Bottom line: A covered business method (CBM) proceeding is a post patent grant proceeding at the United States Patent and Trademark Office. Anyone to challenge the validity of certain patents based on any invalidity ground, with minor ramifications if they also end up in full blown litigation in district court. Under Versata v. Sap (Fed. Cir. 2015), CBM proceedings are not limited solely to patents directly related to financial institutions but are broadly applicable to any patent directly, incidentally or otherwise related to a financial activity. As such, attacking validity of a patent as a covered business method under the AIA (America Invents Act) is now available for more patents even if they are incidentally related to financial services.
In general, covered business method proceedings are of more strategic use for defendants/petitioners than other post patent grant proceedings (e.g., inter partes review) since the defendant/petitioner is only estopped or prevented from making the same arguments actually raised and is not estopped from making anyargument or attack that reasonably could have been raised during the CBM proceedings.
The AIA which changed U.S. patent laws in very significant ways provided for various different post grant review administrative proceedings that others could use to challenge the validity of a patent after the patent issued. These challenges are typically brought up by competitors or those being sued by or threatened by the patent owner. One of the major downsides to bringing these post grant review, administrative proceedings is that the arguments made during the post grant proceeding cannot be rehashed during litigation. The petitioners are estopped from doing so. It seems fair that the petitioner or challenger cannot rehash the same arguments when the dispute is escalated to district court litigation. However, the estoppel for other post patent grant proceedings reaches far beyond what was actually argued.
For example, in an inter partes review proceeding, the estoppel reaches to what “reasonably could have been raised”. What reasonably could have been raised is a very broad phrase and extends to arguments the challenger/petitioner did not know of but reasonably should have known about. Did you know of an argument but didn’t raise it? Should you have known about the argument? If yes, then you are estopped from bringing the argument during district court litigation. Not so for a covered business method proceedings. In a CBM proceeding, the estoppel only reaches to what was actually argued.
The range of estoppel between arguments that were actually raised and those arguments that could have been raised during the CBM proceeding is significant. If estoppel applied to all arguments that reasonably could have been raised during the post patent grant proceeding, then the defendant or patent owner would have a significantly tougher job at being successful at presenting a defense for the defendant at litigation if the defendant lost the post patent grant proceeding. The estoppel would reache to any arguments that could have been presented but weren’t. All arguments must be presented during the proceeding before the USPTO or the petitioner risks waiving those arguments.
However, CBM proceedings only prevents the defendant from making the same arguments during litigation that were made during the CBM proceeding and that takes a lot of weight off of defendants. The challenger can pick and choose which arguments he or she might want to present during the CBM proceeding or during litigation. If there is a simple argument or a more likely argument that might win the day, the defense can try that argument before the PTO at the CBM proceeding without any waiver to any other argument that could have been raised.
In Versata v. Sap, the patent owner (Versata) owned a patent directed to a method and apparatus for pricing products in multi-level products and organizational groups. The patent is said to reduce the need for large data tables by arranging customers into a hierarchy of customer groups and arranging products into a hierarchy of product groups. Sap petitioned the PTO to institute the CBM proceeding to challenge the validity of Versata’s patent.
The court held that this was a covered business method patent which is defined in the statute 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.
At first glance, covered business method patents cover patents related to financial services such as banks, brokerages, holding companies, insurance and similar institutions with a finance focus. The Versata Patent was directed to a method and apparatus for pricing a product based on a customer or product catagorization and was not used in a business with a financial focus.
The court held that covered business methods are not limited to institutions having a financial focus. Rather, covered business methods are applicable to any methods and products which are complementary to a financial activity and relate to monetary matters. In Versata, the court opened the door for all patents having a financial activity and/or that relate to monetary matters be open to invalidity challenges as a covered business method patent under the AIA.
The AIA does provide for an exception to the covered business method patents. In particular, technological inventions are excluded as a covered business method patent. However, the court aptly noted that the PTO which was given authority to define what is a technological invention used the term it was supposed to define in the definition itself thereby not being helpful in clarifying what a technological invention is. Nevertheless, the court characterized the instant invention as a solution involving the creation of an organizational chart and not a technical invention.
This to me appears to be an overgeneralization of the claimed invention. The court made no reference to the advantages of the hierarchical organization of inventive pricing model disclosed in the patent. Rather, the court characterize the invention as being akin to an organizational chart. This over generalization seems unfair to the inventive concept of the patent which dealt with significantly more than just likening the pricing model to an organizational chart. Nevertheless, in light of this case one needs to do more to define the invention in the specification and focus the claims in an attempt to avoid invalidity attacks after issuance.
Covered business methods have significant advantages over IPRs and litigation since the petitioner is not estopped from raising arguments during litigation that were not raised during the CBM proceeding. Not only are the estoppel significantly less detrimental to the petitioners/defendant’s position, CBM proceedings can be requested based on any ground and are not limited to printed publications like the other post grant proceedings. Versata shows that CBM proceedings are applicable to more than just patents used by financial institutions. Covered business method patents encompass any patent related to financial activity – such as a pricing.
I invite you to contact me with your patent questions (949) 716-8178. Please feel free to forward this article to your friends. As an Orange County Patent Attorney, I serve Orange County, Irvine, Los Angeles, San Diego and surrounding cities.