November, 22nd, 2016

By Michael J. Kosma, Michael A. Lavine

On November 21, the United States Court of Appeals for the Federal Circuit held that the United States Patent and Trademark Office (“USPTO”) had improperly expanded the definition of a Covered Business Method (“CBM”) patent to include patents that are merely “incidental to” or “complementary to” a financial activity. This decision severely limits the patents eligible for CBM review.

The patent at issue, U.S. Patent No. 7,203,752, is entitled Method and System for Managing Location Information for Wireless Communications Devices. The ‘752 patent describes a system that allows users of wireless devices (e.g., cell phones) to set “privacy preferences” that determine whether “client applications” are allowed to access their device’s location information.

The Patent Trial and Appeal Board (“PTAB”) found the ’752 patent to be a CBM patent on the basis 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. In particular, the Board found the subject matter of the ’752 patent to be incidental or complementary to the financial activity of service or product sales, with the claims at issue directed to a method for performing data processing or other operations used in the practice, administration, or management of a financial product or service. In the CBM proceedings, the Board found the challenged claims were directed to unpatentable subject matter under 35 U.S.C. § 101.

In a unanimous decision, the Federal Circuit vacated the Board’s § 101 findings because the Board relied on an incorrect definition of covered business method (“CBM”) patent in instituting review.

In its decision, the Federal Circuit stated:

The Board’s application of the “incidental to” and “complementary to” language from the PTO policy statement instead of the statutory definition renders superfluous the limits Congress placed on the definition of a CBM patent. CBM patents are limited to those with claims that are directed to methods and apparatuses of particular types and with particular uses “in the practice, administration, or management of a financial product or service.” AIA § 18(d). The patent for a novel lightbulb that is found to work particularly well in bank vaults does not become a CBM patent because of its incidental or complementary use in banks. Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service. All patents, at some level, relate to potential sale of a good or service.

The case has been remanded to the PTAB to render a decision in accordance with the Federal Circuit’s opinion.

Takeaway: Until recently, CBM review was the only post-grant means for challenging a patent under § 101. And in those CBM reviews, patents that arguably had incidental or complementary applications to financial products or services were frequently invalidated. The Federal Circuit’s decision will likely curtail that trend because it restricts petitioners’ access to § 101 challenges. Accordingly, would-be CBM petitioners should ensure that any patent they intend to challenge falls squarely within the statutory definition of a CBM patent.

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