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Versata Dev. Corp. v. Rea

United States District Court, E.D. Virginia

August 7, 2013

VERSATA DEVELOPMENT CORP., Plaintiff,
v.
TERESA STANEK REA, Acting Under Secretary of Commerce for Intellectual Property and Acting Director of the United States Patent and Trademark Office, Defendant, SAP AMERICA, INC. & SAP AG, Defendant-Intervenors

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For Versata Development Group, Inc., Plaintiff: Robert Danny Huntington, LEAD ATTORNEY, Martin Moss Zoltick, Rothwell Figg Ernst & Manbeck, Washington, DC.

For Teresa Stanek Rea, Acting Director of the United States Patent and Trademark Office, Defendant: Dennis Carl Barghaan, Jr., LEAD ATTORNEY, United States Attorney's Office, Alexandria, VA.

For SAP America, Inc., SAP AG, Intervenor Plaintiffs: Elizabeth Diane Ferrill, LEAD ATTORNEY, Finnegan Henderson Farabow Garrett & Dunner LLP (DC), Washington, DC.

OPINION

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Gerald Bruce Lee, United States District Judge.

MEMORANDUM OPINION AND ORDER

THIS MATTER is before the Court on Defendant Teresa Stanek Rea's and Intervenors SAP America, Inc. and SAP AG's Motions to Dismiss for lack of subject matter jurisdiction. (Docs. 16, 39.) This case concerns the claims of Versata Development Group, Inc., by virtue of the Administrative Procedure Act (" APA" ), that the United States Patent and Trademark Office (" PTO" ), through its Patent Trial and Appeal Board (" PTAB" ), wrongly instituted post-grant review of Plaintiff's claimed patent based on an improper interpretation of the America Invents Act (" AIA" ). The ultimate question here is whether a party whose patent is being reevaluated under the AIA is entitled to judicial review of the agency decision to

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initiate a post-grant review and reevaluate patent eligibility. There are two issues before the Court.

The first issue is whether the AIA precludes judicial review of the PTAB's decision to institute post-grant review in accordance with the AIA. The Court holds that it lacks subject matter jurisdiction over Plaintiff's claim because the AIA's express language, detailed structure and scheme for administrative and judicial review, legislative purpose, and nature of the administrative action evince Congress's clear intent to preclude subject matter jurisdiction over the PTAB's decision to institute patent reexamination proceedings. Therefore, Plaintiff's claims are dismissed for want of subject matter jurisdiction under the clear statutory guidance provided by the AIA.

The second issue is whether the PTAB's statutory interpretation regarding institution of post-grant review proceedings constituted a " final agency action" for which there is no other adequate remedy in a court, thereby providing Plaintiff a cause of action to bring challenge to such decision in this Court. The Court holds that the decision to institute post-grant review is merely an initial step in the PTAB's process to resolve the ultimate question of patent validity, not a final agency action as contemplated by 5 U.S.C. § 704. The decision to institute patent reexamination proceedings is not the consummation of an agency's decision making process, nor does it elicit rights or obligations, and Plaintiff retains an alternative adequate remedy through appeal to the Court of Appeals for the Federal Circuit. Therefore, as an alternative ground for dismissal, Plaintiff's challenge to the PTAB's decision to institute post-grant review is dismissed for failure to state a claim.

I. BACKGROUND

This matter arises generally from a patent infringement dispute between Plaintiff Versata Development Group, Inc. (" Versata" ) and Intervenors SAP America, Inc. and SAP AG (collectively " SAP" ). Versata and SAP were involved in separate litigation arising out of Versata's claims of patent infringement by SAP concerning United States Patent No. 6,553,350 (" the '350 patent" ), entitled " Method and Apparatus for Pricing Products in Multi-Level Produce and Organizational Groups." Those proceedings resulted in a jury verdict for Versata and against SAP, which the Federal Circuit recently affirmed.

Pursuant to the recently-enacted Leahy-Smith America Invents Act (" AIA" ), Pub. L. No. 112-29, § 18, 125 Stat. 284, 329, 31 (2011), SAP filed a separate petition with the PTAB, arguing essentially that Versata's '350 patent constituted a " covered business method" and was therefore not patentable subject matter. Upon consideration of written arguments by both Versata and SAP, the PTAB issued a lengthy opinion instituting a post-grant review of Versata's '350 patent. The PTAB's post-grant review proceedings have included discovery, expert witnesses, and oral hearings. Versata filed the instant action prior to the PTAB's issuance of its final decision to ask this Court to conduct an interlocutory review of the PTAB's decision to institute post-grant review proceedings.

