Federal Circuit Reins in PTAB’s Use of CBM Reviews

GavelIn Unwired Planet, LLC v. Google Inc., Case No. 2015-1812 (Fed. Cir. November 21, 2016), the Federal Circuit rejected the PTAB’s broad application of CBM reviews to claims that are merely “incidental” or “complementary” to financial activity:  “We hold that the Board’s reliance on whether the patent claims activities ‘incidental to’ or ‘complementary to’ a financial activity as the legal standard to determine whether a patent is CBM patent was not in accordance with law.”  Going forward, the breadth of patents for which the PTAB institutes CBM trials will be less extensive than in the past.

The America Invents Act (“AIA”) permits a Covered Business Method (“CBM”) review to be instituted only for a “covered business method patent,” which the AIA defines 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 invention.”  AIA § 18(d)(1).  The PTO adopted this definition of a “covered business method patent,” without elaboration, by regulation.  37 C.F.R. §42.301(a).

The challenged patent in this case was directed to a system that allows users of wireless devices (e.g., cell phones) to set “privacy preferences” that determine whether “client applications” can access their device’s location information.  The patent specification stated that “client applications may be service or goods providers whose business is geographically oriented,” such as a “hotel, restaurant, and/or store.”  The patent specification further stated that these businesses may wish to know that a wireless device and its user are nearby so that “relevant advertising may be transmitted to the wireless communications device.”  The PTAB then reasoned that the challenged claims were “incidental or complementary to” potential sales results from advertising.  On this basis, the PTAB found that the challenged patent was a “covered business method patent” and instituted the CBM review.

The Federal Circuit noted that this “incidental” or “complementary” language does not appear in the statutory or regulatory definition of “covered business method patent.”  Instead, that language originated from a statement Senator Schumer made, which the PTO quoted in its response to public comments concerning its consideration of proposed interpretations of the statutory definition for a CBM patent.  The Federal Circuit noted that general policy statements are not legally binding, and, without adopting a policy as a rule through rulemaking – which the PTO did not do here – an “agency cannot apply or rely upon a general statement of policy as law.”

The Federal Circuit went on to acknowledge that the “incidental” or “complementary” to financial activity test is overbroad in any event, explaining that, for example, a 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.  “It is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur” to be considered a CBM patent.

As evident by the facts of this case, the PTAB has, until now, applied the CBM standard very liberally.  That trend is now likely to take a turn, at least somewhat.