – claim preclusion operates against your counterparty, it doesn’t operate against the world at large, and so Fresenius doesn’t have a claim preclusion in it of any sort.

Judge Hughes

I think you would agree though that if somebody other than SAP had ??? out and filed for CBM review on this that they would have ??? with it?

Mr. Lamkin

That’s correct because claim preclusion simply operates between the parties because you now have had the chance to litigate it in court the day is over – anything you could have raised or did raise is done. And the board s…

Judge Hughes

So given that the Congress enacted this provision was actually to allow the party against whom infringement was being alleged to go to the PTO in a parallel proceeding – why would we read claim preclusion into that just because a district court decision had become final but then was on appeal? That’s what I’m really getting at. That goes back to Fresenius.

Mr. Lamkin

I think the idea – the question is why you wouldn’t and for the following reasons.

Judge Hughes

Well why wouldn’t ??? in Fresenius?

Mr. Lamkin

Pardon?

Judge Hughes

I mean I don’t understand the distinction between ex-parte invalidation and this new provision to be enough to distinguish preclusion.

Mr. Lamkin

Oh no it very much does. Because the CBM provision has a requirement for someone to bring it. You can only bring it if you have been sued for infringement. And that means we not only have the same counterparty, SAP vs. Versata in an adjudicated proceeding meant to replace litigation – what we’ve also have the exact same products at issue, because the basis for their standing to sue us – or to bring rather a CBM action petition for it, is the fact that we sued them for infringement based on specific products. So it is exactly the type of thing..

Judge Hughes

Your whole argument on why they are precluded is because there was a final decision but our reasoning in Fresenius suggests that kind of finality – district court finality is not enough when you are considering the PTO’s invalidity decision.

Mr. Lamkin

Well it certainly not – that kind of finality – Fresenius simply doesn’t address claim preclusion because it wouldn’t apply. You didn’t have the same parties. You’ve got the same parties, here, you have the same products. Do you apply claim preclusion? The board says flat out on estopple recognized by the regulation, may arise from claim preclusion. The sole basis – and generally this is the only thing the court can review on- it wasn’t sufficiently final because it was on appeal. That’s the only basis the board gave for saying there is no claim preclusion. The only one. But that is clearly wrong and nobody seriously defends it. This court in SSIH Equipment and Rightonville are both ??? and I’m quoting section 4433 preclusive effect of the lower court judgement cannot be suspended simply by taking an appeal that remains undecided. It’s an absolutely foreclosed rationale for rejecting claim preclusion. Under Chennery, this court can’t affirm an alternative basis it can only afirm on the basis given by the board itself. It’s entitled to the view – review of the PTO as an agency and can’t affirm on a basis of alternative rationales given by the government’s lawyers. And that by itself should close this case on claim preclusion.

Finally, turning back fully to the merits for a very brief minute because I have 26 seconds left on the clock here, this is a – there are two ways to get faster results on a computer. The first way to do it is make a fast computer. The second way is to program it better. Come up with a different way of doing it so the computer returns results faster. There is no reason in the patent laws, no reason whatsoever, in the laws of nature, that we would prefer the fact that you can do it by increasing the hardware speed as opposed to coming up with a better way to do the software and the software does nothing more than convert a general purpose computer into a specific purpose computer. The method used here dramatically – counterintuitive method increase the speed at which you could pull your prices. It is a patentable invention in the words of Alice because it increases the functioning of the computer for pulling prices. If there are no further questions thank you very much.

Judge Plager

OK.

Judge Newman

Thank you all, thank you counselors, the case is well presented, we did our best to ask our toughest questions, to ??? very well. Thank you. We’re adjourned until tomorrow.

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