Chapter §22.04 Transitional Program for Covered Business Method Patents
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§22.04 Transitional Program for Covered Business Method Patents
[A] Introduction
[1] Generally
In addition to inter partes review and post-grant review, the AIA implemented a third post-issuance adjudicative proceeding termed the "Transitional Program for Covered Business Method Patents" (TPCBM). One commentator has termed the proceeding "one of the most unique and odd creations of the AIA."824 TPCBM review operates similarly in many respects to post-grant review (some consider it a very specific sub-set of post-grant review) but is much narrower in scope and permitted petitioners. TPCBM review applies only to certain business method patents related to financial products or services that are not "technological inventions."825 Moreover, only entities already sued or charged with infringement of a covered business method patent may petition for TPCBM review.
The TPCBM procedure took effect on September 16, 2012, and is scheduled to sunset on September 16, 2020.826 The AIA did not codify the TPCBM review provisions in the Patent Act; thus the proceeding's contours are set forth by the implementing legislation (AIA §18) and USPTO implementing regulations.827 Those regulations are codified in Title 37 of the Code of Federal Regulations, Chapter 1, Subchapter A, Part 42, Subpart D ("Transitional Program for Covered Business Method Patents").828
As of March 31, 2020, a little over seven years after TPCBM review could be sought, the USPTO reported receipt of a total of 591 petition filings for TPCBM review.829 As of May 15, 2019, in the decided 40 appeals to the Federal Circuit from PTAB final written decisions in CBM reviews, the affirmance rate was high. A leading patent law firm blog reported that as that date,
[i]n CBM appeals, the Federal Circuit affirmed the PTAB on every issue in 21 (75%) cases, issued a mixed outcome in 2 (7.14%) cases, dismissed 3 (10.71%) cases, and reversed or vacated the PTAB on every issue in 2 (7.14%) cases. 830
[2] Federal Circuit's Interpretation of "Covered Business Method Patent"
Section 18(d)(1) of the Leahy–Smith America Invents Act (AIA) defines a "covered business method patent" as
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. 831
In a case of first impression,832 a divided panel of the Federal Circuit held in the February 2017 decision, Secure Axcess, LLC v. PNC Bank National Ass'n,833 that "the statutory definition of a CBM patent requires that the patent have a claim that contains, however phrased, a financial activity element."834 Such a claim need not include "particular talismanic words," but "[w]hen properly construed in light of the written description, the claim . . . require[s] one of a 'wide range of finance-related activities' . . . ."835 Contrary to the PTAB's statutory interpretation in Secure Axcess, it was not sufficient that the claimed method could be used in a manner merely "incidental" or "complementary" to a financial product or service.836 Nor was it determinative that the patentee chose to assert infringement of its patent claims only by financial entities.
Reversing the PTAB, the Circuit majority determined that claims of Secure Axcess's U.S. Patent No. 7,631,191 ('191 patent), titled "System and Method for Authenticating a Web Page," did not contain a financial activity element and thus were not CBM claims subject to CBM review. The representative claims of the '191 patent recited:
1. A method comprising:
transforming, at an authentication host computer, received data by inserting an authenticity key to create formatted data; and
returning, from the authentication host computer, the formatted data to enable the authenticity key to be retrieved from the formatted data and to locate a preferences file,
wherein an authenticity stamp is retrieved from the preferences file.
17. An authentication system comprising:
an authentication processor configured to insert an authenticity key into formatted data to enable authentication of the authenticity key to verify a source of the formatted data and to retrieve an authenticity stamp from a preferences file.
