New Legal Maneuver Helps Companies Stymie Business-Method Patent Litigation

Authored by Johnathan R.K. Stroud and E. Robert Yoches

If you or your customers face lawsuits or licensing demands alleging infringement of patents relating to the use of computers or the internet for business purposes, consider the Covered Business Method Patent Post-Grant Review (CBM), a powerful new weapon for invalidating these types of patents. In the first CBM final decisions, the U.S. Patent and Trademark Office (PTO) cancelled all of the claims considered. The CBM procedure is quicker and cheaper than litigation, and it is very effective. It has proven to be a powerful tool for certain industries.

Qualifying for CBM Review

Congress created the CBM procedure in 2011, but extended it only until 2020. It allows parties sued or threatened with certain business-method patents to petition the PTO to examine the validity of those patents on virtually any ground, such as proper subject matter, novelty, obviousness, or indefiniteness. Congress intended the CBM program to be an accessible and efficient alternative to litigation for companies to challenge these patents. The early results suggest it may well do so.

A CBM patent is one that covers a method or apparatus for performing data-processing type operations for the practice, administration, or management of a financial product or service, but does not cover any technological inventions. Such a patent could cover web-based client interactions, website management, customer interfaces, or advertising schemes.

Unlike other provisions for challenging patents in the PTO, the CBM procedure is available for all patents, regardless of when they were filed, and can even be used for patents that have already been litigated or considered by the PTO in some reexamination procedure. A party using this procedure, though, must have been sued or threatened under any patents the party wishes to challenge.

Parties have filed more than a hundred CBM petitions in the first sixteen months of this procedure's existence. Petitioners include companies like SAP, LinkedIn, Apple, Liberty Mutual, BB&T Bank, Oracle Corporation, eBay, Dell, Groupon, and Google. As of the first of 2014, the PTO had received a hundred CBM petitions, granted twenty-eight, and denied five. Four settled.

Benefits of CBM Proceedings

1. Timing

The PTO will address a CBM petition much faster than most courts will decide a patent's validity. The PTO must decide whether to institute the CBM within six months after the filing of a petition. If it grants the petition, the PTO will issue a final decision within twelve months.

Often the filing of a CBM petition, but certainly its granting, will convince courts to stay pending district court litigation involving the patent under review, and this will forestall expensive and potentially unnecessary court proceedings. Seventeen parties have sought and received stays of district court litigation because the PTO has granted a CBM petition. Only one court has not—in VirtualAgility, Inc. v. SalesForce.com, Inc., Federal District Court Judge Rodney Gilstrap of the Eastern District of Texas became the first to deny a CBM-related stay without leave to refile.

He found that, because prior examination had been "thorough," the Board had instituted the petition on only one reference, and there was "credible evidence" that the parties were direct competitors, he would not issue a stay. He analyzed the parties' positions under the new statute and found nothing making such stays automatic. Shortly after his denial, the defendant appealed to the U.S. Court of Appeals for the Federal Circuit.

2. Friendlier Forum

Several reasons suggest challenging the validity of a patent in the PTO is wiser than doing so in court. In court, a challenger must prove a patent invalid by clear and convincing evidence, whereas in the PTO, the proof is just by a preponderance of evidence. Also, some judges and juries give the PTO a great deal of deference, and do not feel comfortable finding a patent invalid after the PTO granted it. The PTO has no problems doing so.

Risks of CBM Proceedings

Once the Board issues a final decision, the petitioner cannot litigate any issue the PTO decided. Unlike other procedures, though, the petitioner can still litigate issues it could have raised, but chose not to.

Experience

In SAP America, Inc. v. Versata Software, Inc., the first CBM filed and decided, the PTO held all the claims invalid, even though Versata had received a $391 million judgment that SAP had infringed the patent. The claims had covered a method, apparatus, and a computer-readable medium for "Pricing Products in Multi-Level Product and Organizational Groups." The cancelled claims sorted and applied pricing adjustments from a data source. The Board found those claims too abstract. An issue before the court currently is what effect the PTO decision will have on the court's judgment.

In CRS Advanced Technologies, Inc. v. Frontline Technologies, Inc., the PTO also held the patent claims invalid, ending ten years of litigation. The claims covered a method and system for using a computer, a database, and an Internet communication link to identify and fill substitute worker positions more efficiently. The Board again found those claims too abstract.

In the Liberty Mutual Insurance Co. v. Progressive Casualty Insurance Co. cases, the Board held a patent to a method of using electronic sensors on automobiles for insurance purposes invalid. The claims covered a "method of insuring a vehicle driver" by monitoring the vehicle's operation and deciding the cost of insurance based on those characteristics. Here, the Board found that someone else had invented the device first, and thus invalidated the claims.

In Interthinx, Inc. v. Corelogic, Inc., the patent, which had expired, was involved in a parallel proceeding in the Eastern District of Texas. After the court found against Interthinx, the parties settled, and attempted to end the CBM. The Board would not, instead holding all the claims invalid. The claims covered a computer-implemented method of mathematically modeling real estate appraisal values. The Board cancelled those claims as too abstract for patenting.

Parties threatened with business-method patents in litigation should consider filing a CBM petition. That procedure is faster and less expensive than litigation, and the PTO is a friendly place to be when challenging such patents.

Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. 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.