The threshold bar for being able to successfully petition the Patent Trial and Appeal Board (PTAB) at the United States Patent and Trademark Office (USPTO) to initiate the covered business method review used to be low. See Versata. However, in Secure Axcess, LLC v. PNC Bank (Fed. Cir. 2/21/17), the Federal Circuit raised the threshold standard so that only claims that have a financial element activity would qualify for covered business method review. This is a higher standard and limits the ability of defendants to successfully petition the PTAB to initiate the CBM review for invalidating invalidate a patent.
The covered business method review is a post grant proceeding conducted at the USPTO before the PTAB. The benefit of invalidating a patent for which the defendant is being accused of infringing before the USPTO instead of in District Court litigation is that the USPTO will ascribe the broadest reasonable interpretation to the claim language of the patent. This leads to an increased likelihood that the patent claims would be invalid for being anticipated or obvious in light of the existing prior art. In this sense, the covered business method review is an excellent procedure for defendants or infringers to invalidate and avoid patent infringement liability to patent owners.
Under the new higher threshold standard, less patents are subject to CBM review.
The statute covering CBM review states that CBM review is available for covered business method patents which 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…” The issue in this and prior cases dealt with the threshold issue of when a patent claim meets the statutory definition of a covered business method patent.
The statutory language could be understood to allow a broad permissive application of the standard so that many patents would be considered a covered business method patent. In particular, the statute could be read to mean that any method or apparatus would be a CBM patent if the claimed invention used in the practice, administration or management of the financial product or service even if that use is not recited, whether explicitly or implicitly by the patent’s claims.
In Secure Axcess, the Federal Circuit reasoned that construing the statutory language in this broad manner would give the CBM review program a virtually unconstrained reach so that a claim or apparatus for performing any operation that happened to be used in the practice and administration or management of a financial product or service would be subject to CBM review. The Federal Circuit reasoned that the statute was not intended to have such a broad reach. In particular, the Federal Circuit noted that the CBM review procedure was designed to have limited impact, as is evident by its other features. CBM review has a sunset period of eight years from enactment. Moreover, CBM review is only one type of post grant proceeding. Other types of post grant proceedings include inter partes review, post grant review, ex parte re-examination, supplemental examination which all have different threshold standards for instituting these post grant proceedings. If CBM review had such a broad reach, then the other threshold standards for the other post grant proceedings would be meaningless because all of the patents could be reviewed as a CBM patent. Congress would not have intended this result based on the statutory framework of the other post grant patent proceedings.
With this is mind, the Federal Circuit dealt with the issue of the proper standard for determining whether a patent is subject to CBM review. In prior cases, the Federal Circuit dealt with this issue and used various language to characterize those types of patent claims which are subject to CBM review and those which are not. For example, in Versata, the Federal Circuit rejected the idea that patent claims that are incidental to a financial activity can be subject to CBM review. In Unwired Planet, the Federal Circuit objected to the standard that a claim directed to a method or apparatus complementary to a financial activity should be subject to CBM review. Moreover, in Blue Calypso, the Federal Circuit explained that the description of a claim that is “financial in nature” was an accurate way to describe a claim that would be subject to CBM review.
But what does financial in nature mean?
Virtually all patents have a financial component in them because the patent owner is seeking a patent in order to seek a financial reward. However, the Federal Circuit also acknowledged that CBM review should not cover all patents because of this incidental or complementary financial aspect of all patented inventions. Rather, the Federal Circuit said that the claim must contain a financial activity element to be covered under the covered business method review.
This standard appears to be a more reasoned approach. The Federal Circuit is scaling down the applicability of CBM review so that a smaller subset of patents is subject to CBM review. Moreover, the Federal Circuit is taking a middle of the road approach in setting the standard. In this case, the patent owner wanted CBM review to be applicable only to products and services such as credit, loans, real estate transactions, securities and investment products, and similar financial products and services. The approach taken by the Federal Circuit is broader in that even though a patent claim is not directed to one of these categories, the patent would still be subject to CBM review if the claim recites a financial activity element.
Based on this standard, in Secure Axcess, the PTAB’s determination was vacated and the case remanded for further consideration based on the above standard. In the instant case, the patented invention was directed to computer security. It was directed to a system and method for authenticating a webpage. Banks would have a significant interest in this type of technology to validate the person’s identity when accessing a financial account. Even though the technology was capable of being used in a financial related activity, the issue is not whether the technology can be used in relation to the financial activity but whether the patent claims recited a financial activity element.
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