June 13, 2013 | By Daniel Nazer

Landmark Patent Office Ruling Strikes Abstract Software Patent; EFF Joins Amicus Brief in Related Court Battle

The long-running patent battle between Versata and SAP saw a lot of action this week. Back in 2007, Versata filed a lawsuit claiming SAP infringed a patent on a method “for pricing products in multi-level product and organizational groups.” This dispute – which raises important issues about patents and software – is proceeding both in the courts and at the Patent Office. Yesterday, EFF joined an amicus brief supporting SAP at the Federal Circuit, where SAP is arguing that it does not infringe. Meanwhile, at the Patent Office, SAP won a landmark ruling finding that the invention was not patentable because it merely covers an abstract idea.

The action at the Federal Circuit

A programmable computer can compute an infinite number of functions. So imagine if patent law allowed a seller to be held liable for anything its customers did with the computers they buy—the scope of potential liability would be infinite. Literally.

This is why the law places limits on the extent a company can be held liable for the actions of its customers. Indeed, the standard for inducement or contributory infringement in patent law is a strict one: it requires active steps to specifically encourage infringement.

A recent decision from the Federal Circuit threatens to upset this balance. At a trial in the Eastern District of Texas, Versata’s expert testified that, after several hours of effort, he was able to re-configure SAP’s software to practice the invention. But Versata was unable to show that any of SAP’s customers had ever done this. Nevertheless, SAP was found directly liable for patent infringement. On appeal, the Federal Circuit affirmed liability (and upheld a $345 million damages award).

Yesterday, EFF joined the Application Developers Alliance and a diverse group of companies, such as Microsoft, in an amicus brief asking the Federal Circuit for en banc review of this decision. We argue that binding Supreme Court authority does not allow a company to be held directly liable when a customer (let alone a paid expert) reconfigures a product to infringe a patent. This bright-line rule is needed to provide clear guidance for designers of customizable software and programmable hardware.

A landmark ruling at the Patent Office

While the case continued in the courts, SAP challenged Versata's patent at the Patent Office. It brought its challenge under a new procedure: the America Invents Act’s Transitional Covered Business Methods review program (CBM review). This week’s ruling is the first final written decision from the Patent Trial and Appeal Board (PTAB) under CBM review.

The PTAB found the challenged claims unpatentable because they merely cover abstract ideas and lack meaningful limitations. The PTAB explained that the method of determining price was an abstract calculation. The patent did add some “routine, conventional activity” (such as performing the calculations on a computer) but these were insufficient to transform this abstract idea into patentable subject matter. The PTAB explained that the “mere recitation of computer implementation or hardware in combination with an abstract idea, however, is not itself a significant, meaningful limitation on the scope of the claims.”

Versata can appeal this decision to the Federal Circuit (this means there could be two appeals regarding the same patent – it’s unclear how the PTAB ruling will impact the underlying litigation). So the PTAB’s decision is unlikely to be the final word. But it is still an encouraging ruling and a great first step for CBM review. We join others who are calling for CBM review to be made available for all software-related patents and for the program to be made permanent. And we hope that the Supreme Court will soon step in soon and set the record straight on dangerous patents that impermissibly tie up abstract ideas.


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