Federal Circuit Court Clarifies Meaning of Covered Business Method Patent (CBM)

The U.S. Court of Appeals for the Federal Circuit has clarified an important new patent review process created by the America Invents Act.

** LEGAL UPDATE **

On February 21, 2017, the U.S. Court of Appeals for the Federal Circuit offered an important clarification of the administrative review process for covered business method patents; a process articulated in the 2011 America Invents Act. In its decision, the Federal Circuit narrowed the scope of the U.S. Patent and Trademark Office’s authority to review such patents. In the process, the court clarified the definition of covered business method patents under the Act.

What Is a Covered Business Method Patent?

Before delving into the Federal Circuit’s interpretation of covered business method patents, it is useful to begin with some definitions. The America Invests Act (“AIA”), signed into law in 2011, represented one of the most significant legislative reforms to the American patent system. Among the changes included in that piece of legislation was a process through which covered business method patents could be challenged as being invalid.

Section 18(d)(1) of the AIA defines a covered business method 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 inventions.”

The AIA provides for an administrative review process through which covered business method patents can be challenged. This challenge would then determine their eligibility for protection by the U.S. Patent and Trademark Office, which is the federal agency with oversight over patent registration.

Under the AIA, all proceedings regarding covered business method patents are brought before the Patent Trial and Appeal Board (“PTAB”), which itself is a newly constituted administrative tribunal under the AIA to determine patentability. (In making its determination, the PTAB relies on the standards for patent eligibility contained in 35 U.S. Code § 101).

The Facts of the Dispute

The factual background surrounding the Secure Axcess, LLC v. PNC Bank National Association is fairly clear. Secure Axcess had registered a patent (U.S. Patent No. 7,631,191) involving various systems and methods for authenticating Web pages.

The PTAB found that Secure Axcess’s patent was a covered business method patent within the meaning of the AIA. Consequently, it instituted the proceeding spelled out in the legislation to review the patent’s eligibility. In making that decision to institute the proceeding, the PTAB did not consider the fact that the patents’ claims did not include a specific financial activity element; rather, it determined that it could review the patent as a covered business method patent simply because its Web authentication methods could be used in connection with financial activity; in other words, a more tenuous or hypothetical connection.

Once it determined that it could review it as a covered business method patent, the PTAB further held that the patent’s claims were unpatentable because they were obvious in light of prior art. Secure Axcess appealed to the U.S. Court of Appeals for the Federal Circuit, which is the federal court with appellate jurisdiction over most patent cases.

The Federal Circuit’s Decision

In a two to one decision on February 21, 2017, the Federal Circuit’s majority opinion, authored by Judge S. Jay Plager, reversed the PTAB’s determination. Not only did the Federal Circuit express doubt about the obviousness of the Secure Axcess patent, but also the PTAB’s very ability to decide the case.

Essentially, the court held that for a patent to qualify as a “covered business method patent,” it is not enough that the claimed subject matter might be used for a financial activity. Instead, the patent must have at least one specific claim that contains a financial element. Merely making a claim that is “incidental to a financial activity” is not within the statutory definition, and therefore not a proper realm of consideration for the PTAB.

The Federal Circuit interpreted the AIA more narrowly, to require that the patent contain at least one claim showing a financial activity element. Otherwise, the PTAB would be making determinations on patents far too broadly. The PTAB’s broader reading would give the covered business method review program a "virtually unconstrained reach,” the court noted. “Under that reading, a patent would qualify if it claimed a method or corresponding apparatus for performing any operations that happen to be used in ‘the practice, administration, or management of a financial product or service’…. [a phrase which] is not limited to the financial services industry, but reaches a wide range of sales and similar transactional activity. In fact, nearly everything that is invented can and likely will be used in someone’s sale of a good or service.”

Conclusion and Possible Implications of the Case

The covered business method patent review program, and indeed the AIA itself, are relatively new. The review process is a significant new element of American patent litigation. Consequently, it is difficult to assess the long-term implications of the Federal Circuit’s decision in Secure Axcess, LLC v. PNC Bank National Association.

But it is safe to say that the decision offers an important clarification of the covered business method patent review process. More specifically, the Federal Circuit has restricted the PTAB’s broader application of its review authority. Both patent holders and prosecutors should be aware of these developments.

Effective Date: February 21, 2017