Federal Circuit Holds PTAB exceeded Statutory Authority in using the Broader “Incidental” or “Complementary” Definition of Covered Business Method

In Unwired Planet v. Google, the Federal Circuit vacated a PTAB Covered Business Method (CBM) review decision holding that the PTO’s definition of a “covered business method” was “not in accordance with the law.”

Covered Business Method review (CBM) is one of a group of post-issuance administrative review procedures created as part of the America Invents Act (AIA). CBM review allows certain patents to be challenged on almost any patentability ground, including subject matter eligibility (under 35 U.S.C. § 101). The term “covered business method” is particularly defined to include any 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.” AIA § 18(d)(1).

In its rules implementing the statute, the PTO did not further define or explain the CBM definition, however, in a policy statement, the PTO asserted that the program applies to patents that are “incidental to a financial activity, or complementary to a financial activity.” It is under this more expansive definition that the PTAB has been instituting many CBM reviews. In Unwired Planet v. Google, the Federal Circuit rejected this more far-reaching definition as contrary to the statute.

Unwired’s patent claims a method of using a privacy policy associated with a wireless device to determine if applications are permitted to access the wireless device’s location information. The PTAB held the claims were a CBM by finding that businesses may want “to know a wireless device is in its area so relevant advertising may be transmitted.” The PTAB’s findings were based on the patent’s written description. The PTAB also found the patent claims to be invalid in the CBM under 35 U.S.C. § 101 as being directed to unpatentable subject matter. On appeal, however, the Federal Circuit found the required “financial product or service” link too tenuous and reversed the PTAB’s determination that the patent claims were a CBM. The court explained:

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.

This is great news for Unwired because the challenges based on § 101 are not allowed in inter partes review. In a broader sense, this decision by the Federal Circuit is important for two reasons. 1) The current definition of CBM under which the PTO has been instituting CBM review is too broad, and the Court gave no deference to the “policy statement” made by the PTO in its notice of the final rules. However, the Court does implicitly suggest that implementation of a more thorough definition in the CFR rules may be given deference. 2) While the decision to initiate a CBM is not appealable, in the present case the Federal Circuit held that it still has jurisdiction to review the CBM initiation question on appeal. In Versata, the Federal Circuit held that the initial question of whether a patent is a CBM patent may be reviewed on appeal. Despite the statutory language and the intervening Supreme Court decision in Cuozzo, the present case shows that the Federal Circuit is sticking to their guns and will continue to review CBM initiation questions on appeal.



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