Covered Business Method (CBM) Update

By: Jeff Guinn

A recent U.S. Court of Appeals for the Federal Circuit decision has attempted to clarify what is, and what is not, a Covered Business Method (“CBM”) under the America Invent Act’s (“AIA”) transitional review program for CBM patents.  See Unwired Planet, LLC v. Google Inc., Case No. 15-1966, (Fed. Cir. 2016).  Section 18 of the AIA establishes a program for reviewing the validity of a granted patent that qualifies as a CBM patent, stating that a CBM patent is defined 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.”  Leahy-Smith America Invents Act (“AIA”), Pub. L. No. 112-29, § 18(d)(1), 125 Stat. 284, 330-331 (2011), see also 37 C.F.R. § 42.301(a).

U.S. Patent No. 7,203,752 (“the ’752 patent”) relates to a system and method for restricting access to a wireless device’s location information.  The PTAB instituted a CBM review of the ’752 patent based on a petition by Google.  See Google Inc. v. Unwired Planet, LLC, CBM2014-00006, 2014 WL 1396978, (PTAB. Apr. 8, 2014).  The institution decision was based on a finding by the PTAB that “client applications” of the claims may be associated with a good or service provider that wants to know a wireless device is in its area so relevant advertising may be transmitted to the wireless device, which the PTAB considered incidental or complementary to a financial activity because the location service could involve an eventual sale of services.  See Id.

In Unwired Planet, LLC v. Google Inc., the Federal Circuit decided that the ’752 patent did not fall within the scope of the CBM patent definition, and, thus, institution of the CBM review of the patent’s validity by the Patent Trial and Appeal Board (“PTAB”) was improper.  Specifically, the Federal Circuit found that the PTAB relied on an incorrect definition of CBM patent, and therefore vacated the PTAB’s final decision of invalidity and remanded the case to the PTAB.  More specifically, the Federal Circuit took issue with the USPTO’s adoption, apparently based on legislative history, that the AIA’s definition of a CBM patent was drafted to encompass patents “claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity” (emphasis added).  77 Fed. Reg. 48734, 48735 (Aug 14, 2012).

The Federal Circuit found that general policy statements made by legislators do not have the force and effect of law.  See Unwired Planet, LLC v. Google Inc.  Further, the legislative debate concerning the scope of CBM review includes statements from a variety of legislators, some of which are inconsistent.  See Id.  It appeared the USPTO relied on a single statement by Senator Chuck Schumer when expanding the definition of what qualified as a CBM patent.  See Id.  However, the Federal Circuit maintained that the actual text of the statute provides the operative legal standard, and that text makes no mention of activities that are merely incidental or complimentary to financial activity.  See Id.  The Federal Circuit noted that at some level, all patents relate to potential sale of a good or service.  See Id.  The Federal Circuit elaborated by using several mildly humorous examples, such as a hypothetical patent for lightbulb suited to bank vaults not being a CBM patent merely because of its incidental use in a bank vault, and a hypothetical patent for a ditch digging apparatus not being a CBM patent merely because the dirt dug to form the ditch may later be sold.  See Id.  The Federal Circuit concluded that it is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur, to conclude that claims are directed to “performing data processing or other operations” or “used in the practice, administration, or management of a financial product or service,” as required by the statute. AIA § 18(d); 37 C.F.R. § 42.301(a).

Overall, this decision should reduce the number of patents that qualify as CBM patents, which may be a boon to any patent owner whose patent is merely incidental or complimentary to some financial activity.  What remains to be seen is what effect the decision will have on pending CBM reviews that were instituted based on the USPTO’s flawed definition.