Narrowing Jurisdiction in Covered Business Method Proceedings

by McDonnell Boehnen Hulbert & Berghoff LLP
Contact

In 1998, the United States Court of Appeals for the Federal Circuit decided State Street Bank & Trust Co. v. Signature Financial Group, Inc., which upheld the patentability of business methods in the United States.[1] Since then, an increasing number of business method patent applications have been filed at the United States Patent & Trademark Office (USPTO).

Thirteen years and thousands of issued business method patents later, Congress enacted the transitional program for post-grant review of covered business method (CBM) patents by the Patent Trial and Appeal Board (PTAB or Board) in the America Invents Act (AIA) of 2011. CBM reviews took effect in September 2012 to adjudicate the validity of a so-called business method patent in lieu of district court litigation. However, since enactment of the CBM procedure, there have been many issues with the process, including non-uniformity in PTAB rulings as to whether the challenged patent qualifies as a covered business method, i.e., whether the patent at issue claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service. Although the PTAB has instituted CBM trials for patents that do not facially qualify as business method patents, recent Federal Circuit decisions have required a more strict reading of the AIA statute in instituting CBM trials.

What are CBMs?

CBMs are challenges to review the patentability of one or more claims in a “covered business method” patent. A CBM proceeding is a trial proceeding conducted at the PTAB that employs standards and procedures of a post-grant review, with certain exceptions. This is a transitional program for covered business method patents (TPCBM) because the procedure took effect September 16, 2012, but will sunset for new TPCBM petitions on September 16, 2020 (existing petitions/trials will continue to completion).

CBMs are one of the three post-grant proceedings enacted by the AIA, with the other two being Post Grant Reviews (PGRs) and Inter Partes Reviews (IPRs). IPRs and CBMs have various differences, but one key distinction is that CBMs permit petitioners to challenge claims under 35 U.S.C. §101, whereas such challenges are not allowed in IPR proceedings. Thus, CBM challenges typically include a patentable eligibility subject matter challenge.

Below is a timeline for a typical CBM proceeding. Notably, following institution of the trial, the PTAB will typically issue a final written decision within 12 months.

Standing for Instituting a CBM Proceeding

A Petitioner must have standing to institute the CBM proceeding under 37 C.F.R. § 42.302, including that the patent for which review is sought must be a CBM patent. Much controversy surrounds the inquiry of whether the patent qualifies as a CBM patent. The AIA defines a CBM patent as “[a] patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.”[2]

Various petitioners have argued that this definition was drafted to encompass patents “claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.”[3] So, how broad is this definition?

The statute indicates that the focus is on the claims, and PTAB decisions have indicated that with respect to the “financial prong,” the question is to determine whether challenged claims recite a method of general utility vs. specific financial utility.[4] When claims recite a specific financial utility, the PTAB has found the patent satisfies this financial prong. In a CBM proceeding, claim terms are interpreted according to their broadest reasonable interpretation (BRI) in light of specification, and under the BRI standard (absent any special definitions) claim terms are given their ordinary and customary meaning as would be understood by one of ordinary skill in the art in the context of the entire disclosure. So, while the focus is on the claims, the specification should be reviewed as well. CBM patent review is not available for patents that claim generally useful technologies that also happen to be useful to financial applications.[5] Simply put, the mere ability to use a claimed invention in a financial context, standing alone, does not require finding that financial prong has been met. The fact that the specification may describe invention as capable of being used for commercial purposes does not mean that claims are limited to such applications.[6]

Turning to recent CBM decisions, the PTAB has given some guidance. For instance, saving money is not considered a financial activity sufficient to confer CBM standing.[7] Virtually every patented invention is intended to confer a financial benefit on its user, and so, the CBM statute cannot be read to be this broad.[8] As another example, generating revenue is also not considered a financial activity sufficient to confer CBM standing.[9] If ability to make money selling a claimed invention, or providing access to a claimed method, were sufficient, the “financial product or service” requirement would be rendered useless.[10]

Referring back to definition of a CBM patent, there is an exception provided by the AIA. CBM patents, by definition, do not include patents for “technological inventions.”[11] The USPTO has further defined “technological invention” rather circularly, namely that: (1) the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art, and (2) solves a technical problem using a technical solution.[12] To demonstrate that the technological exception applies, and thus, the patent is ineligible for CBM review, a patent owner may identify that a specific technical implementation of the claimed invention solves a technical problem, and not merely a business problem. The USPTO has issued a patent trial practice guide which provides examples that invoke the exception:

(a) A patent that claims a novel and non-obvious hedging machine for hedging risk in the field of commodities trading.

(b) A patent that claims a novel and non-obvious credit card reader for verifying the validity of a credit card transaction.[13]

Post-Grant Proceeding Statistics

As of this past winter (2016), there have been approximately 476 CBM petitions filed.[14] Among those petitions, 215 trials were instituted.[15] Thus, petitioners were about 54% successful in instituting a trial. When a trial was instituted, however, 82% of those trials resulted in all claims being found unpatentable.[16] Why such high rates of claims being found invalid? The change in application of 35 U.S.C. § 101 relating to patentable subject matter is the main cause.

Moreover, there has been non-uniformity in the interpretation of the AIA statute within PTAB rulings. Some PTAB decisions find that if the claim is in any way related to financial activity, then the patent is eligible for CBM review. Other PTAB decisions require that the claim include specific limitations that make it clear that the invention is financial in nature. Why do we have such varying PTAB decisions? One potential reason is that the makeup of the PTAB has changed in the past four years, increasing in size from about 75 judges to over 225 judges today. The increase in the number of judges lends itself to an increase in variance of opinion in interpreting and applying the AIA statute. In addition, there are few binding or precedential PTAB decisions, namely, only 35 total of which three are based on CBM decisions. All three precedential CBM decisions are procedural in nature, thereby providing little guidance for substantive CBM issues.

Recently, though, the Federal Circuit issued a decision in Unwired Planet, LLC v. Google Inc., in which the Federal Circuit vacated the Board’s finding that the patent was patent ineligible under 35 U.S.C. § 101 because the PTAB used an overbroad definition in evaluating whether the challenged patent was eligible for CBM review.[17] The Board stated that the proper inquiry “is whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.”[18] However, this “incidental” or “complementary” language is not found in the AIA statute. The Federal Circuit noted that the Board’s application of the “incidental to” and “complementary to” language from a PTO policy statement renders superfluous the limits Congress placed on the definition of a CBM patent.[19] CBM patents are limited to those that claim “a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.”[20] The Federal Circuit elaborated with a few examples, namely, that a patent for a novel lightbulb that is found to work particularly well in bank vaults does not become a CBM patent because of its incidental or complementary use in banks, and likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service.[21]

Thus, following the Federal Circuit’s decision, determining whether a patent is a CBM patent will no longer rely on whether a patent claims activities “incidental to” or “complementary to” a financial activity. This decision should cause the Board to focus more closely on specific claim language itself to only institute CBM review for actual business method patents that do not claim a technological invention.


[1] 149 F.3d 1368 (Fed. Cir. 1998).

[2] AIA § 18(d)(1).

[3] Office Patent Trial Practice Guide, 77 Fed. Reg. 48,374, 48,735 (Aug. 14, 2012) (quoting 157 Cong. Rec. S5432 (daily ed. Sept. 8, 2011)).

[4] Office Patent Trial Practice Guide, 77 Fed. Reg. 48,734, 48,736 (Aug. 14, 2012).

[5] AT&T Mobility LLC v. Intellectual Ventures II LLC, CBM2015-00185 (May 4, 2016).

[6] Qualtrics, LLC v. Opinionlab, Inc., CBM2016-00003 (April 13, 2016).

[7] BMC Software Inc. v. zIT Consulting GMBH, CBM2016-00044 (August 23, 2016).

[8] Id.

[9] CoreLogic, Inc. v. Boundary Solutions, Inc., CBM2016-00017 (May 24, 2016).

[10] Id.

[11] See 37 C.F.R. § 42.301(a) (“Covered business method patent means a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.”).

[12] 37 C.F.R. 42.301(b).

[13] Patent Trial Practice Guide, 77 Fed. Reg. 48,756, 48,763-64 (Aug. 14, 2012).

[15] Id.

[16] Id.

[17] 841 F.3d 1376 (Fed. Cir. 2016).

[18] Unwired Planet, LLC v. Google Inc., CBM2014-00006 (April 8, 2014).

[19] Unwired Planet, LLC v. Google Inc., 841 F.3d 1376, 1382 (Fed. Cir. 2016).

[20] AIA § 18(d).

[21] Unwired Planet, LLC v. Google Inc., 841 F.3d 1376, 1382 (Fed. Cir. 2016).

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McDonnell Boehnen Hulbert & Berghoff LLP | Attorney Advertising

Written by:

McDonnell Boehnen Hulbert & Berghoff LLP
Contact
more
less

McDonnell Boehnen Hulbert & Berghoff LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!