United States: Is It Settled (Part 1)? Divided Federal Circuit Denies En Banc Review Of Narrowed Definition Of Covered Business Method

We have previously written about the scope of patents eligible for CBM review, including the PTAB's inconsistent approaches in determining whether patents qualify for CBM review and the Federal circuit's narrowing of the eligibility standard employed by the PTAB.1 On June 6, 2017, a divided Federal Circuit issued an order in Secure Axcess denying petitions for rehearing en banc.2 By declining en banc rehearing, the Federal Circuit may have placed a stamp of finality on the scope of CBM review.

In Part 1 (herein), we discuss the Federal Circuit's decisions narrowing the scope of CBM eligibility, eliminating from CBM review patents claiming activities that are only incidental to or complementary to financial activity, and its most recent order denying en banc rehearing in Secure Axcess – which was accompanied by multiple concurring and dissenting opinions. In Part 2, we will discuss recent PTAB decisions showing how the Board has adjusted its approach in evaluating whether a patent is eligible for CBM review in view of the Federal Circuit's guidance, along with considerations for parties and practitioners going forward.

Background:

The American Invents Act provides a number of procedures for challenging the validity of issued patents before the Patent Trial and Appeal Board, including a transitional program for post-grant review of covered business method ("CBM") patents. CBM review is a quick and cost-effective way to adjudicate the validity of business method patents, and like other procedures established by the AIA, such as inter partes reviews, CBM review rapidly gained popularity among accused infringers.

Unlike the other procedures, the question of which patents qualify for CBM review has persisted in the years following the AIA's enactment. In determining whether to institute a patent trial, the PTAB normally decides, as a threshold matter, whether the challenged patent qualifies as a covered business method, i.e., whether the patent claims a method, or corresponding apparatus, that is used in the practice, administration, or management of a financial product or service. Despite finding a range of business methods and software patents eligible for CBM review during the program's early existence, the PTAB subsequently took conflicting approaches to assessing eligibility. This inconsistency was largely due to the difficult assessment of whether the challenged patent was sufficiently "incidental" or "complementary" to a financial activity to qualify, and how the Board made that determination.3

What qualifies as a "covered business method patent" is seemingly straightforward under the statutory definition: "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." 4 This definition does not, however, provide much guidance as to what makes a method sufficiently related to "the practice, administration, or management" of a financial activity.5  Nonetheless, the USPTO adopted this definition into its rules without making any changes.6

To fill this gap, the PTAB formulated its own inquiry: "whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity." 7 The Board's standard was derived from the legislative history of the AIA, which explains that the definition of covered business method patent was intended to be broadly interpreted to encompass patents 'claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.'" 8  Under this broad standard, the Board found a number of patents, directed to seemingly non-financial activities, to be covered business method patents because they were incidental or complementary to a financial activity, a finding that was often based on the specification or other evidence if not clear from the plain language of the claims. For example, the Board ruled a patent claiming automated substitute employee fulfillment eligible for CBM review because the specification discussed substitute employee fulfillment for retail banks, and a claim – not among those challenged in the petition – explicitly recited retail banks.9 In other cases, the Board has applied a similarly broad reading of CBM qualification, finding a patent that claims governing the transfer of rights to digital works were incidental or complementary to a financial activity, especially when viewed with the specification's description of charging a fee to effect the transfer;10 claims directed generally to the management of personal information recited a covered business method due to the specification's description of using the invention to manage personal finances, noting that "a literal recitation of the terms data processing or financial or similar terms" was not necessary;11  and claims directed to data authentication that did not recite any financial terminology were ruled incidental to a financial activity based on the description of a need by financial institutions to ensure authenticity and use of the claimed method by financial institutions.12  In the latter case, the PTAB also found the fact that the challenged patent had been asserted against approximately 50 financial institutions as weighing in favor of institution.13

Initial reviews of CBM decisions by the Federal Circuit did not restrict the Board's expansive reading of the CBM statute. In Versata, its first review of a CBM case, the Federal Circuit interpreted the CBM statutory definition to include patents directed to a "wide range" of "finance-related activities," while flatly rejecting any limit to patents only in the financial industry.14  The Federal Circuit reaffirmed this holding in Blue Calypso, rejecting arguments that CBM review was limited to patents covering financial activities traditionally arising in the financial sector.15

From the PTAB's perspective, once the USPTO declined to provide a more specific definition of a covered business method, the Board was largely left to interpret AIA Section 18(d)(1) on its own.  And the Federal Circuit itself had endorsed the "financial in nature" portion of the Board's definition in Blue Calypso, the previously seminal case on the scope of CBM review.16

Federal Circuit Decisions Clarifying Covered Business Method Patents:

Apparently concerned about the scope of patents that might be captured by the Board's broad CBM definition, the Federal Circuit's decisions in Unwired Planet and Secure Axcess narrowed the CBM standard and overruled the PTAB's "incidental to" or "complementary to" prongs of the standard, as briefly summarized below.17

