`
`IN THE
`UNITED STATES COURT OF APPEALS
`FOR THE FEDERAL CIRCUIT
`
`VERSATA SOFTWARE, INC. (fonnerly known as Trilogy Software, Inc.),
`VERSATA DEVELOPMENT GROUP, INC. (fonnerly known as Trilogy
`Development Group, Inc.), and VERSATA COMPUTER INDUSTRY
`SoLUTIONS, INC. (fonnerly known as Trilogy Computer Industry Solutions, Inc.),
`
`Plaintiffs-Cross Appellants,
`
`v.
`
`SAP AMERICA, INC. and SAP AG,
`
`Defendants-Appellants.
`
`Appeals from the United States District Court for the
`Eastern District of Texas in case no. 07-CV-0153,
`Magistrate Judge Charles Everingham.
`
`BRIEF OF DEFENDANTS-APPELLANTS SAP AMERICA, INC. AND SAP AG
`
`JAMES R. BATCHELDER
`LAUREN N. ROBINSON
`ROPES & GRAY L.L.P.
`1900 University A venue
`Palo Alto, CA 94303
`(650) 617-4000
`
`DAVID J. BALL, JR.
`PAUL, WEISS, RIFKIND,
`WHARTON & GARRISONL.L.P.
`2001 K Street, NW
`Washington, DC 20006
`(202) 223-7300
`
`J. MICHAEL JAKES
`MICHAEL A. MORIN
`JOHN M. WILLIAMSON
`JENNIFER K. ROBINSON
`FINNEGAN, HENDERSON, F ARABOW,
`GARRETT & DUNNER, L.L.P.
`901 New York A venue, NW
`Washington, DC 20001
`(202) 408-4000
`
`JOHN W. THORNBURGH
`JUSTIN M. BARNES
`CRAIG E. COUNTRYMAN
`FISH & RICHARDSON, P.C.
`12390 El Camino Real
`San Diego, CA 92130
`(858) 678-5070
`
`KEVIN R. HAMEL
`SAP AMERICA, INC.
`3999 West Chester Pike
`Newtown Square, PA 19073
`(610) 610-1000
`
`February 17, 2012
`
`Attorneys for Defendants-Appellants
`SAP America and SAP A G
`VERSATA EXHIBIT 2044
`SAP v. VERSATA
`CASE CBM2012-00001
`
`
`
`CERTIFICATE OF INTEREST
`
`Counsel for SAP America, Inc. and SAP AG certifies the following
`
`
`
`
`
`(use "None" if applicable; use extra sheets if necessary):
`
`
`
`1 . The full name of every party or amicus represented by me is:
`
`
`
`
`
`SAP America, Inc. and SAP AG
`
`
`
`2. The name of the real party in interest (if the party named in the
`
`
`
`
`
`caption is not the real party in interest) represented by me is:
`
`
`
`
`
`SAP America, Inc. and SAP AG
`
`
`
`3 . All parent corporations and any publicly held companies that own 1 0
`
`
`
`
`
`
`
`percent or more of the stock of the party or amicus curiae represented by me are:
`
`
`
`
`
`
`
`SAP AG owns 1 0% or more of the stock of SAP America, Inc.
`
`
`
`
`
`4. The names of all law firms and the partners or associates that
`
`
`
`appeared for the party or amicus now represented by me in the trial court or agency
`
`
`
`
`
`
`
`or are expected to appear in this Court are:
`
`Fish & Richardson,
`
`P.C.: Thomas Melsheimer, John W. Thornburgh,
`
`
`
`Justin M. Barnes, Craig E. Countryman, Michael A. Bittner, Benjamin
`
`
`
`Charles Elacqua, *John E. Gartman, Taj Jamar Clayton, Timothy Devlin
`
`
`
`James R. Batchelder, Lauren N. Robinson
`
`Finnegan, Henderson,
`
`
`
`
`
`Jakes, Michael Andre Morin, John M. Williamson, Jennifer Robinson
`
`Ropes & Gray L.L.P.:
`Farabow, Garrett & Dunner, L.L.P.: J. Michael
`Paul, Weiss, Rifkind, Wharton & Garrison,
`
`A. Gallo
`
`LLP: David J. Ball, Kenneth
`
`Howrey LLP: James R. Batchelder, *Lloyd R. Day, Jf., *Paul S. Grewal,
`
`
`* Aaron R. Hand, * Anna M. Ison, *Susan M. Krumplitsch, * Alison L.
`
`
`
`Maddeford, *Jonathan D. Marshall, Mario Moore, *William P. Nelson,
`
`1
`
`
`
`*David W. Price, Lauren N. Robinson, *Victoria Q. Smith, *Sriranga
`
`
`
`
`Veeraraghavan
`
`
`
`Christopher Bunt, Robert M. Parker
`
`Parker Bunt & Ainsworth: Andrew Thompson Gorham, Robert
`Madrid & Batchelder
`
`LLP: James R. Batchelder, *Lloyd
`
`Day Casebeer
`R. Day, Jr., *Paul S. Grewal, *Aaron R. Hand, *Anna M. Ison, *Susan M.