These claims do not explicitly recite any "financial product or service." However, the Secure Axcess majority recognized that claim terms must be understood and construed in light of the patent's written description; this is a "fundamental thesis in claim construction."837 Notably, the written description of the '191 patent referred repeatedly to "bank[s]." For example, the description stated that
[i]n an exemplary embodiment, the electronic commerce system is implemented at the customer and issuing bank. In an exemplary implementation, the electronic commerce system is implemented as computer software modules loaded onto the customer computer and the banking computing center. The merchant computer does not require any additional software to participate in the online commerce transactions supported by the online commerce system. 838
Nevertheless, the Secure Axcess majority held that "the written description alone cannot substitute for what may be missing in the patent 'claims,' and therefore does not in isolation determine CBM status."839 Rather, the majority apparently agreed with the patentee's argument that the '191 patent was not eligible for CBM review because "its invention was not directed to a financial product or service and can use used by institutions other than financial institutions."840 The gist of the majority's reasoning was that "just because an invention [such as the method and system claimed in the '191 patent] could be used by various institutions that include a financial institution, among others, [that] does not mean a patent on the invention qualifies under the proper definition of a CBM patent."841 The majority concluded that
[b]ased on the record before us, and applying the definition of a CBM patent provided by Congress in AIA §18(d), and viewed as of the earliest effective filing date, we do not find in the '191 patent, when the claims are properly construed in light of the written description, a single claim that could qualify this patent as a "patent that claims . . . a method or corresponding apparatus . . . used in the practice [etc.] of a financial product or service." 842
The PTAB in Secure Axcess had erred as a legal matter by including in its broader reading of CBM patents those that claim methods used in a manner "incidental" to a financial activity. Specifically, the Board was mistaken when, "as part of its broader discussion of what is a 'financial product or service,' [it] concluded that '[t]he method and apparatus claimed by the '191 patent perform operations used in the practice, administration, or management of a financial product or service and are incidental to a financial activity.' "843 Consistent with the Circuit's 2016 holding in Unwired Planet, LLC v. Google Inc.,844 the Secure Axcess majority held that the italicized "incidental" portion of the Board's reading was "beyond the scope of the statutory standard" and therefore not "in accordance with law" under the judicial review standards of the Administrative Procedure Act.845
The policy concern driving the Secure Axcess majority's more circumscribed interpretation of a CBM patent was that the broader definition adopted by the Board, including activities "incidental" or "complimentary" to a financial activity, would have virtually unbounded scope; almost any patent could qualify for CBM review under the Board's interpretation. It would be safe to assume, in the panel majority's view, that "most, if not virtually all, inventors of methods or products claimed in a patent have some expectation that complementary financial activity will result—stated another way, that eventually their invention will produce financial rewards for their efforts."846 Such a broadly sweeping definition "obviously will not do."847
Moreover, allowing CBM review to potentially cover so many patents would contravene the limitations placed by Congress on the scope of inter partes review (IPR). Those include giving entities sued for infringement only one year to petition for IPR, and limiting IPR challenges to anticipation and obviousness grounds of unpatentability (thus excluding §101 or §112 grounds, which are available in CBM reviews). The Secure Axcess majority concluded that it was "not sensible to read AIA §18(d)(1) as obliterating these important limits for review of essentially any patent, subject only to the 'technological invention' exception."848
In addition to its incorrect statutory interpretation, the PTAB also erred by factoring into its determination the litigation history of patentee Secure Axcess. The Circuit majority did observe that the patentee had sued "a large number of defendants who could be described as 'financial' in their business activities."849 (Notably, as enumerated by the dissent, the patentee had sued about 50 financial institutions, but no other types of institutions or companies.850) But in the panel majority's view,
a patent owner's choice of litigation targets could be influenced by a number of considerations, such as the volume of a particular target's perceived infringement; the financial condition of the target; which targets are most likely to be willing to settle rather than bear the cost of litigating; available and friendly venues; and so on. Those choices do not necessarily define a patent as a CBM patent, nor even necessarily illuminate an understanding of the invention as claimed. 851
Judge Lourie dissented.852 Based on his reading of the '191 patent, it was "clear that the invention is to be used in the management of a financial service." Admittedly the claims did not include the word "financial," but that should not have decided the case. Patent claims...
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