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`Trials@uspto.gov
`571-272-7822
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` Paper 66
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`Entered: April 23, 2013
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`RECORD OF ORAL HEARING
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`UNITED STATES PATENT AND TRADEMARK OFFICE
`____________
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`____________
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`SAP AMERICA, INC.
`Petitioner,
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`v.
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`VERSATA DEVELOPMENT GROUP, INC.
`Patent Owner.
`____________
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`Case CBM2012-00001 (MPT)
`Patent 6,553,350
`____________
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`Before SALLY C. MEDLEY, MICHAEL P. TIERNEY, and RAMA G.
`ELLURU, Administrative Patent Judges.
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`APPEARANCES:
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`ON BEHALF OF THE PETITIONER:
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`ON BEHALF OF THE PATENT OWNER:
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`MARTIN M. ZOLTICK, ESQUIRE
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`ERIKA H. ARNER, ESQUIRE
`Finnegan Henderson Farabow Garrett & Dunner, LLP
`Two Freedom Square, 11955 Freedom Drive
`Reston, Virginia 20190-5675
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`Patent 6,553,350
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`The above-entitled matter came on for hearing on Wednesday, April
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`17, 2013, commencing at 2:05 p.m., at the U.S. Patent and Trademark
`Office, 600 Dulany Street, Alexandria, Virginia.
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`Rothwell Figg Ernst & Manbeck, PC
`607 14th Street, NW, Suite 800
`Washington, DC 20005
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`P R O C E E D I N G S
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`JUDGE TIERNEY: Welcome, everyone, for the
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`hearing for Covered Business Method, CBM2012 -00001. Today,
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`the issue -- the parties have requested a hea ring. The issue
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`they've requested a hearing on is 35 U.S.C. 101, on the
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`patentability of Versata claims and related issues. Based on
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`consultation with the parties, the Board is giving one hour to
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`each party. Each party may reserve time for rebuttal. Th ere will
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`be one hour total time today.
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`The Petitioner bears the ultimate burden of proof for
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`today's hearing, and we will have the Petitioner go first.
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`Petitioner, if you could introduce yourself and the
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`accompanying representatives.
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`MS. ARNER: Yes, it's Erika Arner for Petitioner
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`SAP. I'm here with backup counsel Steve Baughman, and co -
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`counsel, Joe Palys.
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`JUDGE TIERNEY: Thank you. Patent Owner, if you
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`could introduce yourself and your accompanying representatives.
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`Patent 6,553,350
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`MR. ZOLTICK: Yes, I'm Marty Zoltick for Versata
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`Development Group, Patent Owner. With me is Nancy Linck and
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`Derek Dahlgren and Brian Rosenbloom.
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`JUDGE TIERNEY: Welcome. So, Petitioner, when
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`you're ready, please begin.
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`MS. ARNER: I'd like to reserve 30 minutes for
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`rebuttal, please.
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`May it please the Board, this post -grant review
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`proceeding involves Covered Business Method Patent Number
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`6553350. The 350 Patent describes a way to determine a price
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`for a product using customer and product hierarchies.
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`The Patent explains that the inventor did not invent
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`the idea of pricing based on customer and product data. Instead,
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`the Patent includes Figures 1 and 2, labeled prior art, that lists
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`customers under the column heading who, and products under the
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`row what, along with price dat a. In Figure 1, the Patent explains
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`we have product prices. In Figure 2, we have volume discounts.
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`Likewise, the inventor did not invent computer
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`pricing systems. Instead the Patent describes prior art pricing
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`systems by Oracle and SAP. And the Paten t Owner has recently
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`explained that the use of hierarchical organizations for customers
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`and products was "ubiquitous" at the time of the invention.
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`JUDGE TIERNEY: Ms. Arner, if you could identify
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`the demonstrative you're looking at for the purpose of th e record.
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`MS. ARNER: Yes. So, turning to slide 3, the
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`inventor also did not -- the Patent also does not describe any
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`advance in computer technology. Instead, the Patent repeatedly
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`explains that the invention may be implemented on any
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`conventional or general purpose computer system. The Patent
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`includes a Figure 3, which is a computer system diagram, but the
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`specification explains that the computer system is described for
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`purposes of example only, and that the present invention may be
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`implemented in any type of computer system or programming or
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`processing environment.
