Client Alerts | 11/29/2016

Federal Circuit Firmly Rejects PTAB Criteria For Covered Business Method Review

  • Covered Business Method

Federal Circuit Firmly Rejects PTAB Criteria For Covered Business Method Review

In a recent panel decision that deviates from the Federal Circuit’s current tendency to defer to the U.S. Patent and Trademark Office’s interpretation of the Leahy-Smith America Invents Act, the court vacated a final written decision of the USPTO Patent Trial and Appeal Board. The appeals court ruled that the PTAB erred in instituting review of a patent under the AIA’s Transitional Program for Covered Business Method Patents (“CBM”) by applying a test that was not consistent with congressional history of the AIA’s CBM proceedings when it concluded that a challenged patent was eligible for CBM review. The ruling is likely change the landscape of CBM review eligibility and reduce the number of patents subject to CBM review. Unwired Planet, LLC v. Google, Inc., No. 2015-1812 (Fed. Cir. Nov. 21, 2016).


Unwired Planet, LLC owns U.S. Patent No. 7,203,752, entitled “Method and system for managing location information for wireless communications devices.” The ‘752 patent discloses a technology for controlling access to a wireless device’s location information based on pre-established privacy preferences, such as the time, location of the device, or identity of the entity requesting location information. The ‘752 patent issued on April 10, 2007.

In October 2013, Google, Inc. filed a petition for CBM review of specific claims in the ‘752 patent on the grounds that the claims were not directed to eligible subject matter under 35 U.S.C. § 101, and that some claims were indefinite and obvious. Google argued that the challenged claims were eligible for CBM review under on the PTAB’s test – whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity. The PTAB determined that the patent claims were eligible for CBM review and instituted review. In a final written decision, the PTAB ruled that all challenged claims were unpatentable under section 101. Unwired Planet appealed the decision to institute and the unpatentability ruling to the Federal Circuit.

Federal Circuit Rules That ‘752 Patent Is Not Eligible for CBM Review

The sole issue decided by the court on appeal was whether the’752 patent met the requirements for CBM review Under the AIA, CBM review is available only for “covered business method patents.” The AIA defines a CBM patent 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, except that the term does not include patents for technological inventions.” AIA § 18(d)(1). The corresponding regulations promulgated by the USPTO relating to CBM review merely repeat the language of the statute and do not add any clarity or guidance to the AIA language. See Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 1325 (Fed. Cir. 2015) (noting 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.”)

Unwired Planet argued on appeal that the challenged ‘752 patent claims do not recite any financial applications and the PTAB improperly instituted CBM review by considering “whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.” Slip op. at 5 (emphasis added). Based on statements in the patent specification, the PTAB concluded that the inventions could be used for applications potentially leading to commercial activity, such as by providing information from merchants located in close proximity to a wireless device.

In a panel decision written by Circuit Judge Jimmie V. Reyna, the Federal Circuit ruled that the PTAB’s ruling that the ‘752 patent was eligible for CBM review was not in accordance with the language of the AIA or congressional intent in enacting the statute. The appeals court noted that the AIA does not include “incidental” or “complementary” in its definition of a CBM patent. It further held that the corresponding legislative history does not support the broader definition adopted by the PTAB. The only support for the PTAB’s test was a policy statement prepared by the USPTO and a single statement in the AIA’s legislative history by Sen. Charles Schumer. The court noted, however, that the legislative history contained other conflicting statements that were much narrower than the PTO’s current interpretation, and the USPTO did not include the broader interpretation when it promulgated proposed regulations for CBM proceedings.

Moreover, the court noted that, “Neither the legislators’ views nor the PTO policy statement provides the operative legal standard. The authoritative statement of the Board’s authority to conduct a CBM review is the text of the statute.” Slip op. at 11. The court ruled that the ‘752 patent claims do not recite financial or commercial activity, and thus are not eligible for CBM review. Furthermore, rejecting Google’s argument for eligibility, it noted that it “is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur.” The appeals court explained that:

The Board’s application of the “incidental to” and “complementary to” language from the PTO policy statement instead of the statutory definition renders superfluous the limits Congress placed on the definition of a CBM patent. 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.” AIA § 18(d). The patent for a novel lightbulb that is found to work particularly well in bank vaults does not become a CBM patent because of its incidental or complementary use in banks. Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service. All patents, at some level, relate to potential sale of a good or service.

Slip op. at 12.

The court held that the criterion for CBM review applied by the PTAB was not in accordance with the AIA. It vacated the PTAB decision and remanded to allow the Board to determine whether the challenged ‘752 patent claims were eligible for CBM review under the correct criteria. It did not reach a decision on the substantive issues in the appeal, including whether the ‘752 patent claims are patent-eligible under Section 101, given the decision to vacate the institution of the CBM.

Practical Significance

Given the financial criterion for CBM reviews under the AIA, CBM reviews have not been as numerous as the very popular inter partes review (IPR) proceedings. However, they still pose a serious threat to owners of patents that qualify for CBM review. Unlike IPR proceedings, CBM reviews allow petitioners to challenge the patentability of pre-AIA patents on grounds other than patents and printed publications, such as patent ineligibility or indefiniteness. Further, in IPR petitions the petitioner is estopped from raising grounds that they could have raised in the petition, however in CBM review the petitioner may assert any ground in the court as long as it is a different ground than that asserted in the CBM review. The decision in Unwired Planet narrows the universe of patents subject to challenge in CBM proceedings. The decision also may suggest a limit to the Federal Circuit’s willingness to defer to USPTO interpretation of AIA procedures. In this case, the agency’s criteria for CBM patents lacked a sound basis in either the statutory language or legislative history.

Keep Reading