September 2015
CIPA Journal
By Anthony C. Tridico, Ph.D.; Rachel L. Emsley
Authored by Rachel L. Emsley and Anthony C. Tridico, Ph.D.
Litigation defendants in the U.S. are increasingly launching offensive attacks against their opponents in the U.S. Patent and Trademark Office (USPTO) using Covered Business Method (CBM) Review. And its application is much broader than you may have thought. CBM Review is a special form of USPTO post-grant review created by the America Invents Act (AIA) in 2012. Unlike Inter Partes Review (IPR)—the most popular new form of USPTO post-issuance patent review—CBM proceedings are not limited to prior art challenges and are therefore much more powerful.
Instead any and all "grounds of patentability" can be raised in a CBM.1 As a result, CBM petitioners have successfully challenged patents on statutory subject matter (35 U.S.C. § 101) enablement and written description (35 U.S.C. § 112) grounds, in addition to prior-art-based novelty and non-obviousness grounds (35 U.S.C. §§ 102 and 103). Petitioners are also attracted to CBM Review because its estoppel effect is not nearly as drastic for future district court and International Trade Commission (ITC) proceedings compared with IPR or a standard post-grant review (PGR) proceeding. A petitioner in an IPR or PGR may not request or maintain a subsequent proceeding in a district court or before the ITC (or before the USPTO for that matter) with respect to any challenged patent claim on any ground that was raised or reasonably could have been raised in the IPR or PGR,2 whereas a petitioner in a CBM Review is estopped in subsequent litigation only with respect to the grounds it actually raised during the CBM proceeding.3
For challengers, CBMs sound too good to be true. So, what's the catch? Why aren't all district court defendants lobbing CBMs back at their opponents? Answer: not all patents qualify as "covered business methods." But more patents may qualify than you think. Section 18 of the AIA, the section creating "covered business method review," limits qualified petitioners to persons or their privies who have been sued or charged with infringement of a "covered business method patent."4 In other words, to get in the CBM door, the patent must qualify as a covered business method. The statute defines that term to "mean[] 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."5 Because the legislative record of § 18 identified bank check-imaging patents as a potential CBM target,6 initially, patent owners in other sectors took comfort in what was perceived as a limited reach of CBM Review. Now however, three years after the AIA's implementation, many patent owners have become concerned that the USPTO's broad application of the statute could threaten patents in many industry sectors outside financial services. And these concerns may be warranted! The Court of Appeals for the Federal Circuit has thus far agreed with the USPTO's interpretation of § 18's scope, stating that "as a matter of statutory construction, the definition of 'covered business method patent' is not limited to products and services of only the financial industry, or to patents owned by or directly affecting the activities of financial institutions such as banks and brokerage houses."7
Moreover, the exemption for technological inventions is not always much help. Specifically, even if a patent falls within that statutory definition of covered business method, § 18(d) exempts "technological inventions." The statute does not, however, define that term, instead leaving it to the USPTO to promulgate a definition. Considering each patent on a case-by-case basis, the USPTO says that a "technological invention" is one in which "the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution."8 Surprising to many, as seen in the cases below, the "technological invention" safe-harbor may not provide much relief because the USPTO has not hesitated to find patents from the video-gaming industry, a webpage authenticating patent, and even a patent directed to generating nutritional information to be covered business methods.
As a first example, one panel of the Patent Trial and Appeal Board (PTAB or Board) concluded that a patent directed to "an interactive communication system for transmitting video game and karaoke software via communication lines from a host facility to a calling communication terminal located at each individual home," was a covered business method patent. Citing to portions of the written description explaining the "problem" solved by the patent, that "a player has to purchase each and every [video game/karaoke] cassette he wishes to play," and despite the Patent Owner's argument that "there is no term in [the claim] that hints to financial activity," the Board held the statutory definition satisfied.9 The Board reasoned it should "not interpret the statute as requiring the literal recitation of financial products or services in a claim."10 With regard to the "technological invention" exemption, the panel said that the "problem" identified in the patent—"the player [having] to purchase each and every game cassette he wishes to play, which can be very costly"—and the "identified solution"—"to provide an interactive communication system in which video game and karaoke software is transmitted via communications lines from a host facility to a person's home"—does not "solve a technical problem using a technical solution."11
In a second case, another panel of the PTAB considered both the written description and how the patent was being asserted in district courts to determine whether § 18 applied to a patent for a method and system for authenticating web pages.12 The Petitioner argued that § 18 should apply "because the patent specification includes discussions of financial services using the claimed systems and processes, and because Patent Owner has sued approximately fifty financial institutions, including banks."13 Over the Patent Owner's objection that "(1) the claimed method and apparatus can be used by a business generally, and (2) the claim language is devoid of any financial or monetary terms," the Board concluded it met the statutory definition of "covered business method" as "incidental to a financial activity."14 The written description disclosed "a need by financial institutions to ensure customers are confident that the financial institution's web page is authentic," and, the Board noted that the "alternative embodiments" specified use by financial institutions.15 Although "not determinative," it also said that the Patent Owner's alleged infringement by financial institutions "weigh[ed] toward the conclusion" that the claims were to a covered business method.16
Like many other panels applying § 18 broadly, the Board also considered "whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution," relying on the Office Trial Practice Guide's statement that the following claim drafting techniques do not render a patent a "technological invention":
(a) Mere recitation of known technologies, such as computer hardware, communication or computer networks, software, memory, computer-readable storage medium, scanners, display devices or databases, or specialized machines, such as an ATM or point of sale device.
