I very recently wrote an article regarding the use of the Covered Business Method review procedure created under the AIA of 2012. The Covered Business Method review procedure is a powerful tool that can be used to challenge an issued patent that pertains to a business method. See Junk Patents and Covered Business Methods. The CBM procedure is related to Post Grant Review and Inter Partes Review.
First, it is critical to recognize that this procedure pertains only to “covered business methods”. The procedure, known a Covered Business Methods (CBM) has limited application. The enabling legislation states the review is limited to:
“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.”
As explained in my earlier article, there has been some controversy regarding what comprises a “financial product or service” and also what is a patent for “technical inventions”. The Court of Appeals for Federal Circuit (CAFC) has recently more narrowly interpreted the statute in contrast to the Patent Trial and Appeals Board (PTAB). Note that the PTAB conducts the review of the issued patents subject of the CBM. The administrative law judges of the PTAB review the work of the USPTO examiner that allowed the issuance of a patent for a covered business method.
The CAFC has stated in an early CBM procedure case entitled Versata Development Group v. SAP America Inc., that the statutory definition of a “covered business method patent” is based on whether the claimed invention is directed to “financial products or services.” The legislative history indicates that the definition should be broadly interpreted to “encompass patents claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.” The CAFC stated:
“The suggestion to clarify that the term “financial product or service” is limited to the products or services of the financial services industry is not adopted. Such a narrow construction of the term would limit the scope of the definition of covered business method patents beyond the intent of section 18(d)(1) of the AIA. The term financial is an adjective that simply means relating to monetary matters.”
In contrast the CAFC recently looked at the patent specification and claims to determined the scope of the patent (arguably used primarily in the financial services industry) was directed to a technical improvement and therefore not subject to review under the CBM procedure. See IBG LLC v. Trading Technologies Int’l. The court look at the lack of industry/use limitation in the specification and that none of the claims contained a “financial industry” limitation.
The CBM procedure is initiated by a third party, likely a competitor of the patentee (party receiving the patent). The third party initiating the CBM procedure is required to file a petition stating why the patent is invalid. The CBM procedure requires the third party to have been sued for infringement or that has been threatened by a lawsuit, i.e., has received a “cease and desist letter”.
Also the procedure can not be initiated in the first 9 months after the patent is first issued. Note this limitation tracks the window allowed for initiation of a Post Grant Review.
Perhaps most important (and reason for the assertion that CBM is a powerful tool) a CBM does not prohibit the initiating party from raising a new basis of defense or patent defect in a subsequent infringement action. Stated differently, the scope of estoppel is narrower under the CBM procedure that under the Post Grant Review (PGR) or Inter Partes Review (IPR).
Further, the CBM procedure allows the initiating third party to challenge the grant of patent on the basis of not only prior art, i.e., lack of novelty (Section 102) or existence of obviousness (Section 103), but also challenging whether the subject of the patent comprises is merely an abstract idea or method controlling human conduct, etc., (Section 101). Further, the challenge can be based upon lack of written description in the specification, claims of the issued patent not supported by the specification, and unclear claim language (Section 112).
The requesting third party must meet the standard that it is “more likely than not” that at least on claim is invalid. Note that this standard is presumed to be lower, i.e., easier to meet, than the “substantial new question of patentability” required to be met to initiate an Inter Partes Review (IPR).
The CBM procedure is conducted before the administrative judges of the PTAB. The decision remains appealable to the Court of Appeals of the Federal Circuit (CAFC). The trial is based upon a written record, supplemented by oral argument of counsel. Although allowed, live testimony of witnesses is rarely granted.
The CBM proceeding is intended to be completed within 12 months. It is intended to allow the threatened third party to challenge the validity of the underlying patent more cost and time effectively than filing an action for declaratory judgment in federal district court.
As noted in my earlier article, the CBM procedure is “transitional”, i.e., the procedure will not accept further petitions filed after September 2020.
The Covered Business Method review procedure remains a powerful and popular tool for third parties to challenge the issuance of patents pertaining to the conduct of business, particularly patents pertaining to control and flow of money. Whether is will continue beyond the stipulated sunset term (September 2020) remains to be seen.
Copyright David McEwing, 2019