Decision: Supplemental Examination No. 96/000,096
Holding: Some reexamined claims canceled, other amended claims survived. The surviving claims remain in doubt in view of a later covered business method review (CBM) proceeding.
Background: Under the America Invents Act (“AIA”), supplemental examinations allow patent owners to ask the U.S. Patent and Trademark Office (“USPTO”) to consider, reconsider, or correct information potentially relevant a patent’s enforceability. 35 U.S.C. § 257(a). In requesting supplemental examination, the patent owner may present up to twelve items “believed to be relevant into the patent.” 37 C.F.R. § 1.605(a). Within three months of the request, the USPTO decides whether the request raises a substantial new question of patentability (“SNQ”). 37 C.F.R. § 1.620(a). Patent owners may explain why each item does not raise an SNQ in their requests. 37 C.F.R. § 1.610(c)(4). But if the USPTO disagrees, it orders an ex parte reexamination of the patent. 37 C.F.R. § 1.625(b).
While supplemental examination invites further review of a patent, §257(c) of the Patent Act potentially shields a patent subjected to this examination from an unenforceability attack using information submitted during the proceeding. 35 U.S.C. § 257(c). And because the submitted items are not limited to patents and printed publications—as in conventional ex parte reexaminations—supplemental examinations allow patent owners to cure a wider range of potential problems.
Enticed by § 257(c)’s shield, some patent owners have started using supplemental examination to seek reevaluation of their patents’ eligibility in the wake of Alice Corp. v. CLS Bank Int’l, 573 U.S. 208 (2014). See, e.g., Weisfeiler, et al., Supplemental Examinations and Supplemental Examinations and Alice: The Bare Essentials of When Not to Poke the Bear, AIA blog, July 9, 2019. This article explores how one patent owner took this approach and outlines lessons learned from the experience. It also examines (1) how far the protection of § 257(c) extends and (2) how supplemental examinations interplay with co-pending Patent Office and district court proceedings.
I. Supplemental Examination 96/000,096: How Alice May Raise an SNQ
Signature Systems (“Signature”) owns U.S. Patent No. 8,423,402 (“the ’402 patent”). The ’402 patent generally describes methods for allowing users to earn, exchange, and redeem reward points. Using the claimed method, users can convert one type of reward points (e.g., frequent flyer miles) into another (e.g., credit card rewards). This process enables users to pool disparate rewards and use them more effectively over an exchange.
In January 2015, Signature sued American Express alleging infringement of the ’402 patent. See Complaint, Signature Sys., LLC v. Am. Express Co., No. 1:15-cv-20063 (S.D. Fla.). Shortly thereafter, Signature filed Supplemental Examination No. 96/000,096 (“the ’096 SE”), seeking review of all sixteen claims. The only item of information presented in the ’096 SE was the Supreme Court’s Alice decision. Alice held that claims implementing abstract ideas on generic computers are ineligible for patenting under 35 U.S.C. § 101. Because the ’402 patent issued prior to Alice, Signature identified the case as potentially impacting the patent’s eligibility. See Request for Supplemental Examination, at 18.
Signature nevertheless maintained the ’402 patent’s validity. In Signature’s estimation, the claims remained patent-eligible because they recited “specific and detailed steps [which] limit [their] applicability to a narrow subset of any alleged abstract idea of ‘exchanging reward points.’” Id. at 27.
The USPTO disagreed. Applying Alice, the Director found a SNQ on all 16 claims and ordered reexamination. According to the USPTO, the ’402 patent was directed to the abstract idea of “earning, exchanging and redeeming reward points.” See Reasons for SNQ, at 3. In the Office’s view, this idea was similar to “using advertising as an exchange or currency,” a concept ruled ineligible in Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 715 (Fed. Cir. 2014). See Reasons for SNQ, at 3 (citing 79 Fed. Reg. 74,622). In Ultramercial, the Federal Circuit found a method for distributing copyrighted material over the Internet in exchange for viewing an advertisement invalid as an abstract idea. See Ultramercial, 772 F.3d at 715-16. Because the ’402 patent was directed to an idea resembling those struck down, the USPTO concluded, “a reasonable Examiner would consider Alice important in deciding whether [the claims are] patentable.” Reasons for SNQ, at 3.
In an ensuing Office action, the examiner rejected the claims under 35 U.S.C. § 101. Office Action in Ex Parte Reexamination, at 3. The examiner’s analysis closely mirrored that of the Office’s SNQ determination. According to the examiner, the claimed method of earning, exchanging, and redeeming rewards was similar to the abstract idea of “using advertisement as an exchange or currency” identified in Ultramercial. Id. at 6. The examiner also found nothing in the claims embracing “significantly more” than the abstract idea itself. Id. at 6-7.
