Alert: Federal Circuit Narrows the Types of Patents That Can Be Challenged in a Covered Business Method Review

In many ways, inter partes review (IPR) and covered business method (CBM) review are equivalent proceedings to challenge an issued patent efficiently. CBM proceedings have a key benefit in that they are not limited to challenges based on “paper” prior art (i.e., patents and printed publications). Rather, a CBM petitioner can raise any sort of prior art, Section 101 invalidity, and Section 112 invalidity. But Congress limited CBM proceedings to patents that do not recite “technological inventions” and that do “claim 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”—€”and the PTO has adopted that same definition via regulation (37 CFR 42.301(a)). So petitioners who want the extra arguments available in CBM have needed to explain why the patents they’ve challenged involve a financial product or service.

However, the Federal Circuit ruled yesterday (REYNA, Plager, and Hughes) in Unwired Planet, LLC v. Google Inc., Docket No. 2015-1812 (Fed. Cir. Nov. 21, 2016), that the Patent Trial and Appeal Board’s application of the statute and the PTO’s regulation were too broad. Under that broader application, the Board noted that the subject matter of the claims was “incidental or complementary to” potential sales from advertising that could be presented with the claimed invention’s method of giving access to a smartphone user’s location information under certain conditions. The “incidental or complementary to” language came from a floor comment by Senator Schumer that the PTO quoted in response to public comments regarding CBM—€”but that the PTO never put into regulations. And the Federal Circuit noted that its use “renders superfluous the limits Congress placed on the definition of a CBM patent,” since, for example, almost any invention would be “incidental to” a sale of a good or service in some way: “It is not enough that a sale has occurred or may occur, or even that the specification speculates that a potential sale might occur.” The Federal Circuit stopped at that point, however. It did not further discuss the reach of the statutory and regulatory text, and it did not opine on whether the claims here would meet that test.

The practical result of this case is that parties contemplating a CBM filing or defending a CBM proceeding will need to think harder about whether the claims in their case meet the statutory language, which is also the language in the regulation. That will not mean that only banking patents can be subject to CBM invalidation, but it will require a more rigorous review than in the past. Such a review might result in a petitioner filing for IPR rather than CBM, which may in turn, require additional prior art searching (to find “paper” prior art rather than sales or public uses) and may also require deferring Section 101 and Section 112 defenses to district court litigation. Every case is unique, of course, and the effect of Unwired Planet will depend on whether you have an easy case or an edge case.