United States: CAFC Rejects Broad Eligibility For CBM Review, Adds To Program Uncertainty

We have previously written about the uncertainty in CBM reviews resulting from the PTAB's inconsistent approaches in determining whether patents qualify for CBM review.1 What had been consistent, however, was the PTAB's broad definition of a CBM patent. In a recent decision, however, the Federal Circuit has rejected the PTAB's broad reading of eligibility for CBM review, finding that the standard applied by the PTAB did not follow the statutory definition. The case, Unwired Planet, LLC v. Google Inc.,2 ruled that the Board could not apply a CBM standard that queried whether a patent claimed activities "incidental to" or "complementary to" a financial activity.

Key Takeaway:  The Federal Circuit's rejection of the PTAB's broad standard for CBM eligibility means greater uncertainty for the CBM program. The Board will need to revisit its application of the statutory definition for covered business method patents and develop a new body of case law over time. Patent owners should be alert for the opportunity to challenge allegations that a patent meets the statutory definition for CBM patents, and to seek rehearing or appeal of prior determinations, where available. Patent challengers need to be aware of greater scrutiny and, likely, narrower application of the CBM standard for patents.

Background:  Congress enacted the CBM program as a quick and cost-effective way to adjudicate the validity of business method patents. When determining whether to institute a CBM patent trial, the PTAB normally decides, as a threshold matter, whether the challenged patent qualifies as a covered business method. Beginning with the earliest CBM cases, the Board concluded that covered business method review should broadly encompass patents claiming "activities that are financial in nature, incidental to a financial activity or complementary to a financial activity." 3

In the Unwired Planet case, the Board instituted CBM review of U.S. patent 7,203,752, which relates to restricting access to a wireless device's location information. Applying its broad CBM definition (as stated above), the Board determined that the '752 patent claimed subject matter "incidental or complementary to the financial activity of service or product sales," thus qualifying for CBM review. In reaching this conclusion, the PTAB reasoned that the '752 patent disclosed a client application for a goods or service provider, such as a hotel, restaurant, or store, that transmits relevant advertising to a wireless device in the area. In its final written decision, the Board determined that challenged claims were unpatentable, though it did not discuss CBM qualification.4

Unwired Planet appealed the PTAB's final decision on unpatentability, raising, inter alia, the issue whether the '752 patent qualified for CBM review. Google did not cross-appeal, and the PTO did not intervene.

CAFC Rejects Broad Aspects of CBM Eligibility Standard:  In its decision on appeal, the Federal Circuit addressed a single issue — namely, whether the Board's standard for CBM patent eligibility was consistent with the AIA statutory definition. The court answered this question in the negative.

The CAFC began its analysis with the definition of "covered business method patent" set forth in the AIA: "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, ..." 5 Next, the court acknowledged that the PTO adopted by regulation the statutory CBM definition without change. Noting that the PTO has broad rulemaking authority regarding the CBM program, the court remarked that it "might have been helpful if the [PTO] had used [its] authority to elaborate on its understanding of the definition [of CBM] provided in the statute," but observed that the PTO did not do so.6

Then the court turned to the institution decision, immediately recognizing that the Board did not apply the statutory definition of a covered business method patent, but rather applied its oft-used standard "whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity." Although acknowledging that the court had previously endorsed the "financial in nature" aspect of the Board's standard, the CAFC stated that the "incidental" or "complementary" prongs are not found in the statute.7 Instead, the court noted that the Board's standard derived from a general policy statement issued by the PTO in comments regarding implementation of the CBM review program, which in turn quoted a statement by Senator Schumer during floor debate over the AIA.

However, the CAFC opined that a general policy statement by the PTO cannot become binding law where the PTO did not adopt the policy as part a rule through its rulemaking process. The court further opined that a single statement in the legislative history cannot be controlling, particularly where, as here, the legislative history contains inconsistent statements on the issue. In particular, the court noted that the Board's use of "incidental to financial activity" would encompass activities such as counting money or sorting currency that might be excluded from CBM review according to some statements in the legislative history.8 While recognizing that some patents meeting the PTO policy statement would also fall within what the court termed a "narrow" statutory CBM definition, the court criticized the expansive nature of the "incidental" or "complementary" prongs of the Board's standard. Of concern to the court was the breadth of the standard, which might capture such (hypothetical) patents as a light bulb that works well in a bank vault, or a ditch digger used to extract dirt that is sold – patents that the CAFC clearly believed fall outside of the statutory definition and, thus, not subject to CBM review.9 Indeed, the court indicated that sales activity should not be a determinative factor, even if the specification suggests a potential sale, since "[a]ll patents, at some level, relate to potential sale of a good or service." 10

As a result, the Federal Circuit concluded that the PTAB's use of "incidental" or "complementary" to financial activity as part of its standard for determining CBM review did not comply with the statute. Accordingly, the court vacated the Board's decision and remanded the case to the Board to reconsider and determine whether the '752 patent is eligible for CBM review. Thus, the court's opinion did not foreclose the possibility that on remand the Board could, consistent with proper consideration of the statutory definition, conclude that the '752 patent claims a covered business method.