`
`
`
`
`
`Krumplitsch, * Alison L. Maddeford, *Christian E. Mammen, * Jonathan D.
`
`
`
`
`
`Marshall, Mario Moore, *William P. Nelson, *Jackie N. Nakamura, *Lee
`
`
`
`Patch, *David W. Price, Lauren N. Robinson, *Victoria Q. Smith, *Sriranga
`
`
`Veeraraghavan, *Bradley A. Waugh, *Eva Zei
`
`
`
`Truelove Law Firm: * Justin Kurt Truelove
`
`
`
`Morgan Lewis
`
`& Bockius, LLP: Mario Moore
`
`
`
`
`
`
`
`Law Offices of Patricia L. Peden: *Patricia L. Peden
`
`Patton, Tidwell
`H.Patton
`
`
`
`
`
`& Schroeder:
`
`
`
`*Robert William Schroeder, III, *Nicholas
`
`* Terminated
`
`11
`
`
`
`TABLE OF CONTENTS
`TABLE OF CONTENTS ......................................................................................... iii
`
`
`
`
`
`
`
`TABLE OF AUTHORITIES .......................................................................... . . ...... . vi
`
`
`
`
`
`
`
`
`
`
`STATEMENT OF RELATED CASES ....................................... . . .......................... ix
`STATEMENT ..... ..... ...... ... ......................... ....... ... ......... 1
`I. JURISDICTIONAL
`II. STATEMENT OF THE ISSUES . ................ . .... . .............. ............... .......... ... .. 1
`III. STATEMENT OF THE CASE .... . . ...... ......... . . . .. .. .. .. . . ........ .. .... ... .. . ... .. ... . . .. . .... 2
`IV. STATEMENT OF THE FACTS .......... ....................... .. ..................... . .... ....... 6
`........... ............................ ................................. .. .... ..... 6
`
`A. Versata's Patents
`
`........ ....... .... ...... ....... .................. ................. . ...... 7
`1 . The ' 400 Patent
`. ..... .. ............. ...... .. ....................................... ...... 7
`2. The '350 Patent
`. .. .... .... ............... . .... .... . ...
`.......... . ........... ..... .. .......... .... . 1 0
`B. SAP's Software
`................... . .... . .. ... . 1 0 1 . SAP's ERP and CRM Business Solutions
`
`
`........... .. ..... ... . ... ... ... 13 2. "Hierarchical Access" in SAP's Software
`
`
`
`........ . ....... ..... ........ ............. 14 3 . Numbers Used by SAP's Software
`
`Below .. ... ........ .. ..... . .......... . ........ .... .......... 1 4
`
`C. The Infringement Findings
`....... . ........ ...... .................. ......... .. ... .. .. . ... ... .... ...... ... ..... 1 4
`1 . The Trial
`.. .... ...... ... .. . 17 2. The Verdict and JMOL Decision on Infringement
`
`
`
`
`......3 . SAP's Redesign ............ . ........... . ........... ....... ..... ........ ..... . .... 1 9
`....... ... ...... ... 1 9
`
`Software D. V ersata' s Software and the Market for Pricing
`Below ............... ........ ............ 23
`
`E. The Damages and Injunction Findings
`..... ......... . .............. .......... .................. ............. ....... .. 23 1 . Lost Profits
`
`......... ..... ............... ........... ........ .. .... ... ......... 29 2. Reasonable Royalty
`
`
`
`
`
`
`
`
`
`111
`
`
`
`....... .... ...... .. ...... .... ...... ..... .. . ..... 3l
`
`
`3. The District Court's Injunction
`V. SUMMARY OF THE ARGUMENT .... ...................... .... ................ ... ..... ..... 35
`VI. ARGUMENT ...................... ................. ......................................................... 37
`..... ............... ........... ... .................... .. .... .. . . . ... ..... . .. 37
`
`A. Standard of Review
`
`B. The District Court's Holding that SAP's Software Is
`
`
`
`
`
`
`
`"Capable of' Performing Certain Claimed Steps (or
`
`
`
`"Causes a Computer" to Perform Those Steps) Should Be
`
`
`
`Reversed Because SAP's Software Will Not Perform the
`
`
`
`Claimed Operations Without Added Computer
`.. .. ... ... . . ........... . ........... ... . .... .. ... .....Instructions
`.. .... ............. ... ..... ...... ... 38
`
`
`Uses that SAP's Software C. The District Court's Holding
`
`
`
`
`. ...........
`..... ... . . . ......... 43 "Denormalized Numbers" Should Be Reversed
`
`
`
`
`1. SAP's Software Does Not Satisfy the Agreed-upon
`
`. ... . .............