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`The claims recite the words data source, but the
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`specification explains that the invention can be implemented
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`using any data source, that may be different even from a
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`conventional databas e.
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`In the related litigation, the Patent Owner has again
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`affirmed that the claims do not require extant data structures, but
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`rather cover the capability of executing a pricing procedure using
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`hierarchical arrangements of customer and product data. The
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`fact that databases are not covered is confirmed by the fact that
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`the claims do not recite the words database, nor do they recite
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`database tables or queries, runtime, execution flow, computer
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`screens for the invention, or a number of database tables or
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`queries. None of these terms appear in the challenged claims.
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`JUDGE TIERNEY: Why don't we stop there and tell
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`us what do the claims encompass.
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`MS. ARNER: So, turning to the claims, they describe
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`two ideas. The idea of arranging customers and products i nto
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`hierarchies. And the Patent specification explains it's a
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`who/what paradigm. And Figure 5 of the Patent shows these
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`customer and product hierarchies where the customers and
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`products that were listed in the prior art figures 1 and 2 are
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`reorganized here into hierarchies of customers or purchasing
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`organizations under the label who, and into product hierarchies
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`under the label what. And the Patent explains that these
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`groupings into customer and product hierarchies are entirely
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`arbitrary and determined b y a user.
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`The other idea that the claims cover is the idea of
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`pricing a calculation to price products using pricing information
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`or price adjustments, they're called here on slide 8, to refer to
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`the hierarchical arrangements of customers and products.
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`So, turning now to the claim language itself on slide
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`9, the claim 17 is a method claim, and it recites these two ideas.
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`The ideas of arranging a hierarchy of customers and products,
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`and then the calculation of a product price using pricing
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`information that is associated with the customer or
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`organizational groups and product groups.
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`The other two independent claims under review,
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`likewise, describe the use of customer and product hierarchies,
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`and the process of calculating a price that is determined using
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`pricing information associated with the customer and product
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`hierarchies.
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`JUDGE TIERNEY: If we could stop there. We're on
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`demonstrative slide 10 for the Petitioner. Can you identify what
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`is exactly the abstract idea.
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`MS. ARNER: Yes. So, highlighte d in blue on
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`demonstrative slide 10 is the abstract idea of the customer and
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`product hierarchies. And, similarly, if you look on slide 9, the
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`idea of arranging hierarchies of customers and products is
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`highlighted there in blue. The second abstract idea h ighlighted
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`in green on slides 9 and 10 is the process for calculating a price
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`using pricing information associated with organizational or
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`customer groups and the product groups.
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`JUDGE TIERNEY: But the Patent Owner has alleged
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`that you have not reviewed the claim as a whole for purposes of
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`101. Could you please walk us through the claims and say how,
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`they do -- allegedly, according to -- they do not have significant
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`meaningful steps beyond the abstract idea.
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`MS. ARNER: Sure. So, I believe you're refe rring to
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`the framework set forth in the Mayo case by the Supreme Court,
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`which was when a claim recites an abstract idea, law of nature,
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`or natural phenomena -- and the parties agree here that abstract
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`idea exception to patentability is at issue. That when a claim
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`includes abstract ideas, the question becomes what else is in the
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`claim before us. And the Court in Mayo said it's not enough to
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`simply recite abstract ideas and say apply them. And their
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`claims must recite enough elements or a combination of el ements
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`to ensure that the claims cover more than the abstract ideas.
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`And, so, looking at claim 17, the two abstract ideas of
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`organizing customers and products into hierarchies and
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`calculating a product price using pricing information associated
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`with those hierarchies are the abstract ideas. And as a whole,
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`that's all there is in claim 17. There is nothing else to fulfill the
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`requirements of the Mayo case. And I think on that case alone,
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`in addition to some of the other Court's precedents, claim 17
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`fails.
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`If you look, for example, at the Supreme Court case of
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`Gottschalk v. Benson , this is also a method claim similar to claim
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`17, in that -- and this is on slide 13 -- this method claim recited
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`the calculation of converting binary coded decimal numbers in to
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`binary. And it involved a process that included many steps. But
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`the Supreme Court found, nonetheless, that this process was
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`unpatentable because it described only abstract ideas. And the
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`Court noted that this seven -step process could be performed
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`manually using a table done -- printed in the patent.
