E*Trade Financial Corp. v. Droplets, Inc.

Addressing a petition for a covered business method (CBM) patent review, the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB or Board) denied institution of the review for lack of standing.  E*Trade Financial Corp. v. Droplets, Inc., CBM2014-0013 (PTAB, Oct. 30, 2014) (Gaudette, APJ.).

The petitioner, E*Trade, initiated the patent challenge, asserting that a CBM patent review was the appropriate vehicle to challenge the patent at issue.  The patent included “computerized method” claims directed to delivering interactivity over the web to a client device.

In order for a challenged patent to be subject to CBM review, the petitioner must demonstrate that the patent is not for a technological invention.  Particularly, the petitioner is required to show that the “claimed subject matter, as a whole, does not recite a technological feature that is novel and unobvious over the prior art,” as well as that the claimed subject matter does not solve a technical problem using a technical solution.

Regarding the first prong of the test, the petitioner argued that the claims recited computer technologies (i.e., a “client device,” “server” and “web browser”) that were all well known in the art and relied on its anticipation and obviousness arguments (in the petition) to show that the subject matter of the claims, as a whole, was not directed a novel and unobvious technical feature.  In response, the patent owner, Droplets, described how the specific combination of hardware and software elements found in the specification and covered by the claims changed a fundamental technical operation of a computer system in a manner not found in the prior art.

In denying institution, the Board indicated that the first prong is “separate and distinct” from the requirement that the petitioner specify where each claim element is found in the prior art.  Rather than focusing on specific claims or claim elements, the Board referenced the patent owner’s (more detailed) discussion of how the technical features of the patent were not found in the prior art, and concluded that the petitioner had not demonstrated in its petition that the claimed subject matter, as a whole, did not recite a technological feature that was novel and unobvious over the prior art.  Specifically, the Board found that the “[p]etitioner has not shown by its arguments or supporting evidence that [the combination of steps disclosed by the prior art] would be expected to affect the way a computer system engages in interactivity over the web in the same manner as the claimed subject matter.”

With regard to the second prong—whether the claimed subject matter solves a technical problem using a technical issue—the petitioner summarized the subject matter of the independent claims and concluded that none of the technologies recited in the claims “solve a technical problem using a technical solution.”  The Board found that this single conclusory statement was insufficient to meet the petitioner’s burden.

Practice Note:  Petitioners should clearly articulate why a challenged patent is subject to CBM review or risk having the Board accept the patent owner’s version of why it is not.