`................ 43
`
`
`Definition of "Denormalized Numbers"
`
`2. SAP's Software Is, in All Relevant Respects,
`
`
`
`
`Identical to Prior-Art SAP Software that Versata
`
`......... . ....... ... ........... .............. 44 ..... ........ .....Expressly Disclaimed
`
`
`Should Be Set Aside .............. ............. ..... .... 46
`D. The Lost Profits Award
`......................... 46
`
`
`Causation in Fact. 1 . Versata Failed to Establish
`
`
`
`
`
`
`2. Versata Failed to Apply the Panduit Factors in a
`
`............ ... .......Single Consistent Market ......... ... ............... ........ 50
`
`
`
`3. Versata Failed to Show Demand for Pricer During
`
`
`
`
`
`
`
`............ 53 the Damages Period (Panduit Factor 1 ) ........... ............
`
`4. Versata Failed to Prove Lost Profits with
`
`
`
`
`Reasonable Probability Factor 4) .............................. 54
`(Panduit
`
`a) Versata Did Not Prove It Would Have
`
`
`
`Resumed Selling Pricer at All in April 2003,
`
`
`Much Less at the Same Rate as 1 996-98 ....................... 55
`
`IV
`
`
`
`from the b) Versata's Calculation Extrapolated
`
`
`
`
`Wrong 1996-98 Data, Inflating the Bottom
`
`Line ...... ..... ....................... ............................... ... . . . . . ....... 57
`
`a Royalty E. There Is No Substantial Evidence to Support
`
`
`
`
`
`
`
`A ward over $2 Million ....................................................................... 58
`
`
`
`
`Is Impermissibly F. The District Court's Injunction
`..... .............. ............ ......................................... ......... .......... 59 Overbroad
`
`
`1 . Enjoining Maintenance and Additional Seats
`
`
`
`.. ................. 60 Prohibits SAP from Engaging in Lawful Activity
`
`
`
`
`2. The Injunction Against Maintenance Is Entirely
`
`
`
`
`.................... ................ ....... .......... ... 64 ...............Disproportionate
`
`... ..... ... .................. ............... 66
`VII. CONCLUSION AND RELIEF REQUESTED
`
`v
`
`
`
`TABLE OF AUTHORITIES
`
`Cases
`
`Amstar Corp. v. Envirotech Corp.,
`
`
`
`
`
`
`
`
`
`
`
`
`823 F.2d 1 538 (Fed. Cir. 1 987) ........................................................................... 63
`
`
`
`Aro Manufacturing Co. v. Convertible Top Replacement Co. ,
`
`
`
`
`
`
`
`
`
`
`365 U.S. 336 (1961) ............................................................................................. 63
`
`Astrazeneca AB v. Mutual Pharmaceutical Co.,
`
`
`
`
`
`
`
`
`
`384 F.3d 1333 (Fed. Cir. 2004) . .......................................................................... 46
`
`Bellows v. Amoco Oil Co.,
`
`
`
`
`
`
`
`1 18 F.3d 268 (5th Cir. 1 997) ............................................................................... 37
`
`Cordis Corp. v. Boston Scientific Corp.,
`
`
`
`
`
`
`
`
`
`37 ........................... ....... 658 F.3d 1347 (Fed. Cir. 2011) .........................................
`
`Dun v. Lumbermen's Credit Ass 'n,
`
`............................................................................................... 69
`209 U.S. 20 (1908)
`
`eBay Inc. v. MercExchange, LLC,
`
`
`
`
`
`
`
`
`547 U.S. 388 (2006) ............................................................................................. 62
`
`Fantasy Sports Properties, Inc. v. SportsLine.com, Inc.,
`
`
`
`
`
`
`
`
`
`287 F.3d 1 1 08 (Fed. Cir. 2002) .......................................... ........................... 40,43
`
`Finjan, Inc. v. Secure Computing Corp.,
`
`
`
`626 F.3d 1197 (Fed. Cir. 201 0) ............................................................... 40,41,43
`
`
`
`
`
`Grain Processing Corp. v. American Maize Products Co.,
`
`
`
`
`
`185 F.3d 1341 (Fed. Cir. 1999) ........................................................................... 48
`
`High Tech Medical Instrumentation, Inc. v. New Image Industries, Inc. ,
`
`
`
`
`
`
`
`
`
`
`
`49 F.3d 1555 (Fed. Cir. 1 995) ............... . ............................................................. 42
`
`Hilgraeve Corp. v. Symantec Corp.,
`
`
`
`
`
`
`
`
`265 F.3d 1 336 (Fed. Cir. 2001) ........................................................................... 41
`
`Hockerson-Halberstadt, Inc. v. Avia Group International, Inc.,
`
`
`
`
`
`
`
`
`
`222 F.3d 951 (Fed. Cir. 2000) .................................. ........................................... 47
