More good news for the foes of business method patents in the Versata decision handed down June 11 by the Patent Trial and Appeal Board. The case involved a challenge to US Patent No. 6,553,350, owned by Versata Development Group, Inc., pursuant to section 18 of the Leahy-Smith America Invents Act (AIA). Section 18, the Transitional Program For Covered Business Method Patents, allows for the challenge of a “covered business method patent” – defined as a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.

According to the Board, Versata’s ’350 patent is directed to a method and apparatus for pricing products and services, wherein the central concept involves hierarchies and the hierarchal arrangement of data.  SAP challenged claims 17 and 26-29 as unpatentable under 35 U.S.C. §101 stating that the claims are directed to an unpatentable abstract idea. Versata maintained that its claims are directed to a specific, practical, and advantageous way to determine a product price using hierarchical groups of customers and products.  The ’350 patent had previously been held valid and infringed by SAP by a district court and the Court of Appeals for the Federal Circuit.

This decision follows what has become the standard playbook to invalidate “business method” patents that has three steps:

1.  Label the “inventive contribution” as an abstract idea.

2.  Find that the implementation of the “abstract idea” as a computer process or apparatus was accomplished with routine skill on a commonplace computer and added no inventive “technical” contribution that might itself qualify as patentable subject matter.

3.  Find that the computer apparatus itself did not “count” toward bringing the “abstract idea” into the realm of patentable subject matter.

I have several observations about this analysis, and the patent in general:

A.  In the Board’s analysis, “abstract idea” is nothing more or nothing less than an euphemisum for “non-technical idea.”  In this instance, the evidence that it was non-technical in nature was that it could hypothetically be performed in the human mind.  This conclusion would be highly suspect other than the fact that the method claims perhaps did not strictly require the data processing aspects of the invention to be performed on a computer, and the apparatus claims were not very concrete on the software or data “structures” that enabled the alleged advantageous operation.  Nonetheless, it’s not clear that even if the claims had been more concrete in that direction, it would have made a difference.

B.  It is interesting to note that the Board, and of course even the Supreme Court, would appear to have thrown the Diamond v. Diehr “claim as a whole” approach to Section 101 out the window.  While this may be fair game where the Supreme Court is concerned, it is pretty darn illogical, which is highly ironic when consdering that the subject matter is a logic-driven computing process.

C.  While the logic is tortured, the result is clear if this approach to 101 sticks:  i. the point of novelty approach to Section 101 is now the de facto approach to 101 analysis; and ii) that if the invention can arguably be performed in human mind, no manner of computer implementation will save it.

D.  On the other hand, had the ’350 invention been presented as a method to speed up the retrieval and processing of a particular type of data to enhance the speed of processing a certain type of data, through the use of a specific manner of storing data in a relational databased, and a specific manner of retrieving it and using it, and making no mention of pricing information, this invention may have lived to see another day.

Here is the rundown on the facts and the actual reasoning of the Board.

The claims of the ’350 patent are as follows:

17.     A method for determining a price of a product offered to a purchasing organization comprising:

• arranging a hierarchy of organizational groups comprising a plurality of branches such that an organizational group below a higher organizational group in each of the branches is a subset of the higher organizational group;
• arranging a hierarchy of product groups comprising a plurality of branches such that a product group below a higher product group in each of the branches in a subset of the higher product group;
• storing pricing information in a data source, wherein the pricing information is associated, with (i) a pricing type, (ii) the organizational groups, and (iii) the product groups;
• retrieving applicable pricing information corresponding to the product, the purchasing organization, each product group above the product group in each branch of the hierarchy of product groups in which the product is a member, and
• each organizational group above the purchasing organization in each branch of the hierarchy of organizational groups in which the purchasing organization is a member;
• sorting the pricing information according to the pricing types, the product, the purchasing organization, the hierarchy of product groups, and the hierarchy of organizational groups;
• eliminating any of the pricing information that is less restrictive; and
• determining the product price using the sorted pricing information.

26.     A computer readable storage media comprising: computer instructions to implement the method of claim 17.

27.     A computer implemented method for determining a price of a product offered to a purchasing organization comprising:

• retrieving from a data source pricing information that is (i) applicable to the purchasing organization and (ii) from one or more identified organizational groups, within a hierarchy of organizational groups, of which the purchasing organizatio is a member;
• retrieving from the data source pricing information that is (i) applicable to the product and (ii) from one or more identified product groups, within a hierarchy of product groups, of which the product is a member; and receiving the price of the product determined using pricing information applicable to the one or more identified organizational groups and the one or more identified product groups according to the hierarchy of product groups and the hierarchy of organizational groups.