Signature responded by interviewing the case and proposing amendments. Patent Owner’s Statement of the Interview Pursuant, at 2. The amendments limited the claims to converting specific kinds of credit card reward points, a feature recited in certain dependent claims. Id. Signature designed these amendments to further distinguish the claims from those in struck down in Ultramercial. Id.
The USPTO found the amended claims subject-matter eligible. “[W]hen looking at the additional limitations as an ordered combination,” the USPTO reasoned, “the invention as a whole amounts to significantly more than the fundamental economic practice or idea of itself.” Notice of Intent to Issue Supplemental Examination Certificate (“Notice”), at 3. In the Office’s view, Signature’s amended claims were different from those in Ultramercial because they addressed “Internet-centric challenge[s]” of managing reward points. Id. at 3-4. The Federal Circuit had found such inventions “rooted in computer technology” patent-eligible in DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014). Likening the ’402 patent to DDR, the USPTO found the reexamined claims “rooted in computer technology” overcoming an “Internet-centric problem” in an unconventional way. Notice, at 4-5. The Office thus deemed amended independent claims 1, 5, 9, and 13 and the remaining dependent claims patent eligible.
II. Supplemental Examination’s Impact on Related Proceedings
While the ’096 SE was pending, American Express filed a petition for CBM review challenging of every claim of the unamended ’402 patent.1 American Express urged that the claims were invalid as ineligible and obvious under 35 U.S.C. §§ 101 and 103. See Petition, Am. Express Co. v. Signature Sys., LLC, CBM2015-00153, Paper 1 (P.T.A.B. June 12, 2015) (“AMEX CBM I”). The parties jointly moved to stay the concurrent district court litigation in view of the CBM. See Joint Motion to Stay Case, Signature Sys., No. 1:15-cv-20063 (July 13, 2015), ECF No. 27. The court obliged. Order, Signature Sys., No. 1:15-cv-20063 (July 17, 2015), ECF No. 29.
Before the PTAB could render its CBM institution decision, however, the ’096 SE concluded. The reexamination certificate issued in November 2015, canceling claims 3, 4, 7, 8, 11, 12, 15, and 16, and declaring claims 1, 2, 5, 6, 9, 10, 13, and 14 patentable as amended. See Ex Parte Reexamination Certificate, at 1.
On December 28, 2015, the PTAB denied institution of American Express’s CBM. AMEX CBM I, Paper 17 (P.T.A.B. Dec. 28, 2015). In its decision, the PTAB explained how the challenged claims “no longer exist” due to their amendment during the ’096 SE. Id. at 8. To the PTAB panel, any decision on the patentability of original claims 1-16 would be “moot and purely advisory.” Id. The PTAB accordingly dismissed the CBM.
The district court proceeding reopened on November 9, 2017. Signature filed an amended complaint alleging infringement of the reexamined claims of the ’402 patent.
But emerging legal developments complicated Signature’s revived case. Just before the USPTO issued the Reexamination Certificate for the ’402 patent, Signature sought supplemental examination of U.S. Patent No. 8,600,807 (“the ’807 patent”), a child of the ’402 patent. That reexamination resulted in the cancellation of every claim of the ’807 patent.2 Notably, Signature contended that the ’807 claims were “identical in substance” to those of the ’402 patent. See Appeal Brief, Control. No. 96/000,132, at 9 (Oct. 11, 2016). The Office did not agree.
Emboldened by the outcome of the ’807 supplemental examination, American Express filed a second CBM petition against the ’402 patent on April 23, 2018. This petition challenged reexamined claims 1, 2, 5, 6, 9, 10, 13, and 14 as ineligible under § 101 and indefinite under § 112. Am. Express Co. v. Signature Sys., LLC, CBM2018-00035, Paper 1 (P.T.A.B. Apr. 23, 2018) (“AMEX CBM II”). In doing so, American Express discussed how the Office found the ’807 patent ineligible during supplemental examination. Id. at 18-21. It also urged that Signature’s representations on the “identical” scope of the claims estopped Signature from defending the ’402 patent’s eligibility entirely. Id. at 63-65.
Signature responded by asking the PTAB to deny institution under 35 U.S.C. § 325(d). That subsection permits the Board to deny a petition when “the same or substantially the same . . . . arguments previously were presented to the Office.” 35 U.S.C. § 325(d). In Signature’s view, the Office previously had previously considered the ’402 patent’s eligibility during the ’096 SE. See AMEX CBM II, Paper No. 7, at 6-9 (P.T.A.B. Aug. 8, 2018).