`
`VI
`
`
`
`Innogenetics, N. V. v. Abbott Laboratories,
`
`
`
`
`
`
`
`
`
`512 F.3d 1363 (Fed. Cir. 2008) ......................... . . . .......................... ......... 38, 65, 66
`
`Intel Corp. v. International Trade Commission,
`
`
`
`
`
`946 F.2d 821 (Fed. Cir. 1991) ....................................................................... 42,43
`
`Johns Hopkins University v. CellPro, Inc.,
`
`
`
`
`
`152 F.3d 1342 (Fed. Cir. 1998) ........................................................................... 65
`
`
`
`
`
`King Instrument Corp. v. Otari Corp.,
`
`
`
`
`
`
`
`
`
`
`
`
`814 F.2d 1560 (Fed. Cir. 1987) ........................................................................... 64
`
`
`
`Lucent Technologies, Inc. v. Gateway, Inc.,
`
`
`
`
`
`
`
`
`
`
`
`
`580 F.3d 1301 (Fed. Cir. 2009) .................. . .. ........ .. ............................................ 61
`
`Muniauction, Inc. v. Thomson Corp.,
`
`
`
`
`
`
`
`
`
`532 F.3d 1318 (Fed. Cir. 2008) ....................................................... ........... ......... 37
`
`Nerney v. New York, N.H. & H.R. Co.,
`
`83 F.2d 409 (2d Cir. 1936) . . .. . . . . . . . . . . . . .. . .. . .........................................
`
`. . . . . .
`
`...........
`
`" 69
`
`Oiness v. Walgreen Co. ,
`
`
`
`
`88 F.3d 1025 (Fed. Cir. 1996) ....................................................................... 58, 59
`
`
`
`
`
`Poly-America L.P. v. GSE Lining Technology, Inc.,
`
`
`
`
`
`
`
`
`
`383 F.3d 1303 (Fed. Cir. 2004) ................................ ............ ......................... 38, 49
`
`ResQNet.com, Inc. v. Lansa, Inc.,
`
`
`
`
`
`
`
`594 F.3d 860 (Fed. Cir. 2010) .............. ............................................................... 61
`
`
`
`
`
`
`
`Rite Hite Corp. v. Kelley Co.,
`
`
`
`
`
`
`
`
`
`
`56 F.3d 1538 (Fed. Cir. 1995) ............................................................................. 52
`
`
`
`Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc.,
`
`
`
`
`
`
`
`620 F.3d 1305 (Fed. Cir. 2010) ...... .................................... .......... ....................... 65
`
`Springs Window Fashions L.P. v. Novo Industries L.P.,
`
`
`
`
`323 F.3d 989 (Fed. Cir. 2003) . .. ............ . ............................................................. 46
`
`Stickle v. Heublein, Inc.,
`
`
`
`
`
`
`716 F.2d 1550 (Fed. Cir. 1983) .......................................... ................................. 64
`
`
`
`
`
`VB
`
`
`
`Telemac Cellular
`
`
`
`
`247 F.3d 1316 (Fed. Cir. 2001) ......................................................................... . . 42
`
`
`
`
`
`317 F.3d 498 (5th Cir. 2003) . ............................ . .............. .... .. . ........... .......... ....... 38
`
`Water Technologies
`
`
`850 F.2d 660 (Fed. Cir. 1 988) ...................................................... . .... ................. . 49
`
`Corp. v. Topp Telecom, Inc.,
`Vargas v. Lee,
`Corp. v. Calco, Ltd.,
`v. Macke International
`
`Trade, Inc.
`Wechsler
`
`
`
`
`
`
`
`
`
`486 F.3d 1286 (Fed. Cir. 2007) ............................................ . .............................. 37
`
`Statutes
`28 U.S.C. § 1 1 31 .....................
`
`....... ..................................
`
`............ ............... .............. 1
`
`
`. ................... . .......28 U.S.C. § 1295(a) ............. . .. . . .... .............. ...........
`
`
`
`..... ..... . . ............ 1
`
`
`
`
`
`
`
`
`
`
`
`28 U.S.C. § 1338(a) ............... . ..................... . .............. . . . .. .. .................. ..... .................. 1
`
`
`28 U.S.C. § 2107(a) . ............................................. . ............... ...... . ....... ....................
`
`... 1
`
`Rules
`
`
`
`
`
`....................... . ............. 1 Fed. R. App. P. 4(a) .......... ..................... ...............................
`
`
`
`
`
`Fed. R. Civ. P. 50(a) ...................................................... . ......................................... 37
`
`
`
`VI11
`
`
`
`STATEMENT OF RELATED CASES
`
`
`
`No other appeal in or from the civil action below has been before this or any
`
`
`
`other appellate court.
`
`
`
`There is no other case in this or any other court known to directly affect or
`
`
`
`
`
`
`
`
`
`
`
`
`
`be directly affected by this Court's decision in the instant appeal.