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`Likewise, on slide 14, the case of Parker v. Flook,
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`and the Supreme Court, again, considered a method claim that
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`included multiple steps for calculating a number. In this case,
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`the steps were for calcul ating an alarm limit that was used during
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`a catalytic conversion process. And here the Court said this
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`method for calculating alarm limit values is claimed in this
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`process, which can be performed by pencil and paper, and,
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`therefore, it's unpatentable.
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`And, so, if you look at those two cases, and claim 17,
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`really, they're very similar in that they -- the result is a number,
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`the price for a product. And claim 17 recites nothing else.
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`JUDGE TIERNEY: The Patent Owners indicated that
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`the limitations of storing, retrieving, sorting and eliminating are
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`significant meaningful limitations. What do you have to say on
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`MS. ARNER: Well, they're part of the abstract idea
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`of calculating a product price. And if you look at the other -- the
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`Supreme Court cases, for example, that we just looked at. The
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`process in Benson required seven different steps, including steps
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`exactly like that, storing and shifting, which it's doing some of
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`the math using shift registers, adding, and all of this process is
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`laid out. It may be a very specific way to do math here in the
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`claim, but the Court said it's still unpatentable. And one of the
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`reasons was because it could be done mentally with pencil and
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`paper.
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`Similar to the claim in Flook, where, also, the claim
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`involved multiple steps, very specific math, and yet the Court
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`found it to be unpatentable.
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`And if you look at some of the Federal Circuit cases
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`that have recently considered similar method claims, for
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`example, in slide 18, the Bancorp claim is a very length y claim.
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`It has lots of steps that might have been argued and were argued
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`to be particular steps. But describing an abstract idea in lots of
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`steps is not, according to the Federal Circuit, a way to make it
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`not an abstract idea.
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`If we turn to the other claims on review, claim 27 is
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`another independent claim under the other method claim on
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`review. And it's similar to claim 17 in that it recites the ideas of
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`calculating a product price based on those hierarchies. Here
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`claim 27 adds the words computer implemented in the preamble.
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`And if looking at both Supreme Court and Federal Circuit
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`precedent, that is not sufficient in order to make the claims
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`patentable.
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`In a very similar case, the Federal Circu it looked at
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`claims that said computer -aided. On slide 20 you'll see
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`computer-aided method of, again, a very lengthy process claim,
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`but it was found to be an unpatentable abstract idea. And the
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`Court said there, "Simply adding "computer -aided" limitation to
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`a claim covering an abstract concept, without more, is
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`insufficient to render the claim patent -eligible." So, under this
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`case -- yes, sir?
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`JUDGE TIERNEY: How do you reconcile
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`MS. ARNER: So, if you look at the Alappat case,
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`really what they were talking -- the Federal Circuit was talking
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`about in that case is the, what, at the time was applied, it's called
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`the mathematical algorithm exception, where the Board had said
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`it was unpatentable becau se there was a mathematical algorithm
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`involved. And the Court in Alappat looked to Benson and Flook
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`and the Supreme Court precedent and said, no, the Court hasn't --
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`the Supreme Court hasn't said math makes a claim automatically
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`unpatentable. And that wa s really the -- the claims in Alappat
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`were drafted in a means plus function language and they were
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`construed to cover specific electronic circuitry.
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`In fact, in Alappat, the way that the Court described
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`the claims there was as "interrelated elements whic h combine to
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`form a machine for converting discrete wave form data samples
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`into anti-alias pixel illumination intensity data to be displayed
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`on a display means." And, so, the patent at issue in Alappat was
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`very different. And the software innovation or t he computer
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`innovation in Alappat was quite different from claims like this
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`Dealertrack where it's a business method with a few computer
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`That distinction was actually discussed in the Bancorp
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`case as well, where the Court considered metho d claims that had
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`quite a lengthy method. In that case, there were similar claims
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`that recited computer -readable medium for performing the step
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`set out in the method claims, and also a system claims in
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`Bancorp. And the Federal Circuit struggled with the type of
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`question you're asking, which is Alappat, and the other Federal
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`Circuit precedent finding computer technology innovations to be
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`patentable.
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`And in Bancorp, the Federal Circuit explained that
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`here it wasn't an advancing computer technology. Inste ad, it was
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`the advance was really in the way, in this case, to manage stable
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`value insurance policies, like in the Patent Owner's claims it's an
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`advanced way to calculate a price for a product perhaps. But the
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`Court found that even under the existing Fede ral Circuit
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`precedent, in cases like this, where you have unpatentable
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`method claim with abstract ideas, and then some mirror claims
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`that have computer -readable medium or system or components,
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`that that is not enough to transform the claims into patent -
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`eligible inventions.
