Federal Circuit Narrows Availability of CBM Patent Review

Ballard Spahr LLP

Ballard Spahr LLP

In a key decision that both patent owners and accused infringers need to be aware of, the U.S. Court of Appeals for the Federal Circuit has significantly narrowed the availability of "covered business method" (CBM) patent review. Since its first use in 2012, CBM review has become an important tool for accused infringers. As compared with other Patent Office procedures, patents that are eligible for CBM review can be challenged on a greater variety of grounds, and those challenges meet with a greater rate of success. The likely result of the Federal Circuit's decision in Unwired Planet, LLC v. Google Inc. will be a significant reduction in the number of patents that are eligible for this powerful procedure.

By statute, CBM review is limited to patents that claim certain aspects of a financial product or service. The U.S. Patent and Trademark Office's (USPTO) interpretation of that standard has varied over the past four years, ranging from a very broad interpretation in which the use of financial examples in the patent's description can be enough to qualify a patent for CBM review, to more recent decisions requiring the patent to claim a financial service, or "activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity."

In Unwired Planet, the Federal Circuit held that a claimed invention must be more than merely incidental or complementary to a financial activity to qualify for CBM review. Rather, only patents 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" are eligible for CBM review. The Federal Circuit rejected the USPTO's "incidental to" or "complimentary to" a financial activity test—which arose from comments made by U.S. Senator Chuck Schumer on the Senate floor during debate over the America Invents Act—as being inconsistent with the language of the statute. Reasoning that a "novel light bulb that is found to work particularly well in bank vaults" would not qualify for CBM review merely because of its incidental or complementary use in banks, the Federal Circuit remanded the case to the USPTO with directions to revisit the institution decision under the proper standard.

The Unwired Planet decision will likely reduce the variability in the USPTO's CBM institution decisions, and it will also reduce the likelihood that a given patent will be CBM eligible. Although it remains to be seen exactly how the USPTO will proceed under the new standard, it is highly likely that Unwired Planet will close the door to CBM review, at least for some patents. According to the USPTO, just more than half of all petitions for CBM review result in institution. Under the new standard, we anticipate that number will fall, and we also anticipate fewer accused infringers will seek CBM review.

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.

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