`
`
`
`IX
`
`
`
`
`
`I. JURISDICTIONAL STATEMENT
`
`
`
`
`
`The U.S. District Court for the Eastern District of Texas had jurisdiction
`
`
`
`over the civil action giving rise to this appeal pursuant to 28 U.S.C. §§ 1331 and
`
`1338(a).
`
`
`
`
`
`
`
`
`
`The U.S. Court of Appeals for the Federal Circuit has jurisdiction over this
`
`
`
`appeal pursuant to 28 U.S.C. § 1295(a).
`
`
`
`The Notice of Appeal from the Final Judgment entered September 9, 2011
`
`
`
`
`
`
`
`(AI-3), was timely filed in accordance with 28 U.S.C. § 2107(a) and Fed. R. App.
`
`
`
`
`
`
`
`
`
`P. 4(a) on October 11, 2011. AI1250-55.
`
`II. STATEMENT OF THE ISSUES
`
`
`
`
`
`Infringement Issue 1: Did the district court err in holding that the
`
`
`
`computer instructions in SAP's software are "capable of' performing certain
`
`
`
`
`
`
`
`
`
`
`
`claimed steps (or "caus[e] a computer" to perform those steps), where the software,
`
`
`
`
`
`
`
`
`
`
`
`
`
`as shipped, cannot perform those steps without substantial modifications and
`
`
`
`
`
`
`
`additions to SAP's computer instructions?
`
`
`
`
`
`
`
`Infringement Issue 2: Did the district court err in holding that SAP's
`
`
`
`software uses "denormalized numbers" where it does not satisfy the agreed-upon
`
`
`
`
`
`
`
`definition of that term and is, in all relevant respects, identical to earlier SAP
`
`
`
`
`
`
`
`
`
`
`
`
`
`software criticized in the specification for not using denormalized numbers?
`
`1
`
`
`
`
`
`Damages Issue 1: Did the district court err in refusing to overturn a $260
`
`
`
`
`
`
`
`
`
`million lost profits award, where Versata was unable to identify even a single
`
`
`
`
`
`
`
`
`
`
`
`customer who decided not to purchase Versata's software due to the alleged
`
`
`
`
`
`
`
`infringement, Versata stopped selling its software years before the alleged
`
`
`
`
`
`infringement began, and the award was based on inconsistent market definitions
`
`
`
`
`
`and assumptions that improperly inflated the calculation?
`
`
`
`
`
`
`
`Damages Issue 2: Did the district court err in refusing to overturn an $85
`
`
`
`
`
`
`
`million reasonable royalty award that was based on the entire market value rule,
`
`
`
`
`
`
`
`
`
`where Versata's own expert agreed that not a single SAP customer ever purchased
`
`
`
`
`
`
`
`SAP's software because of the accused functionality?
`
`
`
`
`
`Injunction Issue: Did the district court err in entering an impermissibly
`
`
`
`
`
`overbroad and disproportionate injunction that not only prohibits SAP from selling
`
`
`
`
`
`
`
`
`
`the accused software to new customers, but also prohibits SAP from providing
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`maintenance or additional "seats" to existing customers, notwithstanding that those
`
`
`
`
`
`customers are already included in the damages award (and are therefore licensed),
`
`
`
`
`
`
`
`
`
`and that SAP's software contains tens of thousands of features having nothing to
`
`
`
`
`
`
`
`
`
`
`
`do with Versata's patents?
`
`III. STATEMENT OF THE CASE
`
`
`
`The $392 million judgment on appeal is among the largest in patent-law
`
`
`
`
`
`
`
`
`
`history. Given these stakes, one might assume the patents-at-issue go to the core
`
`
`
`2
`
`
`
`
`
`of SAP's expansive software offerings, which are used globally by companies,
`
`
`
`
`
`
`
`
`
`governments, and nonprofits to run every aspect of their businesses-from payroll
`
`
`
`
`
`
`
`to planning to shipping and receiving. But that is not the case.
`
`
`
`
`
`
`
`Versata's patents are directed to a very specific way to determine the price of
`
`
`
`
`
`
`
`
`
`
`
`Computerized pricing, however, was ubiquitous long
`
`
`a product using a computer.
`
`
`
`
`
`Versata's
`
`before Versata came along, including in SAP's prior-art software.
`
`
`
`
`
`
`
`patents use both a "product hierarchy" (which was known) and a "customer
`
`
`
`
`
`
`
`hierarchy" (which was known) in a very specific way to determine a price. SAP's
`
`
`
`
`
`software does not work that way.
`
`
`
`The district court found that the claimed pricing operations are not among
`
`
`
`
`
`
`
`
`
`
`
`the tens of thousands of features in SAP's highly customizable software.
