Client Alert

How Much Did the Federal Circuit Narrow Eligibility for Covered Business Method Review?

23 Nov 2016

Earlier this week, the Federal Circuit narrowed the types of patents eligible for covered business method (CBM) review.  In Unwired Planet, LLC v. Google Inc., Case No. 15-1812, (Fed. Cir. Nov. 21, 2016) (“Unwired Planet”), the court found that the Patent Trial and Appeal Board (PTAB) exceeded its authority in permitting CBM review for patents with claims that are “incidental to a financial activity” or “complementary to a financial activity.”  The court’s decision narrows what patents are eligible for CBM review, and the court provided some guidance for future cases seeking to determine whether a patent falls within the statutory definition of a CBM patent.  This decision apparently raises the bar for CBM eligibility but does not resolve the existing split among PTAB panels regarding the proper standard for CBM eligibility.

Background

The America Invents Act (AIA), § 18 established a review program for CBM patents, with a CBM patent defined 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.[1]
Section 18 also excludes patents from being CBM patents if they are for technological inventions.[2] 

To implement AIA, § 18, the USPTO promulgated extensive rules for the CBM review program, including rules for determining whether a patent is eligible for CBM review.  In defining what constitutes a CBM patent, the USPTO’s regulation restates the statutory definition reproduced above. [3] 

In practice, to determine CBM eligibility, the PTAB at times relied on a USPTO policy statement, which in turn relied on legislative history, to interpret the statutory CBM patent definition “to encompass patents ‘claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.’”[4]

In Unwired Planet, a claim of the patent-at-issue recited a “client application,” which the specification stated could be “associated with a service provider or a goods provider, such as a hotel, restaurant, or store, that wants to know a wireless device is in its area so relevant advertising may be transmitted to the wireless device.”[5]  Based on the above disclosure, a PTAB panel concluded that at least one claim of the patent-at-issue was “incidental or complementary to the financial activity of service or product sales.” [6] 

The Federal Circuit’s Decision

In vacating the PTAB’s CBM-eligibility decision, the Federal Circuit found that neither the USPTO’s policy statement nor the legislative history gave the PTAB the authority to apply a CBM-eligibility standard that merely required claims to be “incidental to a financial activity” or “complementary to a financial activity.”  First, the court stated that the PTAB was relying on a single floor comment during a Senate debate over the AIA.[7]  By itself, this single legislator’s statement was insufficient support for the PTAB’s interpretation of the definition of a CBM patent. Rather, the court noted that there was some disagreement among legislators about CBM eligibility.

Second, the court stated that the USPTO failed to adopt its policy statement through the rulemaking process.[8]  The court suggested, moreover, that even a properly promulgated version of that rule would be inappropriate, as it “was not in accordance with the law” and “[t]he Board’s application of” this standard from the USPTO policy statement, instead of the statutory language, was incorrect.[9] 

Finally, in its clearest guidance regarding CBM-eligibility, the Federal Circuit stated that CBM eligibility cannot be based only on the fact that a patent’s “practice could involve a potential sale of a good or service,” even if “the specification speculates such a potential sale might occur.”[10]  To apply the statute otherwise, the Federal Circuit reasoned, “renders superfluous the limits Congress placed on the definition of a CBM patent.”[11]

Significance of the Decision

The Federal Circuit made it clear that the PTAB’s application of the “incidental to a financial activity” or “complementary to a financial activity” standard in Unwired Planet overstepped the PTAB’s authority.  Without more, the contemplation or possibility of product or service sales is insufficient to render a patent CBM-eligible.  Beyond that, the court’s decision does little to provide guidance about whether a patent “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.”

For example, there is still a significant question of what kind of financial details must exist within the patent claims themselves in order to constitute “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.”  Different PTAB panels, and even different Administrative Patent Judges on the same panel, are currently deciding this issue differently.  As an example, in Mirror Worlds,[12] the claims were directed to a system for managing personal electronic information.  The claims themselves were agnostic as to the type of electronic information.  The specification, however, stated that one application of the invention was to personal financial information.  Two panel members found this to be sufficient for CBM eligibility.[13]  One panel member found the opposite.[14] 

Additionally, the impact of future USPTO rulemaking on the CBM-eligibility standard is unknown.  In the context of the CBM review program, the Federal Circuit recognizes that the USPTO is entitled “to substantial deference in how it defines its mission.”[15]  Interestingly, in both Versata and Unwired Planet, the Federal Circuit has noted how it would be helpful if the USPTO were to use its rulemaking authority to “elaborate on its understanding of the [CBM patent] definition provided in the statute.”[16] 

We will have to wait and see, however, whether the USPTO follows the Federal Circuit’s suggestion to use its rulemaking and how the PTAB decides the CBM-eligibility question again in this case on remand.  In the meantime, when addressing CBM-eligibility, petitioners and patent owners will have to focus on the statutory language instead of the USPTO’s policy statement.



[1] § 18(d)(1).

[2] § 18(d)(2).

[3] 37 CFR § 42.301(a).

[4] Transitional Program for Covered Business Method Patents—Definitions of Covered Business Method Patent and Technological Invention, 77 Fed. Reg. 48,734, 48,735 (Aug. 14, 2012) (response to comment 1, citing 157 CONG. REC. S5432 (daily ed. Sept. 8, 2011) (statement of Sen. Schumer)) (emphasis added).

[5] Google Inc. v. Unwired Planet, CBM2014-0006, Paper 11, 10 (April 8, 2014).

[6] Id. at 11.

[7] Unwired Planet at 8-9.

[8] Id. at 10.

[9] Id. at 12. 

[10] Id

[11] Id.

[12] Apple Inc. et al.  v. Mirror World Technologies, LLC, CBM2016-0019, Paper 12 (May 26, 2016) (“Mirror Worlds”).

[13] Id. at 6-9.

[14] Id. at 20-22.

[15] Versata Development Group v. SAP America, Inc., 793 F. 3d 1306, 1325 (Fed. Cir. 2015).

[16] Id.; Unwired Planet at 7.

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