The Transitional Program for Covered Business Method Patents (“CBM”), created by the Leahy-Smith America Invents Act (“AIA”), is set to sunset in September 2020. As the title suggests, the CBM program was created as a temporary avenue for entities to challenge the validity of financial product or service patents through the USPTO. The CBM program is only available to petitioners who have been sued or charged with infringement of the subject patent. On March 20, 2018, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet held a hearing assessing the effectiveness of the CBM program and investigating whether the CBM program should be extended, modified, or incorporated into other post-grant proceedings. The subcommittee made no determinations on the future of the CBM program, but the testimony from and commentary surrounding that hearing suggest that at least certain aspects of the CBM program could survive its sunset.

The CBM program, in effect since September 2012, provides entities facing infringement assertions an opportunity to challenge the validity of a business method patent by demonstrating that it did not meet requirements for patentability. CBM proceedings are administered by the Patent Trial and Appeal Board (“PTAB”), and petitioners can challenge the validity of business method patents on the basis of eligibility, novelty, obviousness and adequate written description. Unless Congress acts to extend the program, the PTAB will stop accepting new petitions under the CBM program in September 2020.

The hearing was conducted on the heels of a report from the Government Accountability Office released on March 13, 2018 (“GAO Report”)1 , assessing the CBM patent review program. The GAO Report “(1) describes the extent to which the program has been used to challenge patents, and the results of those challenges; (2) examines the extent to which USPTO ensures timeliness of trial decisions, reviews decisions for consistency, and engages with stakeholders to improve proceedings for the program; and (3) discusses stakeholder views on the effects of the program and whether it should be extended past its sunset date.” 2

At the March 20 hearing, the subcommittee heard from three witnesses, ostensibly one from each of a neutral, pro-CBM and anti-CBM perspective. John Neumann, Director of Natural Resources and Environment at the GAO, testified about the content and findings of the GAO Report without expressly opining on whether Congress should extend the CBM program. David Hale, Chief Privacy Officer and Deputy General Counsel of TD Ameritrade, testified as an advocate of the CBM program and as a representative of the financial services industry. Finally, Aaron Cooper, Vice President of Global Policy for BSA | The Software Alliance, testified against extending the CBM program and in favor of allowing the program to expire as intended by Congress.

Director Neumann’s testimony focused primarily on the uses and results of CBM challenges, the timeliness and consistency of the PTAB decisions, and stakeholder views on whether and how the program should be extended past 2020.4 Some key findings from the GAO Report include that of the 524 petitions filed challenging the validity of 359 distinct patents, about one-third of the patents had claims invalidated.5 Other evidence shows that almost one-quarter of all CBM petitions filed are settled before a final decision, with 66 settled pre-institution and 60 settled after institution.

However, the GAO report also notes that the number of CBM petitions filed has been declining since 2015. Between September 2012 to September 2017, an average of nine CBM petitions were filed per month, while only five petitions were filed per month between September 2015 to September 2017. Figure 3, reproduced below from the GAO Report, shows the number of CBM petitions filed each month and depicts the recent decline in petitions mentioned in the report.6 The GAO report suggested the drop in CBM petitions may be due to 1) recent court decisions clarifying the which patents are eligible for CBM review, 2) elimination of the lowest-quality business method patents earlier in the review process leaving only higher-quality patents, and/or 3) owners of business method patents being less likely to assert their patents for risk of invalidation.7

Dir. Neumann further stated that the PTAB completed all CBM trials within the statutory timeframe. While the GAO reported that the Board needed to improve its review process and improve various aspects of its trial proceedings, stakeholders interviewed by the GAO largely agreed that the CBM program had reduced litigation time and expenses. The GAO report did not take a stance on the future of the CBM program but noted that stakeholders said there was value in maintaining certain aspects of the program that differ from inter partes review (“IPR”) proceedings including the ability to challenge a patent’s validity on subject matter eligibility grounds. Concerns remained among some stakeholders that business method and software-related patents with questionable validity are still being issued today, and that other post-grant proceedings are not adequate. Other stakeholders expressed the view that the CBM program should be extended beyond its current subject matter and not be restricted to a specific technology. Dir. Neumann stated during his testimony that most of the stakeholders they interviewed were in favor of extending the CBM program, or at least incorporating key aspects into other post-grant proceedings.8

David Hale of TD Ameritrade testified as an advocate of the CBM program and as a representative of the financial services industry. Mr. Hale testified that the program has been successful in invalidating low-quality business method patents asserted against financial services companies and should be made permanent.9 Mr. Hale argued that many low-quality, financial services patents were granted beginning in the late 1990s, continuing through at least the early 2010s. He further testified that infringement litigations involving these low-quality patents increased the cost of doing business and hurt innovation in this industry. Mr. Hale testified that TD Ameritrade had successfully used the CBM program to invalidate low-quality patents as Congress intended. If the CBM program was allowed to expire, Mr. Hale argued that the industry would see an increase in the number of low-quality business method patents asserted in infringement litigation.

Mr. Hale also argued that the USPTO’s IPR and Post Grant Review (“PGR”) proceedings were not viable alternatives to CBM review because IPR did not permit the USPTO to consider whether patents claimed eligible subject matter or complied with the written description requirements of the Patent Act.10 Mr. Hale testified that PGR review is an inadequate alternative because it has a limited timeframe within which to file a petition and is limited to patents filed under the America Invents Act. In general, Mr. Hale stated a preference for either extending the CBM program or incorporating additional grounds for invalidity challenges into other post-grant proceedings.

Aaron Cooper, from BSA | The Software Alliance, testified that the CBM program should be allowed to end as Congress intended. Mr. Cooper pointed to the sharp decline in CBM petitions since 2015 as validation of Congress’ expectations when implementing the CBM program. Mr. Cooper testified that the CBM program is stifling investment and innovation in the financial technology industry due to its increased scrutiny of patents in that industry. Mr. Cooper further testified that the CBM program unfairly discriminates against a specific field of technology, namely business method patents.11 While opposing the extension of the CBM program, Mr. Cooper testified that BSA supports cost-effective technology-neutral mechanisms to challenge patent validity apart from expensive district court litigations, such as the IPR and PGR proceedings. However, the group is opposed to programs that target specific areas of technology that Mr. Cooper said were harmful to the patent system and to the software industry in particular.

During questioning after the witnesses’ testimony, Rep. Darrell Issa (R-Calif.) asked each of the witnesses whether they were open to extending the CBM program without restriction to financial services, or open to incorporating the CBM program into the IPR proceedings without restrictions on the type of patented technology, and each of the witnesses were supportive of the suggestion.12 However, the subcommittee made no determinations during the hearing and made no commitments regarding further action.

The CBM Hearing made clear that there are strong opinions for and against extending the program in whole or in part. Advocates on both sides appear to agree that there may be some value in incorporating certain grounds for challenging invalidity from the CBM program into other post-grant proceedings such as IPRs, and so those avenues for challenging patents may continue to be available after the deadline. Of course, both the extension of CBM and any incorporation of those grounds into IPRs would require congressional action. In any event, CBMs are likely to be the subject of increased attention and strenuous debate as the September 2020 deadline approaches.