`
`
`
`
`
`
`
`Nevertheless, the court found both direct and indirect infringement based solely on
`
`
`
`
`
`
`
`
`
`how the computer instructions in SAP's software were added to and modified by
`
`
`
`
`
`
`
`Versata's
`
`
`
`
`expert-not on SAP's computer instructions as sold. The court reasoned
`
`
`
`that, because Versata's expert never changed SAP's "source code," Versata's
`
`
`
`But this focus on "source
`added instructions were irrelevant to infringement.
`
`
`
`
`
`
`
`
`code" finds no basis in the claims, which require "computer instructions" or
`
`
`
`
`
`
`
`"computer program instructions." Source code is only one type of "computer
`
`
`
`
`
`instructions." And SAP's source code-without the Versata-added "computer
`
`
`
`
`
`
`
`instructions" that are not found in SAP's software as shipped-does not and cannot
`
`
`
`
`
`3
`
`
`
`It is not an act of direct
`
`practice the functionality recited in the asserted claims.
`
`
`
`
`
`
`
`
`
`
`
`infringement to sell a product capable of being modified to infringe.
`
`
`
`
`
`SAP's software likewise does not infringe because it does not contain
`
`
`
`
`
`"denormalized numbers," which the district court correctly held to be part of the
`
`
`
`
`
`
`
`
`
`"pricing information" limitation in all asserted claims.
`
`The agreed-upon definition
`
`
`
`
`
`
`
`
`
`requires that the meaning and units of a denormalized number be determined
`
`
`
`
`
`during run-time of the software, not in advance. Versata presented no evidence
`
`
`
`
`
`
`
`
`
`
`
`that the meaning and units of numbers in SAP's software are determined during
`
`
`
`
`
`
`
`run-time. To the contrary, as in SAP's prior-art software (which Versata
`
`
`
`
`
`
`
`disclaimed), the numbers' meaning and units are defined in advance, and SAP
`
`
`
`
`
`
`
`
`
`therefore cannot infringe.
`
`
`
`
`
`
`
`
`
`Nevertheless, in 2009, a jury awarded Versata a $138,641,000 royalty for
`
`
`
`infringing Versata's '350 and '400 patents despite that only Versata's expert-and
`
`
`
`
`
`
`
`
`
`
`
`no SAP customer-had modified SAP's software to enable it to perform the
`
`
`
`
`
`
`
`claimed operations. After trial, the district court held that SAP did not infringe the
`
`
`
`
`
`
`
`
`
`'400 patent as a matter of law and that Versata's damages expert's testimony
`
`
`
`violated the entire market value rule, and ordered a new trial for damages on the
`
`
`
`
`
`'350 patent.
`
`
`
`
`
`
`
`
`
`In that new trial, the district court permitted Versata to present a speculative
`
`
`
`
`
`and legally-deficient damages case, culminating in a jury verdict of $345 million.
`
`
`
`
`
`4
`
`
`
`
`
`Rather than setting that second verdict aside, the court added prejudgment interest
`
`
`
`
`
`
`
`
`
`resulting in a total award of $391,712,036. All this for a feature! that Versata's
`
`
`
`
`
`expert admitted played no role in demand for SAP's software.
`
`
`
`Finally, the court entered an injunction that is legally improper because,
`
`
`
`
`
`
`
`
`
`and additional SAP from providing maintenance once effective, it will preclude
`
`
`
`
`,,2 to customers who are already part of the damages base. It is also
`"seats
`
`
`
`
`
`improper because it prevents SAP from providing maintenance for not only the
`
`
`
`
`
`
`
`
`
`
`
`accused pricing capability, but also any of the tens of thousands of other features.
`
`
`
`
`
`
`
`
`
`The district court's injunction improperly holds SAP's software hostage based on
`
`
`
`
`
`
`
`
`
`
`
`one obscure and (admittedly) unimportant "feature."
`
`
`
`
`
`
`
`
`
`
`
`
`
`For the reasons below, the district court's judgment should be reversed.
`
`! While SAP disputes that its software, as shipped, infringes any claim, for ease of
`
`
`
`
`
`
`
`
`
`reference, it will refer to Versata's expert's additions and modifications as the
`
`
`
`"accused feature" or the "accused functionality."
`2 Each SAP customer has a certain number of seats, representing the number of
`
`
`
`
`
`
`users within the company who may use SAP's software. As explained below, the
`
`
`
`damages were awarded on a per-customer basis, so each customer in the damages
`
`
`
`
`
`base is licensed on a per-customer basis, without restriction on the number of seats
`for that customer.
`
`5
`
`
`
`IV. STATEMENT OF THE FACTS
`
`A. Versata's Patents
`
`
`
`Versata's patents (which share a common disclosure) relate to calculating a
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`price using customer ("organizational") and product data stored in hierarchies, as
`
`
`
`shown below.
