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IP Alert: Federal Circuit Clarifies Standard for Eligibility for CBM Review

November 21, 2016

Today, in Unwired Planet, LLC v. Google, Inc., the Court of Appeals for the Federal Circuit clarified the scope of the statute that authorizes covered business method (CBM) review under the America Invents Act. The United States Patent and Trademark Office (USPTO) had adopted a standard allowing it to conduct CBM review if the subject matter of the patent was “incidental” or “complementary” to financial activity. The Federal Circuit today rejected the USPTO’s statutory interpretation, holding that the USPTO may initiate CBM review only for patents used “in the practice, administration, or management of a financial product or service.” Today’s decision is a fundamental decision under the law of covered business method review.

Section 18 of the America Invents Act provides for review of “covered business method patent[s],” defining a CBM 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 or technological inventions.” Section 18 was not codified into Chapter 35 of the U.S. Code; styled as a “transitional program,” CBM review is scheduled for automatic repeal in September of 2020.

In an earlier notice concerning the implementation of CBM review, the USPTO stated that the proper inquiry under the eligibility statute is whether the patent claims “activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.” Much ink has been spilled arguing about what exactly might constitute a “covered business method patent.” In this case, Unwired Planet holds a patent drawn to a “method of controlling access to location information for wireless communications devices operating in a wireless communications network.” Applying its construction of the statute, the Patent Trial and Appeal Board (PTAB) determined that this patent was eligible for CBM review because the location service could involve an eventual sale of services. The PTAB observed that the specification provides that “client applications may be service or goods providers whose business is geographically oriented,” such as a “hotel, restaurant, and/or store.” Accordingly, determined the PTAB, the subject matter of the patent is “incidental or complementary to” potential sales resulting from advertising. The PTAB then determined that the claim in question was not patent-eligible under Section 101 of the patent statute.

On appeal, the Federal Circuit vacated the PTAB’s decision, determining that the USPTO had adopted too broad a standard in determining what patents are eligible for CBM review. The court first noted that the “incidental” and “complementary” language is not found in the statute. In fact, the USPTO’s interpretation of the statute stemmed from a single comment from U.S. Senator Chuck Schumer in the legislative history. Citing a 2012 Supreme Court case, the court took a dim view of this legislative history approach, noting that the “the views of a single legislator, even a bill’s sponsor, are not controlling.” Here, the court observed, the legislative history concerning the scope of CBM review included multiple statements, some of which were inconsistent with one another. In any case, noted the court, the authoritative statement of law followed from the text of the statute itself, and not from comments in the legislative history.

Upon rejecting the “incidental to” and “complementary to” language from the USPTO’s analysis, the court stated the “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.’” The court observed that, for example, the patent for a novel light bulb that is found to work particularly well in a bank vault does not become a CBM-eligible patent because of its incidental or complementary use in banks. Nor is it dispositive that a patent could involve a potential sale of a good or service; essentially any patent can involve a sale of goods or services, and the adoption of such a broad standard would unduly expand the scope of CBM review. The court gave the example of a “ditch-digging patent” that could result in a sale of dirt; such would not be eligible for CBM review merely because some sale might occur in connection with the practice of the patent.

In light of this analysis, the court vacated the PTAB’s Section 101 decision and remanded it to the PTAB for determination of whether the patent is eligible for CBM review. The court did not reach the merits of the Section 101 decision.

Today’s decision has circumscribed the scope of the USPTO’s ability to conduct CBM review proceedings, and is required reading for those concerned with the scope of the implementing statute. For more information, please contact Fitch Even partner Allen E. Hoover, author of this alert.

 

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