What Does the Court's Ruling Mean for the Future of the CBM Program?  At least in the near term, the CAFC's Unwired Planet decision shows that the court may be reeling in the Board's expansive reading of the CBM statute, and the result is likely to introduce more unpredictability into the program. Since the Board has, from the beginning of the program, relied on the now-rejected standard in making its CBM institution decisions, it will need to build up a new body of case law that focuses more specifically on the precise statutory language set out in the AIA. And the PTO may undertake additional rulemaking efforts to further refine the statutory definition. In the meantime, the PTAB will likely need to revisit more decisions, as patent owners take the opportunity to request rehearing or appeal of rulings where a patent was found to meet the old CBM standard.

Of course, the Unwired Planet case may not be finished at the appellate stage. The petitioner, Google, has been granted an extension of time in which to file a request for rehearing or rehearing en banc. And a petition for certiorari to have the case heard by the Supreme Court is not out of the question.

Further appellate review might be prompted for a couple of reasons. First, the Unwired Planet opinion casts the statutory definition as a "narrow" one.  But this "narrow" viewpoint contrasts with the opinions of the Federal Circuit in Versata11 and Blue Calypso,12 which characterized CBM review as having a "wide" reach. In Versata, the court rejected limiting the CBM program only to patents affecting the financial industry or financial institutions such as banks, opining that the statutory definition of a CBM patent "on its face covers a wide range of finance-related [sic] activities." 13 Similarly, the court in Blue Calypso rejected limiting CBM review to only those patents tied to the financial sector, relying upon the reasoning in Versata.14 And in both cases the court recognized that the PTO (and its adjudicatory arm, the PTAB) announced an intent to apply a broad brush to the CBM program, citing (among other things) the PTO's policy statement which included the "incidental" and "complementary" language. Although neither case adopted the "incidental" and "complementary" language, they also did not conclude that the PTO had overstepped the statutory bounds by relying on such broad language; the only criticism concerned the PTO's adoption of a rule that repeated the statute without further elaboration in the rule itself.

A second reason for further appellate consideration goes to the jurisdiction of the CAFC to review the CBM determination on appeal. The AIA provides a bar on appeal of decisions by the Board to institute trial. See 35 U.S.C §324(e) (applying to post-grant reviews, including CBMs) and 35 U.S.C §314(d) (applying to IPRs). In Versata, the court split 2-1 on whether it could review on appeal the Board's ruling that the patent was a CBM patent. In upholding the ability to review the Board's CBM determination on appeal, the court distinguished its decision in Cuozzo (but before the Supreme Court's ruling in that case).15

In any event, we can expect to see greater uncertainty in the CBM program over the near future.


1 See "Tension in the PTAB: How to Determine Whether a Patent Claims a Covered Business Method?", Andrews Kurth Kenyon IPR Blog, http://interpartesreviewblog.com/tension-ptab-determine-whether-patent-claims-covered-business-method/ (Aug. 8, 2016); see also "PTAB Is Inconsistent On Qualifications For CBM Review," Law360, http://www.law360.com/articles/824686/ptab-is-inconsistent-on-qualifications-for-cbm-review (Aug. 10, 2016).

2 Unwired Planet, LLC v. Google Inc., No. 15-1812 (Fed. Cir. Nov. 21, 2016).

3 E.g., SAP Am., Inc. v. Versata Dev. Grp., Inc., Case No. CBM 2012-00001, paper 36 at 21-22 (PTAB Jan. 9, 2013); CRS Advanced Techs., Inc. v. Frontline Techs., Inc., Case No. CBM 2012-00005, paper 17 at 7-8 (PTAB at Jan. 23, 2013).

4 Unwired Planet, slip op at 4-5.

5 Unwired Planet, slip op at 7 (quoting AIA § 18(d)(1)). Of note, the statutory definition explicitly excludes patents for "technological inventions," but the parties did not dispute whether the '752 patent falls within this exception.

6 Id., quoting Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 1325 (Fed. Cir. 2015).

7 Unwired Planet, slip op at 8.

8 Id. at 10-11.

9 Id. at 11-12.

10 Id. at 12.

11 Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306 (Fed. Cir. 2015).

12 Blue Calypso, LLC v. Groupon, Inc., 815 F.3d 1331 (Fed. Cir. 2016).

13 Versata, 793 F.3d at 1325 (emphasis added)

14 Blue Calypso, 815 F.3d at 1338.

15 In re Cuozzo Speed Techs., LLC, 793 F.3d 1268 (Fed.Cir. 2015), aff'd sub nom. Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131 (2016).

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