Federal Circuit Rejects PTAB’s Definition Of Covered Business Method Patents As Patents “Incidental” Or “Complementary” To Financial Activity

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November 21, 2016 – The Federal Circuit today in Unwired Planet, LLC v. Google Inc., Appeal No. 2015-1812, rejected a broad definition of covered business method (CBM) patents adopted by the Patent Trial and Appeal Board (PTAB) in a CBM review between Google and Unwired Planet over Unwired Planet’s U.S. Patent No. 7,203,752.

CBM reviews are adversarial proceedings established under the 2011 America Invents Act (AIA) that allow challenges to the validity of certain business method patents before the PTAB, which is part of the United States Patent and Trademark Office (PTO). The AIA defines a CBM patent 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 innovations.” AIA § 18(d).

In CBM Review No. 2014-00006, Google challenged certain claims of Unwired Planet’s ‘752 patent, which describes and claims a system and method for controlling a “client application’s” access to a wireless device’s location information. Although the challenged claims do not mention a financial product or service, the PTAB nevertheless instituted CBM review of those claims, based upon the reasoning that the ‘752 patent specification “indicates 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 . . . . Thus, the [claimed subject matter] is incidental or complementary to the financial activity of service or product sales.” (emphasis added). The PTAB proceeded to find the challenged claims invalid under 35 U.S.C. § 101 as directed to unpatentable subject matter. Unwired appealed that invalidity decision to the Federal Circuit.

On appeal, the Federal Circuit noted that its jurisdiction included review of the threshold matter of whether the ‘752 patent is a CBM patent. The Federal Circuit then rejected the PTAB’s definition of a CBM patent as one that claims subject matter “incidental” or “complementary” to a financial activity. The Federal Circuit held that the PTO in its regulations had adopted the AIA’s statutory definition of a CBM patent “without alteration”; that the PTAB’s “incidental/complementary” language was not part of the statutory definition; and that, in any event, “the PTO’s regulatory authority does not permit it to adopt regulations that expand its authority beyond that granted by Congress.”

The Federal Circuit observed that the “incidental/complementary” language originated in a statement by Senator Schumer which the PTO later quoted in a “policy statement,” but concluded that “[n]either the legislators’ views nor the PTO policy statement provides the operative legal standard. The authoritative statement of the Board’s authority to conduct a CBM review is the text of the statute.”

Last, the Federal Circuit rearticulated the limits of the statutory definition: “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 Federal Circuit noted that the PTAB’s definition, encompassing patents incidental or complementary to a financial activity, would render superfluous the limits of the statutory definition, as “[a]ll patents, at some level, relate to the potential sale of a good or service.”

Accordingly, the Federal Circuit vacated and remanded the decision for a determination “in the first instance” of whether the ‘752 patent is a CBM patent. The Federal Circuit did not address the issue of whether the challenged claims are invalid under 35 U.S.C. § 101.