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`And if you look -- that's very similar to the claims
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`here. If you look, for example, at claims 26 and 28, they recite a
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`computer-readable storage media comprising computer
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`instructions to implement the method of their underlying
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`independent claims 17 and 27. Again, sort of taking the abstract
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`ideas and putting them on a computer -readable storage media.
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`And in both Bancorp and CyberSource, the Court
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`looked at very similar claims and found those to be ineligible.
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`In particular, I think, CyberSource is really controlling here
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`where a method claim was found to be unpatentable for being an
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`abstract idea that could be performed mentally. And the Court
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`said there is another claim, claim 2, that recites nothing more
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`than a computer-readable medium containing program
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`instructions for executing the method of claim 3. And those
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`were found unpatentable, too. And the Court wrote there,
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`"merely claiming a software implementation of a purely mental
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`process that could otherwise be performed withou t the use of a
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`computer does not satisfy section 101."
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`JUDGE TIERNEY: Under Bancorp, though, doesn't it
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`say if the computer is integral to the claimed invention that it
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`could be subject matter eligible?
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`MS. ARNER: So, the way that Bancorp explains the
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`use of a computer, and in particular when the Court in Bancorp
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`is discussing -- they had similar arguments here, actually, to
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`what the Board is facing, which was arguments about the RCT
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`case -- Research Corporation case, and SiRF Technologies where
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`inventions of computer innovations were found patentable. And
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`in Bancorp, the Court looked at those arguments and rejected
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`them because of the nature of the inventions in both the RCT and
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`the SiRF Technologies.
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`In RCT, the process claimed there was -- it was a
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`process for digitally -- or for processing digital images to display
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`them on a printer or other display device that has a limited
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`capability. And, so, the pixel -by-pixel comparison recited in
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`those claims -- and the Court actually looked at several of the
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`other claims in that case as additional evidence, high -contrast
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`film, film printers, printer and display devices, and memories,
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`the Court found there that the claims required a computer, and
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`actually ended up with a result on a computer.
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`And in SiRF Technologies, the Court said that here it
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`would be impossible to perform the claim without the GPS
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`receiver, without the device, and that made it a particular
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`machine according to the Federal Circuit. But they said it's not
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`the case which we have here, wh ich is where a computer might
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`function solely as an obvious mechanism for permitting a
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`solution to be achieved more quickly. So, adding efficiency to
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`perform a process that could be performed mentally, just to add a
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`computer to make it more efficient, in SiRF Technologies, also in
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`Bancorp, the Federal Circuit has said that's not enough. There
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`has to be a computer science innovation.
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`And the claim -- the invention described in claim 17,
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`as much as there is one, the customer and product hierarchies,
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`the calculating of product price, can be performed. This is on
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`claim 9, again, going back to the language of the claims, which
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`we must, and we must look at the entirety of the claims under
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`Diamond v. Diehr and other cases. So, what we have is these
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`ideas of arranging customers and products into hierarchies and
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`calculating a product price. And this process can be performed
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`entirely manually using pencil and paper, as was demonstrated
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`during the cross examination of the Patent Owner's witness, Mr.
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`Liebich. He, together with SAP's counsel, walked through every
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`step of claim 17.
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`I'm turning now to slide 21. They were able to walk
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`through every step of claim 17 using nothing more than a pencil
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`and paper and their minds, they discussed the performance of the
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`entire claim. Here in slide 21 we have a hierarchy of
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`organizational groups. This has two levels in the hierarchy,
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`which Mr. Liebich acknowledged, organizational group one,
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`which is above organizational group two in the hierarchy. And
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`the seller is able to assign price discounts. Here 10 percent
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`discount for organization one, and a 20 percent discount for
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`organization two. And this meets the first element of claim 17,
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`arranging a hierarchy of organizational groups.
