Alert November 22, 2016

For First Time, Federal Circuit Reverses PTAB’s Finding That a Patent Is Eligible for “Covered Business Method” Review

Summary

On November 21, the Federal Circuit held that the Patent Trial and Appeal Board (PTAB) has been applying too broad a view of its own jurisdiction in conducting “covered business method” (CBM) reviews of patents pursuant to the America Invents Act of 2011. The court held that the PTAB is limited to the statutory definition of a CBM patent as one used “in the practice, administration, or management of a financial product or service,” and rejected the PTAB’s expansion of that definition to include patents with uses “incidental” or “complementary” to a “financial activity.” This is the first case in which the Federal Circuit has ruled entirely for the patent owner or reversed the PTAB's eligibility decision in a CBM case.

On November 21, 2016, the Federal Circuit held that the Patent Trial and Appeal Board (PTAB) has been applying too broad a view of its own jurisdiction in conducting “covered business method” (CBM) reviews of patents pursuant to the America Invents Act of 2011. In Unwired Planet, LLC v. Google Inc., No. 2015-1812, the Federal Circuit held that the correct standard is the one set out in the statute:  CBM reviews are only for patents with particular uses “in the practice, administration, or management of a financial product or service.” This decision narrows the number of patents that are subject to CBM review. It is the first case in which the Federal Circuit has ruled entirely for the patent owner or reversed the PTAB's eligibility decision in a CBM case. Goodwin represented the successful patent owner on appeal.

Covered business method review is in some ways the most robust of all the post-grant proceedings created by the America Invents Act:  a CBM review can invalidate a patent on any ground, unlike the more limited inter partes review, and a CBM review can invalidate even a pre-AIA patent, unlike a post-grant review. But CBM reviews are limited to “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.” 

The PTAB has been construing that definition extremely broadly. Based on a floor statement by one congressional sponsor, the PTAB has held that a patent is eligible for CBM review even if it claims only “activities that are … incidental to a financial activity, or complementary to a financial activity.” So, for example, the PTAB held that the patent in this case involved a “financial product or service” because it regulated access to the location of wireless devices, and “a hotel, restaurant, or store” may “want[] to know a wireless device is in its area so relevant advertising may be transmitted to the wireless device.” 

The Federal Circuit vacated the PTAB’s decision and held that its standard for CBM eligibility was too lax. The “incidental” and “complementary” language “is not found in the statute,” but came from a floor statement from U.S. Senator Charles Schumer (D-NY). Though the Patent and Trademark Office (PTO) quoted Senator Schumer’s statement in a policy statement, “[n]either the legislators’ views nor the PTO policy statement provides the operative legal standard,” the Federal Circuit held. Rather, the correct standard is “the text of the statute.” In addition, the breadth of the PTAB’s approach “renders superfluous the limits Congress placed on the definition of a CBM patent.” For instance, the court observed, a “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.”

Significantly, the Federal Circuit recognized that the PTAB has no discretion to deviate from the statutory definition. Google had argued that the PTO should be entitled to reinterpret the statute and receive deference for its interpretation. But the Federal Circuit held that the PTO cannot “adopt regulations that expand its authority beyond that granted by Congress.” The Federal Circuit therefore directed the PTAB to apply the correct statutory standard on remand.

Google had contended that CBM eligibility questions can never be reviewed on appeal. The America Invents Act bars judicial review of decisions to institute a CBM review, but the Federal Circuit previously had held that it has appellate jurisdiction to review whether a final decision of the PTAB misapplied the CBM definition and, therefore, exceeded the PTAB’s jurisdiction. Google argued in this case that appellate jurisdiction had been stripped away by the U.S. Supreme Court’s decision in Cuozzo Speed Technologies v. Lee. The Federal Circuit did not accept that argument; CBM eligibility remains a question of law that is reviewable on appeal.