(b) Reciting the use of known prior art technology to accomplish a process or method, even if that process or method is novel and non-obvious.
(c) Combining prior art structures to achieve the normal, expected, or predictable result of that combination.17
Focusing on the hardware elements that would be required to perform the claimed method and homing in on the specification's descriptions of generic computer components and known cryptography techniques the Board explained that "although. . . the [] patent may be an allegedly novel and nonobvious process, based on the record before us, we find that the technological features of the claimed steps are directed to using known technologies."18
In yet a third example, the Board concluded that "a computerized method and system to provide personalized nutritional information" fell within § 18's scope. It flatly rejected the Patent Owner's argument that the patent "addresses and solves problems in the field of human nutrition, which is a branch of biology, a natural science," citing the Federal Circuit's interpretation in Versata that eligible patents are "not limited to products and services of only the financial industry."19 In this case, the Patent Owner's claims were specifically to "a method for providing a shopper with personalized nutrition information," although no actual transaction was required in the claim itself.20 And although the Petitioner did not cite prior art in the Petition, it succeed in convincing the Board of the non-technological nature of the claimed invention by citing to alleged admissions in the specification that "the claimed technological features were well-known, existing, and conventional at the time of the invention."21 The Board agreed with Petitioner that although "reading and assessing food labels may be time-consuming, it does not present a technical problem," and Petitioner did not explain why it was a technical problem.22
But Patent Owners may rest easier knowing that at least some panels of the PTAB have taken a narrower view of how a claim must "'relat[e]'" to a financial product or service," finding that the actual language of the claim must so-relate.23 In one case, the Board found claims relating to "the powering of 10/100 Ethernet compatible equipment" were not a covered business method, although the invention could "have uses pertaining to banking."24 Similarly, the Board also found that an "integrated system for managing changes in regulatory and non-regulatory requirements for business activities at an industrial or commercial facility" did not meet the statutory requirements.25 Although the Board acknowledged passages in the written description relating to "finance," it ultimately concluded that "the claims on their face are directed to technology 'common in business environments across sectors' with 'no particular relat[ionship] to the financial services sector."26
Although those in the biopharm industries have yet to see CBM Review extended to their patents, they have not been immune to attempts to stretch CBM Review far outside the financial industry. In one case, the Board declined to institute a CBM Review on a patent "directed to a method for controlling access to a sensitive prescription drug prone to potential abuse or diversion, by utilizing a central pharmacy and database to track all prescriptions for the sensitive drug."27 There, the PTAB concluded that the Petitioner failed to meet its burden to prove § 18 should apply. Despite claim "steps for verifying insurance coverage or a patient's ability to pay for the prescription" and limitations such as "distributing a prescription drug" or "mailing," the Board found that the "context of the claim as a whole" did not "recite or require an activity involving the movement of money or extension of credit in connection with the sale of a prescription drug."28 Finding that the language didn't "recite or require (i) the sale of a prescription drug, (ii) processing of payments, benefits, or insurance claims related to the sale of a prescription drug, (iii) a method of insuring a patient or determining the cost of insurance, (iv) a method of determining the cost of prescription benefits, (v) a method of facilitating payment of health care benefits, or (vi) the extension of credit for the purchase of a prescription drug," the Board found that the context of the claim instead was aimed at preventing abuse and providing drugs to an unauthorized patient.29 Having not found sufficient relation to financial activity, the Board did not consider whether the "technological" exception applied.