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`The claim also requires arranging prod ucts into a
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`hierarchy of product groups, and this diagram on slide 22 shows
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`just that. A product hierarchy with P1 product, a product group
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`of CPUs and some subproducts on the second level of the
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`hierarchy. P2 is labeled as a 486 processor; P3 is some ot her
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`type of processor. And, again, price information discounts a
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`seller can -- can set these as they want as the patent says. The
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`arrangement of the hierarchies is completely arbitrary. And
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`here, in the example, walked through with Patent Owner's
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`witness 10 percent discount for P1, 15 percent for P2, 5 percent
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`for P3. So, the arranging of the customer and product
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`Case CBM2012-00001 (MPT)
`Patent 6,553,350
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`hierarchies can be done completely on paper and pencil, so can
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`the calculating of the prices.
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`So, the storing step requires storing pricing
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`information in a data source that is associated with a pricing
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`type, organizational groups, and product groups. And on slide
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`23 we have a table that was developed during the deposition
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`where we have pricing information in the first column. Those
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`numbers we talked about 10 percent, 20 percent, 10 percent. Mr.
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`Liebich explained that pricing type might be a discount, and, so,
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`the pricing types are associated in column two in this table.
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`Likewise, the claim discusses associating the pricing type with
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`organizational groups and product groups. And if you recall in
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`our organizational hierarchy, organization one got a 10 percent
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`discount, organization two got a 20 percent discount.
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`Those organizational groups are reflected here in the
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`data source in table -- on slide 23. A 10 percent discount for
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`organization one, 20 percent discount for organization two, and
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`so on through the product hierarchy with those discounts on slide
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`22 put into the data source here on slide 23.
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`To calculate the price, the next thing is to retrieve
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`applicable pricing information corresponding to lots of things,
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`product purchasing organization. Essentially, what it means, Mr.
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`Liebich explained here and in his direct testimony, is for a
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`customer and a product you retrieve the pricing i nformation for
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`Case CBM2012-00001 (MPT)
`Patent 6,553,350
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`that customer and product and also for the groups above them in
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`the hierarchy.
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`So, in the example that was walked through in his
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`deposition, and is in the transcript, the choice was of customer
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`02, organizational group 02, purchasing a 4 86 processor. So, in
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`order to determine what to retrieve, we look back at the
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`hierarchy. And here customer 02, we would retrieve the 20
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`percent for that customer and also the price adjustments for the
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`customer above, 10 percent for 01; 01 being above in the
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`hierarchy on slide 21. And, so, if you look at the retrieval here,
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`we have the 20 percent discount for 02 and the 10 percent
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`discount for 01.
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`Similarly, the product is a 486. So, looking at the
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`product hierarchy, that's P2, so retrieve 15 percent, and we
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`retrieve, according to the claim, the price adjustments above it,
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`so, 10 percent. We would not retrieve the 5 percent because that
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`product is not above the chosen product. So, we take the 10
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`percent and 15 percent, and those show up in the retriev al as
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`well. Ten percent discount for product P2 -- or 15 percent for P2
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`and 10 percent for P1. And Mr. Liebich confirmed that this was
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`the information that would be retrieved by performing that step
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`of claim 17, shown on slide 24.
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`The pricing informati on is sorted according to the
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`claims. And Mr. Liebich explained that one way to sort might be
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`lowest to highest. And, so, the arrows were drawn on this
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`diagram during the deposition to show sort lowest to highest, as
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`you'll see on slide 25. And the arro ws there go from low to high
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`to show that sorting.
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`Eliminating is another step in claim 17. It's
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`eliminating pricing information that is less restrictive. And Mr.
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`Liebich explained that less restrictive might mean higher in the
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`hierarchy. So, to deter mine what to eliminate for the
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`organizational groups, we look at 02, or organizational group
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`two, which is the buyer here. And if you remember the product
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`hierarchy, organization one is above it, and, so, the blue line
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`there on slide 26 shows the eliminat ing of that. And, likewise,
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`with the products were chosen the P2 or the 486, and, so, the less
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`restricted pricing information is for that node above it , the P1
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`node, and, so, the blue line eliminates that data.
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`And, finally, the product price is determi ned using the
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`calculations that are drawn here on slide 27, determining the
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`product price using the sorted pricing information. And the
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`calculations here show, as was discussed in the transcript of his
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`deposition, if the product price begins as a $100, th e remaining -
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`- after the eliminating -- the remaining 20 percent and 15 percent
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`discounts are applied, and we arrive at a final price of $65. And,
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`so, as shown during his deposition and also in his direct
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`testimony -- he walked through the whole example, similarly
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`using a product hierarchy -- I can walk through it if you like, but
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`I'll just refer to the demonstratives starting on slide 28. He used
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`a similar hierarchy and explained how that would be done, again,
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`all pencil and paper, mental steps.
