SAP AG (SAP) won a U.S. patent office ruling that could help it avoid paying a $345 million jury verdict over a way to customize pricing, in the first challenge under a new rule for reconsidering business methods patents.
The U.S. Patent and Trademark Office yesterday found that the patent claims owned by closely held Versata Software Inc. should be canceled because they seek to cover a mental process rather than an actual invention. In May, an appeals court upheld the infringement verdict and damage award while the validity of the patent wasn’t an issue.
“This is a very significant and positive milestone for us,” said Andy Kendzie, a spokesman for Walldorf, Germany-based SAP. “We recognize this is one step in the process that’s still being played out.”
The decision by the PTO’s Patent Trial and Appeal Board could give SAP more ammunition in its petition asking for a reconsideration of the May decision by the U.S. Court of Appeals for the Federal Circuit in Washington, which specializes in patent law. The same court will end up with any appeal of the patent office’s ruling.
“It’s a very unique situation where you have a case still pending at the Federal Circuit with an infringement decision and a pretty large damage award,” said Erika Arner, a patent lawyer with Finnegan in Washington who was co-counsel for SAP on the patent review.
With modifications and interest, the jury award has grown to more than $400 million, Versata lawyers have said. SAP, the largest maker of business-management software, reported $11.8 billion in gross profit on sales of $16.2 billion last year, according to data compiled by Bloomberg.
The patent office review was the first of its kind under a new proceeding created by Congress to reconsider issued patents for finance-related business methods.
SAP successfully asked to have the review expedited, so the decision came six months after the process was instituted, said Steve Baughman of Ropes & Gray in Washington, who also represented SAP. The law sets a one-year timeline, while a typical review under old rules could take years.
In a lawsuit filed in March against the patent office, Versata said its patent isn’t for a financial product or service so shouldn’t be subject to the new proceeding. The patent office was able to rule so quickly in part because it limited the review to whether the invention is eligible for legal protection. Versata also objected to that being considered.
“We can certainly expect an attempt to use this finding to reach from the grave on the case they already lost,” said Scott Cole of McKool Smith in Austin, Texas, who represents Versata. “There are a variety of reasons why we don’t think that will happen.”
An appeal of the PTO decision, which Cole called “fundamentally wrong in virtually every respect,” could take a year or more before the Federal Circuit, while the separate patent case is almost done, he said.
The dispute is over software that can customize pricing based on factors such as the particular customer, product and size of the order. Versata sold its software, called Pricer, in the late 1990s to customers such as International Business Machines Corp. (IBM) and Motorola Inc. SAP began offering customized pricing as part of its enterprise software in 1998, according to the court’s opinion.
Versata sued SAP in 2007. A jury in 2011 awarded $260 million to compensate Austin-based Versata for its lost profits plus $85 million as a reasonable royalty on SAP’s sales. In upholding the infringement finding and damage award, the Federal Circuit said SAP’s larger presence enabled it to push Versata out of the market.
More than two dozen requests have been filed with the patent office for review of business method patents, far fewer than the agency expected. Congress is considering a measure that would expand the program to any software.
“People had a misapprehension of how narrow the definition of covered business method patents is,” said Baughman, who’s a lawyer on 15 of the 28 cases before the agency. “When you do something like this, you want to see how the mechanism is going to work in the wild, in real life. Initial results and initial decisions along the way will help people evaluate whether they like the process.”
The case is Versata Software Inc. v. SAP America Inc., 12-1029, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is Versata Software Inc. v. SAP America Inc., 07cv153, U.S. District Court, Eastern District of Texas (Marshall).
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