Signature’s pleas did not persuade the PTAB. The panel instituted review of the ’402 patent, rejecting the notion that the Office had previously considered the same eligibility arguments raised in the petition. According to the Board, American Express’s eligibility attack was sufficiently new because it supported its contentions with expert testimony. AMEX CBM II, Paper No. 11, at 37-39 (P.T.A.B. Nov. 1, 2018). In the PTAB’s view, this evidence was not before the ’096 SE examiner and “show[ed] that the claimed computer components/functions were conventional or well-known in the art.” Id. The Board also noted how recent Federal Circuit decisions issuing after the ’096 SE called the patent’s eligibility into question. Id. (citing FairWarning IP, LLC v. Iatric Sys., Inc., 839 F.3d 1089 (Fed. Cir. 2016); Elec. Power Grp., LLC v. Alstom S.A., 830 F.3d 1350 (Fed. Cir. 2016); Mortg. Grader, Inc. v. First Choice Loan Servs. Inc., 811 F.3d 1314 (Fed. Cir. 2016)).
Finally, the PTAB rejected American Express’s estoppel argument. To the PTAB, the ’807 patent represented “a separate patent with different claims.” AMEX CBM II, at 32. The Board PTAB expressed uneasiness with preventing a patent owner from defending the eligibility of a patent due to representations made “during the reexamination of a different patent.” Id.
American Express’s second CBM has not concluded. Oral hearing is scheduled for August 1, 2019.
III. Lessons Learned
A. The scope of protection provided by supplemental examination appears to be minimal for eligibility determinations
Signature’s journey through the ’096 SE and two CBMs provides insight into how broadly the protection of § 257(c) extends for eligibility findings. Until the Federal Circuit speaks definitively on this issue, the answer at the Patent Office appears to be not very far. The Board here had no qualms revisiting the ’402 patent’s eligibility despite the Office already blessing the claims in a post-Alice framework. Indeed, the PTAB did not mention § 257(c) in its second CBM institution decision.
One question this case presents is whether § 257(c) precludes further review from the PTAB or an Article III court. By its terms, § 257(c) prevents a patent from being “held unenforceable on the basis of conduct relating to information” submitted during supplemental examination. (Emphases added.) Two questions immediately emerge. The first is whether patent ineligibility under § 101 reflects a type of “unenforceab[ility].” The second is whether eligibility questions hinge on “conduct.” We investigate these questions in inverse order.
First, it is difficult to envision patent eligibility as an issue involving “conduct.” Eligibility is a legal question asking whether a patent claim covers a law of nature, natural phenomenon, or abstract idea. See Alice, 573 U.S. at 216. Unlike other enforceability issues—such as unclean hands or inequitable conduct—patent eligibility does not depend on what a party does. It depends only on what a patent claims. Compare, e.g., Therasense Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1285 (Fed. Cir. 2011) (en banc) (describing inequitable conduct as an outgrowth of unclean heads in “patent cases involving egregious misconduct” (citing cases)), with, e.g., Alice, 573 U.S. at 217 (describing eligibility as “a framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts”). It thus seems unlikely that § 257(c)’s sanctuary “on the basis of conduct” encompasses patent ineligibility assessments.
Second, it is debatable whether patent ineligibility is a flavor of “unenforceab[ility].” Patent practitioners often differentiate a patent’s validity from its enforceability, though the Patent Act is less than clear on this score. Subsection 282(b) expressly distinguishes “[i]nvalidity” from “absence of liability for . . . unenforceability,” suggesting the two concepts are distinct. See 35 U.S.C. § 282(b)(1)-(2). But that same subsection describes instances where a claim cannot be “canceled or held invalid or otherwise unenforceable.” 35 U.S.C. § 282(b)(3)(A) (emphases added). Using the word “otherwise” in this way suggests that unenforceability is a genus of which validity is a specie. See, e.g., Begay v. United States, 553 U.S. 137, 144 (2008); id. at 150-51 (Scalia, J., concurring) (construing “otherwise” after a list of examples as requiring the enumerated items to possess the trait following the word “otherwise”); see also Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 195-214 (2012) (discussing the canons of associated words and ejusdem generis).
Regardless of how the statutory interpretation question resolves, the PTAB’s approach here comports with recent Federal Circuit guidance. In AMEX CBM II, the PTAB declined to give weight to the Office’s prior inventive concept analysis due to new factual evidence in the form of expert testimony. See AMEX CBM II, Paper No. 7, at 37-38. This deference to new evidence accords with recent appellate cases establishing how Alice’s “inventive concept” inquiry may turn on questions of fact. See Berkheimer v. HP, Inc., 881 F.3d 1360, 1368 (Fed. Cir. 2018) (“The question of whether a claim element or combination of elements is well-understood, routine and conventional to a skilled artisan in the relevant field is a question of fact.”); see also, e.g., Cellspin Soft, Inc. v. Fitbit, Inc., 927 F.3d 1306, 1315 (Fed. Cir. 2019); Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121, 1128 (Fed. Cir. 2018). And the PTAB’s willingness to revisit a patent’s eligibility in view of “recent Federal Circuit decisions” stands as an ever-present possibility. See AMEX CBM II, Paper No. 7, at 38. This makes patent eligibility a moving target, an idea discussed more thoroughly in Weisfeiler, et al., Supplemental Examinations and Supplemental Examinations and Alice: The Bare Essentials of When Not to Poke the Bear, AIA blog, July 9, 2019, https://www.finnegan.com/en/insights/blogs/america-invents-act/supplemental-examinations-and-alice-the-bare-essentials-of-when-not-to-poke-the-bear.html.