Unwired Planet v. Google.18  The Federal Circuit overturned the PTAB's institution of CBM review of U.S. Patent No. 7,203,752, which relates to restricting access by client applications to a wireless device's location information based on the user's privacy preferences. The Board found that the '752 patent's disclosure of a client application that associated with the provider of a good or service was sufficiently incidental or complementary to the financial activity of product or service sales. But the Federal Circuit ruled that patents that merely claimed activities "incidental or complementary to" a financial activity do not qualify for CBM review.19  Recently, the Federal Circuit denied the petitioner's request to rehear this decision, finalizing this precedent.20

Secure Axcess v. PNC Bank.21  Shortly after its Unwired Planet decision, the Federal Circuit again overturned the PTAB's decision to institute a CBM review, this time in a case involving. U.S. Patent No. 7,631,191, which relates to authenticating web pages. In finding the '191 patent CBM-eligible, the PTAB explained that the specification discloses a need by financial institutions to ensure customers of its web site's authenticity and describes use of alternative embodiments by financial institutions. The PTAB also relied on the fact that the patent owner asserted the patent against approximately fifty financial institutions as further support for its conclusion that the patent claims a method incidental to financial activity.22  As in Unwired Planet, the court in Secure Axcess rejected the Board's use of "incidental to" or "complementary to" as part of defining a CBM patent because these terms are not part of the statutory definition. But the court went further, holding that the statutory definition requires a CBM patent to have a claim that includes a financial activity element.23 The court also rejected the Board's reliance on who has been sued for infringement of the patent, explaining that choices by the patent owner to sue certain parties, and not others, does not identify a CBM patent or even "illuminate" an understanding of the claimed invention.24

Several parties requested rehearing en banc of the Secure Axcess decision. By a vote of 6-5, a clearly divided Federal Circuit denied the petitions for en banc rehearing, the order accompanied by several opinions concurring in or dissenting from the denial.25 According to Judge Taranto's concurring opinion, the statute requires that the claims must recite a financial element to qualify for CBM review, otherwise the CBM scope would be expansive and we may be left with determining what usage was, in fact, made of the patented technology.26 Judge Lourie authored an opinion in dissent, arguing that the panel decision severely limited what qualifies as a CBM patent, contrary to the intent of Congress in establishing CBM review. According to Judge Lourie, Congress intended the CBM program to apply broadly to correct errors in issuing business method patents, but under the narrowed standard the Board was precluded from reviewing patents clearly described in the specification as covering financial products – and pointing out that the subject '191 patent only describes application of the invention to financial services.27 Judge Dyk, who joined Judge Lourie's dissent, also issued a separate dissenting opinion because, in his view, determinations by the PTAB as to whether a patent is CBM-eligible should not be subject to appeal before the Federal Circuit.[28]

Standard For CBM Eligibility Has Been Substantially Narrowed:

In issuing the Unwired Planet and Secure Axcess rulings, the Federal Circuit has now clarified the standard for CBM review. These rulings have substantially narrowed the scope of CBM eligibility in two ways. First, the court has eliminated reliance on the "incidental to" or "complementary to" prongs of the Board's broadly-stated standard. Under the statute, CBM patents are limited to those with claims that are directed to methods and apparatuses of particular types and with particular uses "in the practice, administration, or management of a financial product or service".29  This definition – which ostensibly includes the "financial in nature" prong previously endorsed by the court in Blue Calypso –  is considerably narrower than the Board's additional, and expansive, "incidental to" or "complementary to" phrasing. Of paramount concern to the court was the breadth of the "incidental to" or "complementary to" language, 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. Indeed, the court indicated that sales activity should not be a determinative factor, even if the specification suggests a potential sale, since all patents may relate at some level to potential sale of a good or service.

Second, as a result of Secure Axcess the court has imposed a requirement that a CBM patent must have a claim with a "financial activity element."  This would arguably eliminate from CBM review patents clearly describing, in the specification, the invention in terms of financial products or services where the claims are written more broadly, perhaps in general terms, to encompass other products or services – even where the only embodiment(s), or the only commercially valuable embodiment(s), is/are described in terms of a financial product or service. Claim construction may, thus, become even more critical in determining CBM eligibility, since the issue will turn on whether the claims include a "financial activity element."

Additionally, the search for a financial activity element in the claims may also increase the use of statutory disclaimer by patent owners. In what has become a controversial practice, some patent owners have sought to avoid CBM review by entering statutory disclaimer of claims containing specifically-recited financial terms. Both Judge Taranto and Judge Lourie commented on this practice in their respective opinions accompanying the en banc denial order in Secure Axcess, with differing degrees of concern,30 perhaps signaling, through diverging views, that the court may eventually be called upon to directly address the impact of disclaimed claims on CBM eligibility.

Finally, in overturning the Board decisions in Unwired Planet and then Secure Axcess, the Federal Circuit criticized the PTAB's reliance not only on the legislative history of the AIA statute, but also the patent owner's litigation history. As the Federal Circuit makes clear, any inquiry beyond whether the claims, as understood in light of the written description, contain a financial activity element, goes too far.31

One would expect that the PTAB would now follow the Federal Circuit's clear, and rather forceful, guidance. In Part 2, we will explore several recent PTAB decisions showing that the PTAB is, indeed, following the Federal Circuit's lead.