The Underlying Patent Dispute

Versata initiated a lawsuit against SAP in 2007 in the United States District Court for the Eastern District of Texas alleging, inter alia , SAP's infringement of Versata's '350 patent. (Compl. ¶ 13, Doc. 1.) A jury found for Versata and against SAP by finding that (1) SAP had not proven Versata's claims of the '350 patent were invalid and (2) that SAP infringed on Versata's

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patent. ( Id. ¶ 15.) SAP issued a software patch in order to eliminate future infringement, but after Versata again sued SAP for continued infringement, a second jury found that SAP continued to infringe and awarded Versata a judgment of $345 million. ( Id. ¶ 16.) The district court upheld SAP's liability on September 9, 2011 and awarded interest and a permanent injunction against SAP's future infringement. ( Id. ¶ 17.) On May 1, 2013, the Federal Circuit affirmed the district court's judgment on liability and damages but remanded as to the scope of the injunction. Versata Software, Inc. v. SAP Am., Inc. , 717 F.3d 1255 (Fed. Cir. 2013). On May 31, 2013, SAP filed a motion for rehearing and rehearing en banc. (Pl.'s Opp'n Mot. Dismiss at 2, Doc. 33.)

On September 16, 2011, just seven days after the district court's finding of SAP's continued infringement, Congress enacted several reforms to the Patent Act through the AIA. See Pub. L. No. 112-29, § 18, 125 Stat. at 329, 331. The AIA sought, among other things, to make additional efforts to limit federal court litigation over the validity of issued patents by empowering the PTO to respond directly to the perception that many patents issued in the late 1990's and early 2000's were unpatentable. ( See Def.'s Mem. Supp. Mot. Dismiss at 5, Doc 18 (quoting H.R. Rep. No. 106-464, at 133 (1999) (Conf. Rep.)); Intervenors' Mem. Supp. Mot. Dismiss at 2, Doc. 40.) In enacting the AIA, Congress noted that despite its multiple previous attempts to streamline issued patent review, parties continued to largely rely upon federal district courts to avoid the lengthy and costly procedure that resulted from PTO review. (Def.'s Mem. Supp. Mot. Dismiss at 5-6 (quoting H.R. Rep. No. 112-98, at 45 (2011) (Conf. Rep.)).)

The AIA created two types of PTO administrative review. First, post-grant review permits any party to request PTO review of an issued patent within the first nine months of patent issuance. See 35 U.S.C. § § 321-25 (2013). Second, inter partes review, available only under more limited circumstances, provides for PTO review of an issued patent beyond nine months from patent issuance or after termination of post-grant review proceedings. See id. § 311(b). Inter partes review requires that a challenge to patentability must relate to a ground that could have been brought under the " prior art" provisions of 35 U.S.C. § § 102-03.

Although post-grant review is generally available only within the first nine months, in order to address the many patents issued in the late 1990's and early 2000's that spurred Congress's concern, Congress created an exception for " business method" patents. See H.R. Rep. No. 112-98, at 54. So long as the party seeking reexamination of the patent " has been sued for infringement of the patent or has been charged with infringement under th[e] patent," Congress would allow reexamination despite going beyond the general nine-month window. Pub. L. No. 112-29, § 18(a)(1)(B), 125 Stat. at 329.

In accordance with the recently-enacted AIA, prior to the Federal Circuit's ruling on SAP's appeal, and pursuant to the exception for " business method" patents, SAP filed for post-grant review of Versata's '350 patent, arguing that the claims constituted a " covered business method" under Section 18 of the AIA. (Compl. ¶ 20.) Versata filed a response to that petition as accorded by 35 U.S.C. § 323, in which it argued that its '350 patent was not a " covered business method" and that review of the '350 patent should be unavailable in post-grant proceedings. ( See Def.'s Ex. B (Versata's Preliminary Response to PTAB) at ii, 10-45, 68-80, Doc. 18-2.)

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On January 9, 2013, after consideration of Versata's and SAP's submissions, the PTAB ultimately granted SAP's request for post-grant review of the '350 patent under 35 U.S.C. § 324 and issued a forty-four page opinion explaining that decision. ( See Def.'s Ex. D (Institution of Covered Business Method Review), Doc. 18-4.) The PTAB's proceedings concluded in April 2013, and a final decision had not been issued at the time of the filing of this matter. (Def.'s Mem. Supp. Mot. Dismiss at 11.) On June 11, 2013, the PTAB issued its final written decision, holding claims 17 and 26-29 of Versata's '350 patent unpatentable under Section 101. (Pl.'s Opp'n Mot. Dismiss at 4; Pl's Ex. 4 (PTAB Final Written Decision) at 2, Doc. 33-4.)

The Current Litigation

Versata filed the instant action on March 13, 2013, requesting this Court conduct interlocutory review of the PTAB's decision to initiate post-grant review of the '350 patent under the APA. (Compl. ¶ ¶ 40-57.) The Court granted SAP's Motion to Intervene under Federal Rule of Civil Procedure 24(b) on June 24, 2013. ( See Doc. 34.) Defendant's and Intervenors' instant Motions to Dismiss argue that judicial review of the PTAB's action is precluded by the AIA and, alternatively, that the Complaint fails to ...


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