Callidus Software Inc v. Versata Development Group Inc

1. Case Identification

• Case #: CBM2014-00117
• Patent #: 7,908,304
• Filed: April 17, 2014
• Petitioner(s): Callidus Software Inc.
• Patent Owner(s): Versata Development Group, Inc.
• Challenged Claims: 2-11, 26-29, 33-41, and 44-46

2. Patent Overview

• Title: System for Managing Distributor Relationships and Compensation
• Brief Description: The ’304 patent describes a computer-implemented system for managing relationships and compensation in industries with complex sales channels, such as financial services and insurance. The system automates validating distributor credentials (e.g., licenses and appointments) and determining compensation based on predefined selling agreements.

3. Grounds for Unpatentability

Ground 1: Patent Ineligibility under §101 - Claims 2-11, 26-29, 33-41, and 44-46 are directed to an abstract idea.

• Prior Art Relied Upon: This ground is based on patent eligibility under 35 U.S.C. § 101, not prior art.
• Core Argument for this Ground:
  • Abstract Idea Mapping: Petitioner argued that all challenged claims are directed to the patent-ineligible abstract ideas of (1) validating a distributor to begin selling products and (2) determining compensation for a validated distributor. Petitioner asserted these are fundamental, long-standing business practices that were historically performed manually using mental processes, pencil, and paper. The claims simply recite these abstract ideas and instruct a user to "apply it" using generic computer components.
  • Insufficiency of Limitations: The petition contended that the recited hardware and software elements—such as a "processor," "memory," "database source," "distributor management engine," and various "modules"—do not add an inventive concept. These were described as conventional, general-purpose computer components performing their ordinary functions (e.g., storing data, processing information) to automate the abstract idea. Petitioner argued that the claims fail to recite any specific, technical algorithm or implementation, instead claiming the desired business outcome itself. Consequently, the claims were argued to fail the machine-or-transformation test as they are not tied to a particular machine and do not transform any article into a different state or thing.
  • Dependent Claim Arguments: Petitioner asserted that the challenged dependent claims fail to add meaningful limitations to tie down the abstract idea. The arguments were grouped as follows:
    • Claims adding only rudimentary data manipulations (e.g., claims 3, 6-7, 26-29, 39-41, 45) merely recite generic functions like "manage," "define," or "enable" interaction with data objects without specifying any novel technical method.
    • Claims adding insignificant post-solution activity (e.g., claims 36-37) recite generating reports, which merely presents the results of the underlying abstract process.
    • Claims narrowing the field of use (e.g., claims 8-11, 38, 46) simply limit the abstract idea to a specific context, such as "financial institutions" or "life insurance," which does not confer patentability.
  • Key Aspects: A central theme of the petition was that the Board had already instituted a CBM review on the independent claims (1, 12, and 32) of the ’304 patent, finding it more likely than not that they were directed to unpatentable abstract ideas. Petitioner argued that the challenged dependent claims add no limitations sufficient to alter that conclusion.

4. Key Claim Construction Positions

• Petitioner stated that under the Broadest Reasonable Interpretation (BRI) standard, the claim terms should be given their plain and ordinary meaning. For the purposes of the petition, Petitioner accepted the constructions previously adopted by the Board in a related proceeding (CBM2013-00054) for key terms, arguing these constructions support the view that the claims recite only generic software and hardware components.
• "module" / "modules": "software application that performs a stated function / software applications that perform a stated function"
• "engine": "software that processes data for a stated function"
• "backbone": "software, and may include hardware, through which engines, modules, and databases can exchange information"
• "interface": "browser-based gateway for a user to manage the DMSS applications"

5. Key Technical Contentions (Beyond Claim Construction)

• A principal contention was that the ’304 patent does not qualify for the "technological invention" exception to CBM review. Petitioner argued the patent as a whole fails to recite a novel and unobvious technological feature and does not solve a technical problem with a technical solution.
• The problems addressed by the patent were framed as business and management challenges (e.g., managing distributor information, administering incentive programs), not technical problems. The proposed solution—using generic computer components to automate these business rules—was argued to be a conventional application of computing, not a technological invention.

6. Arguments Regarding Discretionary Denial

• The petition presented arguments that statutory estoppel should not bar the proceeding. Petitioner had previously filed a declaratory judgment (DJ) action challenging the patent's validity.
• Petitioner argued that estoppel under §325(a)(1) was inapplicable for three main reasons:
  • The USPTO's rules for CBM proceedings explicitly exclude the application of the relevant estoppel provision.
  • The prior DJ action was dismissed without prejudice before the CBM petition was filed and therefore did not create a bar.
  • The DJ action was properly characterized as a compulsory counterclaim to Patent Owner’s infringement suit, and such counterclaims are statutorily exempt from triggering estoppel.

7. Relief Requested

• Petitioner requested institution of a Covered Business Method patent review and cancellation of claims 2-11, 26-29, 33-41, and 44-46 of the ’304 patent as unpatentable under 35 U.S.C. § 101.