Versata Software, Inc. v. Sap Am., Inc.

Citation717 F.3d 1255
Decision Date14 August 2013
Docket NumberNos. 2012–1029,2012–1049.,s. 2012–1029
PartiesVERSATA SOFTWARE, INC. (formerly known as Trilogy Software, Inc.), Versata Development Group, Inc. (formerly known as Trilogy Development Group, Inc.), and Versata Computer Industry Solutions, Inc. (formerly known as Trilogy Computer Industry Solutions, Inc.), Plaintiffs–Cross Appellants, v. SAP AMERICA, INC. and SAP AG, Defendants–Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit

OPINION TEXT STARTS HERE

Mike McKool, McKool Smith, P.C., of Dallas, argued for plaintiffs-cross appellants. With him on the brief were Douglas A. Cawley; Scott L. Cole and Joel L. Thollander, of Austin, TX.

J. Michael Jakes, Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P., of Washington, DC, argued for defendants-appellants. With him on the brief were Michael A. Morin, John M. Williamson And Jennifer K. Robinson. Of counsel on the brief were James R. Batchelder and Lauren N. Robinson, Robert & Gray L.L.P., of Palo Alto, CA; David J. Ball, Jr., Paul, Weiss, Rifkind, Wharton & Garrison L.L.P., of Washington, DC; Katherine K. Lutton, Fish & Richardson, P.C., of Redwood City, John W. Thornburgh, Justin M. Barnes and Craig E. Countryman, Fish & Richardson, P.C., of San Diego, Kevin R. Hamel, SAP America, Inc., of Newtown Square, PA. Of counsel was Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison L.L.P, of Washington, DC.

Before RADER, Chief Judge, PROST and MOORE, Circuit Judges.

RADER, Chief Judge.

After a jury verdict of infringement with an award of damages in favor of Versata Software, Inc., Versata Development Group, Inc., and Versata Computer Industry Solutions, Inc. (collectively Versata), SAP America, Inc. and SAP AG (collectively SAP) appeal. Ultimately, the trial court found no infringement of the U.S. Patent No. 5,878,400. The jury found infringement of three claims of U.S. Patent No. 6,553,350. Subsequently, the trial court denied SAP's motions for judgment as a matter of law (JMOL) or a new trial, awarded prejudgment interest, and entered a permanent injunction. Although affirming the jury's infringement verdict and damages award, this court vacates as overbroad the permanent injunction and remands for the district court to enter an order that conforms to this opinion.

I.

This invention relates to “the field of computer-based pricing of products.” '350 Patent, col. 1, l. 10. In the competitive commercial marketplace, sales representatives often strive to provide particularized pricing for customers in a timely fashion. Yet, precise product pricing depends on a variety of factors including type of product (e.g., a single product versus a bundle or customized product); the size of the customer; the type of customer (e.g., a wholesaler versus a distributor); and the customer's geographic location. Id. at col. 1, ll. 45–52.

In the early 1990s, a different pricing table stored each pricing factor. Applying these factors to a single transaction required accessing and applying large amounts of data stored in a large central database. Id. at col. 1, ll. 25–26. Assuming each product is sold at a price particularized for each purchaser, a selling organization with ten thousand products and ten thousand purchasers would need pricing tables with one hundred million entries.

In the prior art computerized pricing engines, each pricing factor usually required separate database queries. The numerous tables were stored on a mainframe computer, the customer order was entered into a central billing system, and the mainframe would perform the pricing calculation by separately accessing each applicable data set. Id. at col. 2, ll. 21–27, 56–63. Thus, determining a final price was highly inefficient. Sifting through this data meant that customers would often wait several days to get an accurate price. Id. at col. 1, ll. 29–36. The delay often caused lost sales. Id.

The claimed invention leverages hierarchical product and data structures to organize pricing information. Hierarchical pricing involves a “WHO” (the purchasing organization or customer) and a “WHAT” (the product). Id. at col. 3, ll. 24–27. The WHO is defined by “creating an organizational hierarchy of organizational groups” such as “Customer Type,” “Customer Size,” and “Geography.” Id. at Fig. 4A; col. 3, ll. 25–32. One or more customers may be members of each organizational group, and each customer may be a member of more than one organizational group. Id. Thus, when a customer is selected, the system identifies all the groups to which the customer belongs as well as all corresponding price adjustments. Similar hierarchies are constructed for products. This hierarchical pricing engine used less data than the prior art systems and offered dramatic improvements in performance.