`
`"-..,Fl
`CHARLIE
`u.s. - -SfAtlS- C4 __
`/ � --ERtC
`TXC::::::::=K
`�HARD DRIVE
`HAROWARE / �cpu/�:----:t:�
`CEOCRAPHr
`WORl1J\CUSTO/,([R
`FIG. 48 STOflAGE--RIW
`�FLOPPY DRIVE
`/DEVlCES
`� /FRANC[
`ADilM
`EUI?OPf-. GERAIANY<
`� frALr DAVID
`
`'-.......PfN;;;;;---'-486/66
`.----SMALL
`___ ::�M
`SIZE
`.--lftlLlTY
`FIG. 4A
`� �.AINffNANC[
`ALL PflOIJUCTS
`SOtrw#l£ -:------/iPP/JflATION
`�OPENArII«J
`SYSffM
`RtsflL£�:!./
`TYP�VAR ............
`SUPPORT - CONSULTING
`CHMUF
`"- ENO-US£f(
`CUSTOMER
`-----lIf'CRAOCS
`
`Customer Hierarchy
`
`Product Hierarchy
`
`
`
`A448 (4:24-27). The pnor art-which also used customer and product
`
`
`
`
`
`
`
`hierarchies-calculates a pnce by retrieving information from one node of a
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`hierarchy at a time (a technique referred to at trial as "classical access") (A4048-
`
`
`
`
`
`49), whereas the patents' invention retrieves information from the entire hierarchy
`
`
`
`
`
`
`
`
`
`
`
`at once (i.e., "hierarchical access") (A456 (19:7-22); A4048-49).
`
`
`
`
`
`Although the phrase "hierarchical access" was used at trial as "shorthand"
`
`
`
`
`
`for the inventions (A3228), the asserted claims do not cover all ways of using
`
`
`
`6
`
`
`
`
`
`"hierarchical access." Rather, the claims are limited to an apparatus that uses
`
`
`
`
`
`
`
`
`
`
`
`hierarchical access to retrieve pricing data from both a customer hierarchy and a
`
`
`
`
`
`
`
`
`
`product hierarchy to determine a single price. A456 (19:7-22); A456-57 (20:66-
`
`
`
`
`
`
`
`
`
`
`
`21:29); A457 (21:61-22:35); A3277-83; A3136; A4048-49; A3526.
`
`
`
`
`
`1. The '400 Patent
`
`
`
`Versata asserted infringement of independent claim 31 and dependent claims
`
`
`
`
`
`
`
`
`
`
`
`
`
`35 and 36. A163. Each requires "computer readable program code configured to
`
`
`
`
`
`cause a computer to" perform a specific set of claimed operations, including
`
`
`
`
`
`
`
`
`
`
`accessing both customer and product hierarchies.
`A540 (23: 10-52,23:62-67).
`
`
`
`After the first trial, the district court granted JMOL of noninfringement because
`
`
`
`
`
`
`
`
`
`Versata presented no evidence that SAP's program instructions, as shipped, were
`
`
`
`
`
`
`
`so configured.
`
`2. The '350 Patent
`
`
`
`
`
`Versata asserted infringement of independent claim 29 and dependent claims
`
`
`
`
`
`
`
`
`
`
`
`26 and 28. A163. Like the "configured to" limitation in the '400 patent, claims 26
`
`
`
`
`
`
`
`
`
`and 28 require "computer instructions to implement" the claimed operations, which
`
`
`
`the parties agreed means "computer instructions causing a computer to
`
`
`
`
`
`
`
`implement." A457 (21 :61-62,22: 13-14); A10006; A155. Claim 29 requires
`
`
`
`
`
`
`
`
`
`"computer program instructions capable of' performing specific claimed
`
`
`
`7
`
`
`
`
`
`operations, including determining a pnce usmg hierarchical access of both
`
`
`
`
`
`
`
`
`
`customer and product hierarchies:
`
`
`
`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
`
`that is
`pricing information
`
`
`
`(i) applicable to the purchasing organization and (ii) from
`
`
`one or more identified organizational groups,
`within a
`groups, of which the
`hierarchy of organizational
`
`
`purchasing organization is a member;
`
`retrieving from the data source
`
`that is
`pricing information
`
`
`
`(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 usmg
`
`
`
`
`
`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.
`
`
`
`software must have A457 (22: 15-35)(emphases added). Thus, to infringe,
`
`
`
`
`
`
`
`
`
`"computer program instructions capable of' performing hierarchical access of both
`
`
`
`
`
`
`
`
`
`customer ("organizational") and product hierarchies to determine a price.
`
`
`
`
`
`
`
`A second requirement of the asserted claims is using "denormalized
`
`
`
`
`
`
`
`pricing limitation. To process numbers," which is part of the "pricing information"
`
`
`
`
`
`8
`
`
`
`
`
`information, the software must know what units and meaning to apply to retrieved
`
`
`numbers.