Whether the USPTO continues to broadly apply § 18, or throttle its reach, patent owners may breathe a sigh of relief, knowing that CBM Review under § 18 has a "sunset" provision that allows for this type of proceeding only through 2020 unless Congress re-enacts § 18 or a similar law upon its expiration.30 Since CBM Review is an almost certain death knell for patents once instituted (as of August 1, 2015, only 3.66% of claims have survived review), Congress may very well view § 18 as fulfilling its mandate to strengthen the patent system and continue its charge.31
Endnotes
1 Compare 35 U.S.C. § 311 ("A petitioner in an inter partes review may request to cancel as unpatentable 1 or more claims of a patent only on a ground that could be raised under section 102 or 103 and only on the basis of prior art consisting of patents or printed publications") with 35 U.S.C. § 321 ("A petitioner in a post-grant review may request to cancel as unpatentable 1 or more claims of a patent on any ground that could be raised under paragraph (2) or (3) of section 282 (b) (relating to invalidity of the patent or any claim)").
2 35 U.S.C. §§ 315(e)(1)-(2); 35 U.S.C. §§ 325(e)(1)-(2).
3 35 U.S.C. §§ 315(e)(1)-(2); 35 U.S.C. §§ 325(e)(1)-(2); AIA § 18(a)(1)(D).
4 AIA § 18(a)(1)(B); see also 37 C.F.R. § 42.302.
5 AIA § 18(d)(1); see also 37 C.F.R. § 42.301(a).
6 157 Cong. Rec. S1379 (daily ed. Mar. 8, 2011) (statement of Sen. Kyl) ("This section [18] grew out of concerns originally raised in the 110th Congress about financial institutions' inability to take advantage of the authority to clear checks electronically pursuant to the Check Clearing for the 21st Century Act. . . without infringing the so called Ballard patents, patents number 5,910,988 and 6,032,137. . . . Once the committee began to examine this issue in greater depth, however, the question quickly turned from whether the Ballard patents should be allowed to disrupt compliance with the Check 21 Act, to how it is that the Ballard patents were issued in the first place.")
7 Versata Dev. Grp., Inc. v. SAP Am., Inc., 2014-1194, slip op. at 35 (Fed. Cir. July 9, 2015) aff'g SAP Am., Inc. v. Versata Dev. Grp., Inc., CBM2012-00001.
8 37 C.F.R.§ 42.301(b).
9 Sony Comput. Entm't Am. LLC v. ADC Tech. Inc., CBM2015-00026, Paper 10, at 12 (P.T.A.B. July 3, 2015).
10 Id.
11 Id. at 15.
12 PNC Bank, et al., v. Secure Axcess, LLC, CBM2014-00100, Paper 10, at 5 (Sep. 9, 2014).
13 Id. at 14.
14 Id.
15 Id.
16 Id. at 15.
17 Office Patent Trial Practice Guide, 77 Fed. Reg. 48,756, 48,764 (Aug. 14, 2012).
18 PNC Bank, et. al., v. Secure Axcess, LLC, CBM2014-00100, Paper 10, at 17-18 (Sept. 9, 2014).
19 Google Inc. v. Better Food Choices LLC, CBM2015-00071, Paper 10, at 9 (P.T.A.B. Aug. 20, 2015).
20 Id. at 5, 10-11
21 Id. at 12.
22 Id. at 13.
23 Sony Corp. of Am. v. Network-1 Techs., Inc., CBM2015-00078, Paper at 7, at 8-9 (P.T.A.B. July 1, 2015).
24 Id. at 11.
25 Salesforce.com, Inc. v. Applications in Internet Time LLC, CBM2014-00168, Paper 10, at 7 (P.T.A.B. Feb 2, 2015).
26 Id. at 7.
27 Par Pharma., Inc., et. al., v. Jazz Pharma, Inc., CBM2014-00149, CBM2014-00150, CBM2014-00151, and CBM2014-00153, Paper 11, at 4 (P.T.A.B. Jan. 13, 2015).
28 Id. at 12.
29 Id. at 13.
30 AIA § 18(a)(3) (“This subsection, and the regulations issued under this subsection, are repealed effective upon the expiration of the 8-year period beginning on the date that the regulations issued under to paragraph (1) take effect.”).
31 Claim and Case Disposition, Finnegan AIA Blog, available at http://www.aiablog.com/claim-and-case-disposition/ (presenting statistics as of August 1, 2015)
Originally printed in CIPA Journal. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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