In 1995 and 1996, Versata both commercialized its hierarchical pricing engine and filed a patent application covering the invention. The commercial embodiment was a software called “Pricer,” and it received praise as a “breakthrough” that was “very innovative.” J.A. 1304. The '400 Patent issued in 1999. The '350 Patent, a continuation of the application which led to the '400 Patent, issued in 2003.

The praise for Pricer was borne out in its sales. Between 1995 and 1998, Pricer customers included many large companies—called “Tier 1” companies at trial—such as IBM, Lucent, Motorola, and Hewlett–Packard. Pricer Tier 1 customers generated an average of $5 million in revenue and $3 million in profit for Versata. Versata sold Pricer either as a package with other Versata software or as a bolt-on addition to enterprise systems offered by companies like SAP.

SAP provides software solutions for thousands of companies, governments, and nonprofits around the globe. SAP's Enterprise Resource Planning (“ERP”) and Customer Relationship Management (“CRM”) software runs most processes needed by these institutions, including financials, accounting, materials management, procurement, supply-chain planning, human resources, and pricing. While Versata's patent application was pending, SAP designed and released a new version of its enterprise software that contained hierarchical pricing capability.

Before SAP launched its new software, it stated the planned software would be like Versata's Pricer. When SAP ultimately released its software in October 1998, it bundled the hierarchical pricing capability into its full enterprise software to discourage the use of bolt-on products like Pricer. J.A. 8479.

Following the announcement and launch of SAP's new hierarchical pricing engine, Pricer sales faltered. Versata's win-rate on sales offerings of Pricer dropped from 35 percent to 2 percent. While Versata retained many of its previously-won Pricer customers, Versata decided to discontinue heavy investment in marketing because SAP had destroyed its market. Versata maintained Pricer as a product offering, but made no new sales as SAP's bundled software took hold.

In 2007, Versata sued SAP for infringement of both the '400 Patent and the '350 Patent. With respect to the '400 Patent, Versata asserted infringement of independent claim 31 and dependent claims 35 and 36. Each claim requires “computer readable program code configured to cause a computer to” perform a set of claimed operations, including accessing customer and product hierarchies in order to determine a price. '400 Patent, col. 23, ll. 10–52, 62–67.

With respect to the '350 Patent, Versata asserted infringement of independent claim 29 and dependent claims 26 and 28. Claims 26 and 28 require “computer instructions to implement” the claimed operations. '350 Patent, col. 21, ll. 61–62. Claim 29 requires “computer program instructions capable of” retrieving “pricing information” from both customer and product hierarchies. '350 Patent, col. 22, ll. 21–35.

This suit resulted in two jury trials. During the first trial, Versata's expert presented evidence that SAP's software used hierarchical pricing. One method he used was a demonstrative data setup. Using and configuring the inherent functions of SAP's software, the expert performed hierarchical access on customer and product hierarchies.

The jury found that SAP directly infringed the asserted claims of the '400 and '350 Patents, SAP induced and contributed to infringement of claim 29 of the '350 Patent, and the asserted claims were not invalid. The jury awarded $138,641,000 in damages. SAP moved for judgment as a matter of law of noninfringement of both patents and for a new trial on damages.

For the '400 Patent, the trial court reasoned that the claim language “configured to cause” required that the SAP products, “as made and sold, contain computer code or program instructions sufficient to perform the operations recited in the claims without additional modification or configuration, or the addition of further program instructions.” J.A. 155. It found that Versata's infringement case emphasized SAP's product as configured by Versata's expert, not how the software was made or sold. Id. Thus, the trial court granted JMOL of noninfringement of the '400 Patent. However, the trial court denied SAP's JMOL of noninfringement of the '350 Patent, finding that substantial evidence supported the jury's determination. Lastly, the court granted a motion for new trial on damages based on a change in governing law.

Before the second trial began, SAP attempted to eliminate any basis for future infringement. Specifically, SAP modified its products with a software patch. The modification essentially prevented users from saving data into certain fields relating to hierarchical access.

The second trial focused on damages. Because SAP's software patch was designed to eliminate infringement in products after May 2010, the jury was required to determine the effectiveness of the patch in avoiding infringement as part of damages. The jury concluded that, even with the software patch, the accused products still infringed.

The jury...

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