Federal Circuit Report

• Jurisdiction: United States,Federal
• Author: REX HWANG
• Publication year: 2017
• Citation: Vol. 42 No. 2

Federal Circuit Report

REX HWANG
Glaser Weil Fink Howard Avchen & Shapiro LLP

NICK HUSKINS
Glaser Weil Fink Howard Avchen & Shapiro LLP

Editor's Correction: Nicholas Huskins co-authored the Spring 2017 Federal Circuit Report with Rex Hwang in Volume 42, Number 1, 2017 of New Matter. His credit was inadvertently omitted from the print edition.

Introduced through the America Invents Act ("AIA"), a covered business method ("CBM") review proceeding is an administrative trial conducted by the Patent Trial and Appeal Board ("PTAB"). Similar to inter partes review ("IPR") and post grant review ("PGR") proceedings, a party charged with infringement may initiate a CBM review to challenge the asserted patent's validity. CBM review can be a powerful tool for accused infringers because it does not carry the same limitations as IPRs or PGRs. For instance, CBM reviews offer a broader range of grounds for challenging a patent's validity than IPRs (e.g., section 101 and 112 challenges), and are available after the nine-month window of eligibility in which PGRs may be initiated. Notably, it has been reported that 97% of instituted CBM reviews have resulted in some or all claims being held invalid.¹

To qualify for a CBM review, the challenged patent must conform to the AIA's statutory definition of a CBM patent. AIA § 18(d)(1) defines a CBM patent as one that "claim[s] a method or apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service."² In the past, the PTAB liberally construed this standard, expanding the scope of CBM review to patents which claim only a peripheral relationship to financial activity. In determining whether a challenged patent meets this broad standard, the PTAB not only examined the patent's claims, but also considered its own policy statements, a patent owner's litigation history, the AIA's legislative history, and the use of financial examples included in the patent's specification.

However, a pair of recent Federal Circuit decisions, Unwired Planet, LLC v. Google, Inc.³ and Secure Axcess, LLC v. PNC Bank Nat'l Ass'n⁴, rein in the PTAB's liberal interpretation of § 18(d)(1) and clarify the scope of what constitutes a CBM patent.

UNWIRED PLANET, LLC V. GOOGLE, INC.

In this case, Unwired Planet sued Google alleging infringement of U.S. Patent No. 7,203,752 (the "'752 Patent"). The '752 Patent is generally directed to a system and method which allows users to restrict access of various "client applications" to a wireless device's location information based on a user's privacy settings.⁵

Google petitioned for CBM review as to four claims in the '752 Patent. In assessing whether the '752 Patent qualifies as a CBM patent, the PTAB framed the eligibility standard as "whether the patent claims activities that financial in nature, incidental to financial activity, or complementary to financial activity."⁶

After examining the patent's disclosure, the PTAB concluded that at least one of the challenged claims was "incidental or complementary to the financial activity of service or product of sales" and thus, subject to CBM review.⁷ In reaching this conclusion, the PTAB pointed to the patent's specification, which provided that "the 'client application' may be associated with a service provider or a goods provider, such as a hotel, restaurant, or store, that wants to know a wireless device is in its area so relevant advertising may be transmitted to the wireless device."⁸ The PTAB instituted CBM review, and eventually invalidated the challenged claims as being directed to unpatentable subject matter under section 101.

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Unwired Planet appealed, arguing that the PTAB erred in applying a broader standard than the AIA contemplates in determining the '752 Patent's eligibility for CBM review.

On appeal, the Federal Circuit vacated the PTAB's determination, finding that the PTAB relied on an incorrect and overbroad application of § 18(d)(1) in evaluating the '752 Patent. In doing so, the Federal Circuit noted that the "incidental to financial activity" and "complementary to a financial activity" language relied on by the PTAB is not found in the statute. Instead, the language originated from statements made by Senator Chuck Schumer during the legislative debate over the AIA, which were subsequently echoed by the United States Patent and Trademark Office ("USPTO") in public statements concerning the administration of CBM review. However, the USPTO did not adopt this general policy statement as a formal rule, and the Federal Circuit found such language to be inconsistent with the statutory definition of a CBM patent. As a result, the Federal Circuit held the PTAB's application of this standard exceeded and "render[ed] superfluous the limits Congress placed on" the scope of CBM review. Noting that "all patents, at...