Footnotes

1 B. Mudge, "Federal Circuit Lets CBM-Narrowing Decision Stand," Andrews Kurth Kenyon IPR Blog (April 26, 2017), available at http://interpartesreviewblog.com/federal-circuit-lets-cbm-narrowing-decision-stand ; B. Mudge, "CAFC Rejects Broad Eligibility For CBM Review, Adds to Program Uncertainty," Andrews Kurth Kenyon IPR Blog (Jan. 4, 2017), available at http://interpartesreviewblog.com/cafc-rejects-broad-eligibility-cbm-review-adds-program-uncertainty; and B. Mudge and A. Kasnevich, "PTAB Is Inconsistent On Qualifications For CBM Review," Law360 (August 10, 2016), available at https://www.law360.com/articles/824686/ptab-is-inconsistent-on-qualifications-for-cbm-review.

2 Secure Axcess LLC v. PNC Bank Nat'l Ass'n, 848 F.3d 1370 (Fed. Cir. 2017), rehearing en banc denied, ___ F.3d ___, 2017 WL 2432299 (Fed. Cir. June 6, 2017).

3 See, e.g., B. Mudge and A. Kasnevich, "PTAB Is Inconsistent On Qualifications For CBM Review," supra note 1.

4 AIA § 18(d)(1) (exclusive of technological inventions).

5 The Federal Circuit has repeatedly criticized the USPTO's wholesale adoption of the statutory definition. See Unwired Planet LLC v. Google Inc., 841 F.3d 1376, 1380 (Fed. Cir. 2016) ("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.") (citing Versata Dev. Grp. v. SAP Am., Inc., 793 F.3d 1306, 1325 (Fed. Cir. 2015)).

6 Unwired Planet, 841 F.3d at 1379-80.

7 E.g., CRS Advanced Techs., Inc v Frontline Techs., Inc, CBM2012-00005, Paper 17 (PTAB Jan. 23, 2013); LinkedIn Corp. v. AVMarkets Inc., CBM2013-00025, Paper 13 at 9 (PTAB Nov. 12, 2013).

8 SAP Am., Inc. v. Versata Dev. Group, Inc., CBM2012-00001, Paper 36 at 21-22 (PTAB Jan. 9, 2013).

9 CRS Advanced Techs., Inc v Frontline Techs., Inc, CBM2012-00005, Paper 17 (PTAB Jan. 23, 2013).

10 Google, Inc. v. ContentGuard Holdings, Inc., CBM2015-00040, Paper 34 at 11-12 (PTAB June 21, 2016).

11 Apple, Inc. v. Mirror World Techs. LLC, CBM2016-00019, Paper 12 at 6-7 (May 26, 2016). Judge McKone dissented from this conclusion, arguing that the plain language of the claims must govern the inquiry, not the patent's specification, a view in line with the Federal Circuit's (subsequent) ruling in Unwired Planet.

12 T. Rowe Price Investment Servs., Inc. v. Secure Axcess, LLC, CBM2015-00027, Paper 31 at 11-12 (June 13, 2016).

13 Id. at 12.

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

15 Blue Calypso, LLC v. Groupon, Inc., 815 F.3d 1331, 1338 (Fed. Cir. 2016).

16 Unwired Planet, 841 F.3d at 1380, n.5 (citing Blue Calypso, LLC v. Groupon, Inc., 815 F.3d 1331, 1340 (Fed. Cir. 2016)).

17 See discussion of the Unwired Planet v. Google case in B. Mudge, "CAFC Rejects Broad Eligibility For CBM Review, Adds to Program Uncertainty," and B. Mudge, "Federal Circuit Lets CBM-Narrowing Decision Stand," supra note 1.

18 Unwired Planet LLC v. Google Inc., 841 F.3d 1376 (Fed. Cir. 2016).

19 Id. at 1381-82.

20 Unwired Planet, LLC v. Google, Inc., No. 2015-1812, __ Fed.Appx. __ , Order Denying Rehearing Petition (Fed. Cir. April 4, 2017).

21 Secure Axcess, LLC v. PNC Bank Nat'l Ass'n, 848 F.3d 1370 (Fed. Cir. 2017).

22 Id. at 1375-76.

23 Id. at 1380-81.

24 Id. at 1381.

25 Secure Axcess, 2017 WL 2432299.

26 Secure Axcess, 2017 WL 2432299 at *3-4 (Taranto, J., concurring).

27 Secure Axcess, 2017 WL 2432299 at *7-8 (Lourie, J., dissenting).

28 Secure Axcess, 2017 WL 2432299 at *11-12 (Dyk, J., dissenting).

29 Unwired Planet, 841 F.3d at 1382.

30 Compare Secure Axcess, 2017 WL 2432299 at *5 n.5 (Taranto, J., concurring) (downplaying concerns) with id. at *7 (Lourie, J., dissenting) ("Such a result 'elevates form over substance' and allows 'clever drafting to 'avoid PTO review under the CBM provisions in contravention of congressional intent.").

31 Secure Axcess, 848 F.3d at 1381.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
McDermott Will & Emery
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
McDermott Will & Emery
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions