Typical "Business Method Patent" Struck Down by PTAB using CBM Review

On February 16, 2016, the USPTO Patent Trial and Appeal Board (PTAB) issued a final written decision in the Covered Business Method (CBM) patent review between E-Loan, Inc. and IMX, Inc. in which all challenged claims were found to be drawn to a patent ineligible abstract idea.

E-Loan filed a Petition seeking CBM review of U.S. Patent No. 5,995,947, which describes a method and system for making loans, such as mortgages.  Figure 1, reproduced below, shows that brokers use broker stations 120 to transmit loan profiles to a transaction server 110, thereby entering those loan profiles into system 100 for processing, to review the status of loan profiles as they are processed by system 100, to receive and review bids by lenders on loan profiles, and to accept or decline bids.  Lenders use lender stations 130 to search database 111 for desired types of loans, to sort selected loans by particular desired criteria, bid on loan applications, and to receive notice when their bids are accepted.  The transaction server 110 enters loan profiles into trading system database 111 in response to requests from broker stations 120, searches the trading system database in response to requests from lender stations 130, and modifies trading system database 111 in response to changes in status of loan profiles stored therein.  The transaction server 110, broker station 120, and lending station 130 all comprise general purpose processors.

Claims 7, 8, 26, and 27 were challenged, and claims 1, 7, and 8 are illustrative and reproduced below.

1.  A method for processing loan applications, said method including the steps of maintaining a database of pending loan applications and their statuses at a database server, wherein each party to a loan can search and modify that database consistent with their role in the transaction by requests to said server from a client device identified with their role.

7.  A method as in claim 1, wherein
    said roles include a lender and said client device includes a lender station associated with at least one said lender; and
    said lender can search the database for particular desired types of loans, and can bid on loan applications.

8.  A method as in claim 7, wherein said lender is notified when its bid is accepted.

CBM Patent?

A "covered business method patent" is a patent that claims a method or a corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except the term does not include patents for technological inventions.

To determine whether a patent is eligible for a covered business method patent review, the focus is on the claims.  A patent need have only one claim directed to a covered business method to be eligible for review.

1.  Financial Product or Service

The PTAB found that claims 1 and 7 meet the first part of the covered business method requirement because they cover a method of processing loan applications and data processing used in the practice, administration, or management of a financial product or service.  Loans are clearly financial products because they are agreements between two parties stipulating the movement of money or other consideration.

2.  Technological Invention Exception

The definition of a "covered business method patent" excludes patents for "technological inventions."  When determining whether a patent is for a technological invention, the PTAB considers whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.

The PTAB noted that the technological invention exception does not result from (a) mere recitation of known technologies, (b) reciting the use of known prior art technology to accomplish a process or method, or (c) combining prior art structures to achieve the normal, expected, or predictable result of that combination.

E-Loan contended that the challenged claims solve a commercial or business problem of making loan processing less expensive, rather than a technical problem and do so with known technologies.  The PTAB noted that the purpose of the '947 patent was to eliminate the paper-intensive process through automation to provide widespread dissemination of loan applications and lending program information for automatic comparison in real time.  Such automation using known computer technologies does not result in a technical solution to a technical problem.

Further, the challenged claims recite the use of known computer hardware and software technologies such as a "database," "database server," "transaction server," and "client device/lender station" to accomplish loan processing.

IMX did not oppose E-Loan's contentions that the claims lack a technological invention.  Thus, claims 1 and 7 do not recite a technological invention, and therefore, the '947 patent is eligible for covered business method patent review.

3.  Constitutionality of CBM Review

IMX challenged the CBM as being unconstitutional, and argued that issued patents are no longer under the jurisdiction of the U.S. Patent and Trademark Office ("USPTO") and may be set aside, annulled, or corrected only by the courts of the United States, not by the USPTO or PTAB.  IMX argued that post-grant proceedings to invalidate patents deprive patent owners of due process and invade the province of Article III courts.

The PTAB noted the recent decision of the Federal Circuit in MCM Portfolio LLC v. Hewlett-Packard Co., No. 2015-1091, 2015 WL 7755665 (Fed. Cir. Dec. 2, 2015), which held that Congress can grant authority to the USPTO to correct or cancel issued patents.  Congress has done so by creating inter partes reexamination proceedings, ex parte reexamination proceedings, inter partes review, post-grant review, and covered business method patent review.

CBM Review

The sole ground of unpatentability asserted by E-Loan was under 35 U.S.C. § 101.

The PTAB followed the framework from the Alice decision for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.  First, it must be determined whether the claims at issue are directed to a patent-ineligible concept.  Second, the elements of each claim must be considered both individually and as an ordered combination to determine whether the additional elements transform the nature of the claim into a patent-eligible application.

1.  Abstract Idea

E-Loan argued that the challenged claims are directed to the abstract idea of managing a loan application, and that all limitations of the challenged claims can be and have been performed for years by humans using pen and paper, e.g., by placing a stack of loan applications in a drawer, searching and modifying the applications, sorting loan applications by lenders who bid on applications, and providing notice of bids.  E-Loan asserted that the '947 patent describes this conventional loan process performed by hand and describes the invention as automating this process with computers.

The PTAB agreed with E-Loan and found that each of the challenged claims is directed to a fundamental economic or longstanding commercial practice of loan processing.  The '947 patent describes the conventional loan processes as involving large amounts of information that must be collected, compared, evaluated, and disseminated among parties to a transaction so lenders can offer loans at competitive rates.  Claim 1 automates this known method and system of processing loan applications by maintaining a database of pending loan applications and their statuses at a database server where each party to a loan can search and modify that database consistent with their role in the transaction by requests to the server from client devices.

The Specification itself discloses the invention as an advantageous method and system for automating loan applications.

2.  Significantly More?

IMX argued that an online auction platform for brokers to solicit lender bids was revolutionary, and that the challenged claims do not preempt the concept of managing a loan process.  Further, IMX contended that the Petition does not allege that "searching the database for particular desired types of loans" is a purely conventional function.

The PTAB noted that mere existence of a non-preempted use of an abstract idea does not prove that a claim recites patent-eligible subject matter, and that searching a database of pending loans and bidding on loan applications is conventional.  Further, claiming a database server of pending loan applications that parties can search and modify, a transaction server, and a lender station does not transform this abstract idea into patent-eligible subject matter.  The claimed computers merely automate conventional loan processes performed by hand using pen and paper forms, as discussed above.

Moreover, IMX's arguments that the challenged claims reverse the rate sheet technique of conventional loans by allowing brokers to solicit lenders to bid for borrowers' mortgages using the online auction platform was not found persuasive.  In conventional processes, lenders bid on loan applications they received from brokers, and the challenged claims recite lenders bidding on loan applications.

Merely combining an abstract idea like a reverse auction with conventional loan processing does not create an inventive step by itself.

The PTAB also noted that claim 19's responsiveness in "real time" adds nothing significant.  It is an attempt to capture the general nature of computer processing.  The '947 patent discloses "real-time" processing involving receipt of "real time quotes for 10 year Treasury notes, 30 year Treasury bonds, DJIA (Dow Jones Industrial Average), and NSDQ (National Securities Dealers Quotes)."  Claim 19 recites only that transaction server responds in real time to requests to search and modify the database.  The challenged claims do not recite any "real-time trading" at the database.

Thus, the PTAB concluded that the challenged claims do not recite an inventive concept, and therefore, the claims are drawn to a patent ineligible abstract idea.

The PTAB noted that the challenged claims did not recite a method or system where brokers solicit bids from multiple lenders, but rather that a lender at a lender station "can search" a database of loan applications and bids on loan applications (claim 7).  Had the claims recited more details distinguishable from conventional practices of lenders receiving loan applications from a broker, evaluating the applications, and responding to brokers with an offer of a loan, then the claims may have had a chance to survive the section 101 challenge.

This patent is representative of typical "business method" patents that were granted by the USPTO, say between 2000-2010.  During that time period, as a patent applicant, you could expect to receive a patent on such arguably "new" business method services, or financial services, as automated by computers/Internet that provided additional functionality.  Following the AIA legislation, these types of patents are all but dead, or at least subject to a high risk of being found invalid under the CBM review put in place for the purpose of killing these patents.

E-Loan, Inc. v. IMX, Inc. (PTAB 2016)
Before James P. Calve, Matthew R. Clements, and Brian P. Murphy,  Administrative Patent Judges.
Final Written Decision by James P. Calve