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`JUDGE TIERNEY: Let's take a moment here, since
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`we're referring to his declaration. At paragraph 62 of his
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`declaration, Mr. Liebich referred to those steps we just wal ked
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`through as not being routine, conventional or well known at the
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`time of the invention. Is that a correct statement?
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`MS. ARNER: Yes, I'll believe Your Honor. I don't
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`have his declaration right in front of me.
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`JUDGE TIERNEY: But are these not routine, not
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`conventional, and they were not well known at the time of the
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`invention.
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`MS. ARNER: So what he's referring to is the steps
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`that we just walked through on paper. In particular, the storing,
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`retrieving, the five steps highlighted in green here on slide 9, for
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`example. And those steps, his point I think you're saying was,
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`these are -- this was a non-conventional way to calculate prices.
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`This was not routine.
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`The question, though, if you look at the Mayo
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`decision, is not is the abstract idea routine; it's when the claims
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`include an abstract idea, what else is there in the claims before
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`us. And, so, the Court is instructing us in Mayo to look at the
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`abstract ideas, which are highlighted in blue and green, and look
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`at what else is there. What are the other things added to the
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`claims. You have to add more than routine conventional subje ct
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`matter in order to make the claims patentable in addition to the
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`abstract idea.
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`So, whether or not Mr. Liebich was talking about the
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`abstract idea as being something new or something non -
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`conventional, that's not the question under the Supreme Court's
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`framework for 101.
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`JUDGE TIERNEY: Well, he's testifying that the
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`storing, retrieving, sorting, eliminating and determ ining steps
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`they're not routine, conventional or well known at the time of the
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`invention when used with this idea of creating the hierar chies.
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`MS. ARNER: And be that as it may, the Supreme
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`Court has not said the question is whether the abstract idea is
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`new, whether the math formula is new in those cases. But rather
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`what else is added to the claims when you have abstract ideas.
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`JUDGE TIERNEY: But what he's saying is added are
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`significant meaningful limitations that were not conventional,
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`not routine. So, if he has added -- if he is correct in that to have
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`added significant additional steps, this is not mere post -solution
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`activity then.
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`MS. ARNER: Well, Mr. Liebich's view of what is
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`conventional at the time, I think, is incomplete. He admitted that
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`really he based his opinion only on his knowledge of SAP's own
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`system, and talked at length about SAP's system. But he had not
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`investigated the state of the art beyond that. For example, the
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`patent itself describes a prior art pricing system by Oracle. And
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`he said he had not looked into whether that covered -- whether
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`that had these purportedly non -routine and non-conventional
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`things. So, he wasn't really -- wasn't really testifying against the
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`state of the art at the time. At least it was an incomplete view of
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`the state of the art.
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`And, moreover, Dr. Siegel, in his testimony,
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`explained that actually -- and I know 102 is not in the case
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`anymore -- but in his -- in his declaration, he explained how each
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`one of these steps was actually in R3. And, so, as far as they are
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`arguing that these are routine and non -conventional, there is
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`testimony in the record that shows that, in fact, all of these
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`things were available in prior art R3.
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`JUDGE TIERNEY: Well, Mr. Liebich, in paragraph
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`14 of his declaration, did state that he had reviewed the R3, 2.2
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`online documentation, which is the documentation I think you're
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`referring to that Dr. Siegel had testified as to. So, there seems to
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`be a difference of opinion between the two experts.
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`MS. ARNER: But the question -- although 102 -- I
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`mean, 102 is not in the case. But the question the Supreme Court
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`poses is not really related to spot on novel ty over a single
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`document or a single prior art reference. The Supreme Court
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`said in Diehr, 102 is a separate inquiry from 101. And, so, what
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`the experts might be able to help you do in a 101 case is
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`characterize what was conventional at the time and wha t was not,
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`and that's broader than a single piece of prior art. In Mayo, the
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`Patent 6,553,350
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`Court said, we are not importing the 102 analysis into 101.
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`We're looking instead at what is added to the abstract ideas. Is
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`there anything added to the abstract ideas?
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`And here what is added to the abstract ideas is
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`nothing in claim 17
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