Nor do supplemental examinations appear to protect patentees from having to relitigate “the same or substantially the same” eligibility questions under 35 U.S.C. § 325(d). The PTAB in AMEX CBM II declined to invoke § 325(d) even though the Office had already adjudicated the ’402 patent’s eligibility under Alice. All it took to do so was an expert declaration (easily obtainable) and evolving case law (always present). This case is somewhat unique due to Signature’s representations on the scope of the ’402 patent during the ’807 patent’s supplemental reexamination. But the PTAB did not once suggest that these statements impacted its decision to reopen the eligibly question. See AMEX CBM II, Paper No. 7, at 37-39.
At bottom, the protections accorded to eligibility assessments in supplemental examinations appear to be very narrow. The Patent Office does not appear to interpret § 257(c) as barring its reconsideration of a patent’s eligibility after supplemental reexamination. And the PTAB has not seemed eager to apply § 325(d) to boot serial attacks within the Office. Adverse parties will always be able to adduce expert testimony challenging a patent’s conventionality. And until the Supreme Court or Congress speaks on the issue, the Federal Circuit must continue to decide cases under the existing Alice framework. As long as expert testimony and evolving case law are enough to bypass § 325(d), then eligibility determinations in supplemental examination have little teeth.
B. Application to other post-grant proceedings
While supplemental examination provided little protection to Signature in this case, one reason for this result is the nature of CBMs. The ’402 patent arguably qualified for CBM review because, in the PTAB’s view, the claimed credit card reward exchange reflected a “financial product or service.” See 37 C.F.R. § 42.301(a). For patents not subject to CBM challenges, however, supplemental examination may yet have value.
Signature’s patents would have fared differently, for example, had they been susceptible only to an IPR. First, petitioners are limited to novelty and obviousness challenges in IPRs. See 35 U.S.C. § 311(b). American Express would thus have needed to bring its § 101 attack in district court, not at the Patent Office. Second, the PTAB cannot institute review of an IPR filed more than one year after the petitioner is served with a complaint alleging infringement of the patent. 35 U.S.C. § 315(b). This timing requirement would have barred American Express from filing its second IPR petition years later. But because CBMs have no such prohibition, nothing stopped American Express from advancing a second, serial CBM challenge on § 101 long down the road. Signature’s experience thus serves as a cautionary tale for patent owners considering supplemental examination on a patent subject to CBM review.
For some patents, though, supplemental examination may provide some benefit for concurrent district court litigations. A patent surviving a supplemental eligibility review may stand on stronger footing than those without a second look. Parties holding such patents could champion this fact to the judge and jury, potentially making it more difficult to find the patent abstract or conventional.
But it is a proposition fraught with risk. If a supplemental examination request is granted and reexamination ordered, there is no guarantee the claims will survive. And if they do, success in supplemental examination does not guarantee success in court. See Cleveland Clinic Found. v. True Health Diagnostics LLC, 760 Fed. App’x 1013, 1020 (Fed. Cir. 2019) (nonprecedential) (“While we greatly respect the PTO’s expertise on all matters relating to patentability, including patent eligibility, we are not bound by its guidance.”). Nor does it ensure success within other branches of the Office, as Signature learned the hard way.
Using supplemental examination to bolster a patent’s eligibility standing thus involves several considerations. For some, the benefits may justify the risk. For most, the immortal words of Paul McCartney ring true: let it be. For in the realm of supplemental examination, discretion may very well be the better part of valor.
1 Created in the AIA, CBMs are administrative reviews reexamining a patent’s validity. Parties may seek CBM review only after being sued or charged with infringement of the patent. 37 C.F.R. § 42.302(a). CBM reviews are available for patents “used in the practice, administration, or management of a financial product or service,” except for those involving “technological inventions.” 37 C.F.R. § 42.301(a).
2 For a discussion on the ’807 patent and its supplemental examination, see Fernandes et al., Past Performance Is No Guarantee of Future Results: The Danger in Relying on Parent Patents During Supplemental Examination. (will need link when we publish these)
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