`
`
`
`For example, the software must know whether a number-say "10"-
`
`
`
`
`
`
`
`means a price adjustment of "ten dollars" or "ten percent." In explaining what
`
`
`
`
`
`
`
`
`
`"denormalized" means, the patent distinguishes prior art, including SAP's prior-art
`
`
`
`
`
`
`
`
`
`numbers are "RJ3" software, in which the meaning and units of the pricing-related
`
`
`
`
`
`determined by the user during data entry. Repeatedly, the patent emphasizes that
`
`
`
`
`
`the "invention" leaves the meaning and units to be determined by the software's
`
`
`
`
`
`
`
`"interpretation engine" "during run time":
`
`of the value of Xl is determined
`
`According to the present invention, the particular
`
`
`treatment
`during run
`time. In other words, the numbers in the prior art tables
`
`
`are "abstracted" and stored as a denormalized number . . .
`
`and the interpretation of the numbers are left to the
`
`
`
`interpretation engine of the present invention. This
`
`
`dynamic interpretation of abstracted numbers during run
`
`
`time . .. is in contrast to the static nature of the prior art
`
`pricing systems.
`
`
`
`
`
`A452 (11:17-28); see A450-51 (8:49-9:4); A452 (11:51-57); A454 (15:14-19);
`
`
`
`A1111; A1154-57.
`
`
`
`Based on the patent's emphasis on the data entry versus run-time distinction
`
`
`
`
`
`
`
`
`
`
`
`
`
`as central to the "invention," and the disavowal of prior art (including RJ3) in
`
`
`
`which meaning and units were defined during data entry, the district court
`
`
`
`
`
`construed "pricing information" to require denormalized numbers. Consistent with
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`the patent's definition, the parties stipulated that a "denormalized number" is
`
`
`
`9
`
`
`
`a number, used as a price adjustment, that does not have
`
`
`fixed units and may assume a different meaning and
`
`
`
`
`different units depending on the pricing operation that is
`
`
`
`being performed; the specific units to be associated with
`
`the number, and how the number will be applied, are
`
`determined during "run time" --the time that the system
`
`
`
`uses the pricing adjustment data to determine the price of
`
`
`
`the product offered to the purchasing organization.
`
`
`
`AI0005; see A450-51 (8:49-9:4); A452 (11:17-28); A452 (11:51-57); A454
`
`
`
`
`(15:14-19).
`
`The key point for this appeal is that the number's meaning and units
`
`
`
`not during data entry.
`must be determined during run-time,
`
`B. SAP's Software
`
`
`
`1. SAP's ERP and CRM Business Solutions
`
`
`
`SAP's software (Enterprise Resource Planning ("ERP") and Customer
`
`
`
`
`
`
`
`
`
`
`
`Relationship Management ("CRM"» runs most processes of large, medium, and
`
`
`
`
`
`
`
`small businesses, including, for example, financials, accounting, materials
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`management, procurement, supply-chain planning, human resources, pricing, etc.
`
`
`
`A5610-11; AI083; A1283; AI326-27.
`
`
`
`In October 1998, SAP released a new version of its software that included,
`
`
`
`
`
`
`
`
`
`among many other new features, the ability to use "hierarchical access." A1919;
`
`
`
`
`
`
`
`A5612-26; A4156-57. As illustrated below, hierarchical access is a subcomponent
`
`
`
`
`
`
`
`
`
`of a subcomponent, located under five tiers of functionality, and is one of tens of
`
`
`
`
`
`
`
`
`
`thousands of features in SAP's software. A2043-49; A4087; A3212-13.
`
`
`
`10
`
`
`
`PR Special Pricing Functions
`
`Special Pricing Functions
`
`- Promotional pricing agreements
`
`
`- Customer expected prioe
`- Cost
`- Gross prices
`
`- Condition exclusion
`- Variant conditions
`- Mnimum order value
`- Sales order costing in pricing
`
`- Duplicate conditions
`- Cumulating conditions
`- Group cond\llons
`- Pellet discounts
`
`-Hierarchical AccHSes
`
`for sales deals
`
`- Data determination in access
`
`- Data determination using a communication structure
`
`
`- Data determination using routines
`- Data determination
`- Prioe book
`
`- Condition interchange
`- Idocs and condition technology
`- Outbound prooessing
`- Inbound p rooessing
`
`- Distribution scenarios
`- Customizing
`
`- Customer exits
`
`DDX·630
`
`�I
`
`
`
`
`
`Like SAP's other solutions, pricing is a flexible platform that businesses
`
`
`
`
`
`
`
`customize in myriad ways to support their specific needs. To facilitate
`
`
`
`
`
`
`
`"condition technique."
`
`
`
`The condition technique,
`
`illustrated
`
`
`
`pricing-to customize
`
`
`
`complex business rules.
`
`11
`
`
`
`
`
`customization, SAP provides a broad set of flexible tools