In November of last year, 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), 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 narrowed what patents are eligible for CBM review, and 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 in deciding the same.
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.
Section 18 also excludes patents from being deemed CBM patents if they are for technological inventions. §18(d)(2).
To implement AIA, §18, the United States Patent and Trademark Office (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. 37 CFR §42.301(a).
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.’” 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).
In Unwired Planet, a claim of the patent-at-issue, reproduced below, recited a “list of client applications.”
1. A system for controlling access to location information generated for wireless communications devices, comprising:
a first memory configured for storing at least one privacy profile for at least one subscriber wireless communications device, wherein the privacy profile includes:
identification information for the at least one wireless communications device,
a list of client applications that are permitted to receive the location information for the at least one wireless communications device, and
a permission set for each of the client applications in the list of client applications, wherein the permission set comprises at least one of a temporal limitation on access to the location information or a spatial limitation on access to the location information; and
a first interface accessible over a data network which is configured to access, retrieve and provide the location information for the at least one wireless communications device to the client application wherein prior to provision of the location information the first interface is further configured to access the privacy profile of the at least one wireless communications device in the first memory and, based on an analysis of the list of client applications that are permitted to receive the location information, provide the location information in a manner specified in the profile, which includes but is not limited to denying access to the location information.
U.S. Patent No. 7,203,752, Claim 1 (emphasis added).
The specification stated that the “client application” 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.” Google Inc. v. Unwired Planet, CBM2014-0006, Paper 11, 10 (April 8, 2014). 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.” Id. at 11.
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. Unwired Planet, at 8-9. 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 Federal Circuit stated that the USPTO failed to adopt its policy statement through the rulemaking process. Id. at 10. 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. Id. at 12.
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.” Id. To apply the statute otherwise, the Federal Circuit reasoned, “renders superfluous the limits Congress placed on the definition of a CBM patent.” Id.
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. See, e.g., Mudge, B., Kasnevich, A., PTAB Is Inconsistent On Qualifications For CBM Review (registration required).
Several PTAB panels have made CBM institution decisions since Unwired Planet. Universally, the panels have avoided the “incidental to a financial activity” or “complementary to a financial activity” standard. Additionally, at least one panel has denied CBM based in part on Unwired Planet. See, Kayak Software Corp. et al. v. IBM Corp., CBM2016-00078, Paper 15, 9 (Dec. 15, 2016). We will have to wait, however, to find out if Unwired Planet causes a significant drop in CBM review institution rates.
In addition to affecting future PTAB institution decisions, Unwired Planet will likely impact some of the CBM appeals currently pending at the Federal Circuit. For example, one interesting appeal to watch for is Secure Axcess, LLC v. PNC Bank National Association, Case No. 16-1353. In Secure Axcess, PNC Bank National Association filed a CBM petition against Secure Axcess’s patent. Claim 1 of Secure Axcess’s patent recites:
A method comprising:
transforming, at an authentication host computer, received data by inserting an authenticity key to create formatted data; and returning, from the authentication host computer, the formatted data (i) to enable the authenticity key to be retrieved from the formatted data and (ii) to locate a preferences file,
wherein an authenticity stamp is retrieved from the preferences file.
U.S. Patent No. 7,631,191, Claim 1.
Like Claim 1, none of the dependent claims expressly recites financial terms or limitations. In instituting the CBM review in 2014, the PTAB relied on the “incidental to a financial activity” or “complementary to a financial activity” standard that the Federal Circuit struck down in Unwired Planet. PNC Bank, National Association v. Secure Axcess, LLC, CBM2014-00100, Paper 10, 13 (Sept. 9, 2014). The PTAB also relied on the specification’s statements that the claimed authentication method can be used for accessing financial information and the fact that Secure Axcess had asserted the patent against several financial institutions. Id. at 14-15. Notably, the PTAB’s institution decision did not rely on any potential sales associated with the claimed invention, which the Federal Circuit held was insufficient for CBM eligibility in Unwired Planet. Thus, any decision from Secure Axcess may give more guidance on what is required for a patent to be eligible for CBM review (e.g., whether, the specification can be relied upon to show that “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”).
Future USPTO rulemaking could also shift CBM review eligibility. 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.” Versata Development Group v. SAP America, Inc., 793 F. 3d 1306, 1325 (Fed. Cir. 2015). Interestingly, in both Versata and Unwired Planet, the Federal Circuit 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.” Id.; Unwired Planet at 7. We will have to wait and see, however, whether the USPTO follows the Federal Circuit’s suggestion to use rulemaking and how the PTAB decides the CBM-eligibility question again in this case on remand.
Accordingly, there are still significant unknowns about CBM review eligibility. Until future Federal Circuit decisions and possibly USPTO rulemaking add clarity, petitioners and patent owners will have to focus on the statutory language instead of the USPTO’s policy statement.
***** Matt Kreeger is a partner in Morrison & Foerster’s Litigation and Intellectual Property Groups and is co-chair of the firm’s Inter Partes Review and Post Grant Practice. He specializes in helping clients find efficient, creative, business-oriented solutions to high-stakes intellectual property disputes. Diek Van Nort is Of Counsel with Morrison & Foerster LLP, where his practice focuses on all aspects of patents. He applies his prior experience as a senior engineer in the semiconductor industry and as a director in the IP business field to advising clients on patent drafting, prosecution, portfolio management, strategy, diligence, post-grant, and infringement matters.
The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.