28.     A computer readable storage media comprising: computer instructions to
implement the method of claim 27.

29.     An apparatus for determining a price of a product offered to a purchasing organization comprising:

• a processor;
• a memory coupled to the processor, wherein the memory includes computer program instructions capable of:
• retrieving from a data source pricing information that is (i) applicable to the purchasing organization and (ii) from one or more identified organizational groups, within a hierarchy of organizational groups, of which the purchasing organization is a member;
• retrieving from the data source pricing information that is (i) applicable to the product and (ii) from one or more identified product groups, within a hierarchy of product groups, of which the product is a member; and
• receiving the price of the product determined using pricing information applicable to the one or more identified organizational groups and the one or more identified product groups according to the hierarchy of product groups and the hierarchy of organizational groups.

The challenged claims are in substance directed to an apparatus and method for determining a price, i.e., a method of calculating, the method being implemented on computer hardware. Generally, claim 17 is directed to a method of determining price, claim 27 is a computer-implemented method of determining a price, and claims 26 and 28 are computer-readable storage media comprising computer instructions to implement the methods of claims 17 and 28. Similarly, while claim 29 is directed to an “apparatus” for determining a price, the apparatus includes computer program instructions capable of performing the same method steps that are recited in claim 27.

SAP contended that Versata’s claims were unpatentable under § 101 as they are centered on abstract ideas. SAP argued the abstract nature of the claims is demonstrated by the fact that the method steps can be performed in the human mind or by a human using a pencil and paper. SAP further stated that the claims merely recite “abstract ideas with nothing more than ‘well-understood, routine, conventional activity’ added.”

Versata disagrees with SAP’s characterization of the claims. According to Versata, the claims recite statutory processes and machines under § 101 and the claims do not “preempt” any abstract idea. In particular, Versata states that the determination of whether its claims are directed to patent-eligible subject matter under § 101 requires an analysis of all the elements or steps in the claimed process.

The Board agreed with SAP that each of challenged claims involves the use of an abstract idea: determining a price using organizational and product group hierarchies, which are akin to management organizational charts. The concept of organizational hierarchies for products and customers is abstract as it represents a “disembodied concept,” a basic building block of human ingenuity. Similarly, determining a price is also abstract as it is essentially a method of calculating. Standing alone, an abstract idea does not represent patent-eligible subject matter.

Accordingly, citing the Supreme Court’s Mayo decision (Mayo, 132 S. Ct. at 1297), the Board said it needed to further analyze Versata’s claims to determine whether they incorporate sufficient meaningful limitations to ensure that the claims are more than just an abstract idea and not just a mere drafting effort designed to monopolize the abstract idea itself.

Applying this analysis, the Board found:

a. Versata’s claims have no substantial practical application except in connection with a computer, and that “claims do not become patentable under § 101 simply for reciting a computer element,” citing to Benson, 409 U.S. at 68. It found that while the claim required a computer, “the underlying process that is implemented on such hardware could also be performed via pen and paper. Further, the Board stated 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.” Specifically, as apparent from Benson, implementation on a general purpose computer is not a meaningful limitation where there was “no substantial practical application except in connection with a digital computer.” Benson, 409 U.S. at 68 and 71-72.

b. The claimed invention of the ’350 patent requires only routine computer hardware and programming, and that the ’350 patent makes clear that its contribution to the arts lies not in the type of computing device or processing environment employed. Thus, as with the “shift register” in Benson, the recitation of generic general purpose computer hardware (processor, memory, storage) in the challenged claims represents routine, well-understood conventional hardware that fails to narrow the claims relative to the abstract idea. Benson, 409 U.S. at 65 (“The general-purpose computer is designed to perform operations under many different programs.”).

c. Versata’s claims merely add insignificant, conventional and routine steps that are implicit in the abstract idea itself. For this conclusion, the Board found that to be patent-eligible, a claim reciting an abstract idea must add more than just  insignificant, conventional or routine steps to the idea lest the claim effectively cover the abstract idea itself. Cf., Mayo, 132 S. Ct. at 1298. Thus, the claims must include meaningful limitations beyond the abstract idea itself. Versata pointed out that the claims in question required a specific combination of steps that were not in the prior art, i.e., storing, retrieving, sorting, eliminating, and determining. The Board found that despite these computer process limitations, Versata failed to establish that the additional “specific” steps that are appended to the abstract idea provide meaningful limitations. In short, in the Board’s view, Versata did not demonstrate that the additional steps are anything other than conventional, routine steps that are a consequence of implementing the abstract idea, citing to the Court in Flook, which held that a claim for an “improved” method is unpatentable where, putting the abstract formula to the side, there was no “inventive concept” in the claimed application of the formula. Flook, 437 U.S. at 594-595, n.18.21 Accordingly, in the Board’s view, even if the abstract idea and “specific” steps represent a marketplace improvement, the claims are not patent-eligible where the appended steps lack meaningful limitations that prevent the claim as a whole from covering the practical applications of the abstract idea.

Accordingly, the Board found that Versata’s claims do not add meaningful limitations beyond the recited abstract idea and, in practical effect, preempt the abstract idea.  Therefore, the claims were found invalid under Section 101 for claiming an unpatentable abstract idea.