Looking forward about two years, you may flip through the New York Times obituaries section to find the following:
On September 16, 2020, covered business method (CBM) review, age 8, passed away. Born out of a desire to weed out unscrupulous business method patents, in its early years CBM review enjoyed significant use, allowing the Patent Office to revisit validity of financial-related patents. In its later years, it faced difficulties from uncertainties over its scope and over the consequences of statutory disclaimers.
CBM review was proceeded in death by its parent inter partes reexamination, and is survived by its parent ex parte reexamination and its two siblings: inter partes review and post-grant review. CBM review was fated to die young. Congress slated the procedure’s expiration when it was established in the America Invents Act of 2011. Before the AIA, many perceived that the Patent Office had issued a large number of so-called business method patents that, in light of later Supreme Court decisions on statutory subject matter and obviousness, had dubious validity. Addressing this concern, Congress took the unprecedented step of singling out patents of a particular subject matter for a special transitional review process. This transitional review process, called CBM review, offers a wider scope of possible challenges for those patents and lower estoppels, along with more liberal timing requirements and heightened stay provisions.
Attracted by the special provisions for CBM, it was, for a while, popular among petitioners. If a patent was arguably financially related, CBM review made an attractive option for alleged infringers, particularly if time bars for IPR had already passed. In 2014, CBM’s filings peaked at just shy of 180 per year. After the first few years, however, filings tapered off significantly.
So what happened? The decline can largely be attributed to how courts have answered two questions. First, what is a business method patent? The statute and implementing rule left vague the standard for determining whether a patent is eligible for CBM review. Relying on legislative history, the PTAB initially took a liberal view. The PTAB stated that CBM review would be “broadly interpreted and encompass[es] patents claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.”[i] The term “financial”, the PTAB explained, “is an adjective that simply means relating to monetary matters.”[ii] But, as cases worked their way to appellate courts, the Federal Circuit pushed back on this reading. For example, the Federal Circuit said, “The 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.”[iii] Even a patent’s disclosure of financial features in its specification, the Federal Circuit explained, may not be enough to qualify it as a CBM patent.[iv] Now, the PTAB requires that a CBM patent have a much tighter relationship between any allegedly financial aspects and the patent claims. This has reduced the number of patents eligible for CBM review.
The universe of patents that can be challenged via CBMs shrinks again when one considers that almost none explicitly recite financial limitations in every claim. Clever patent owners, seeking to avoid CBM review, have tried to statutorily disclaim those financial claims. This raises a question: if a patent owner files a statutory disclaimer of its financial claims after a petition is filed, is the patent still a CBM patent? The PTAB takes the position that it is not and refuses to institute in that circumstance.[v] Essentially, if any of the asserted claims are nonfinancial, a patent owner can avoid institution using a statutory disclaimer of its financial claims and litigating infringement on its nonfinancial claims. This makes CBM much less attractive for alleged infringers.
Some commentators also argue that the drop off in CBM petitions is due to the fact that the lowest quality patents have already been invalidated, that potential petitioners are waiting to file until the sunset date gets closer, or that business method patent owners are more wary of asserting their patents in the first place. Regardless, CBM filings have slowed to a dribble. At its current rate, the PTAB will receive less than 30 petitions in fiscal year 2018. Unless this trend changes, CBM, it appears, will die quietly.
Or will it? Several weeks ago, the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property, and the Internet held a hearing to address this issue and to examine whether the CBM program should be made permanent, and possibly expanded. The hearing came on the heels of a GAO report assessing effectiveness of the CBM program. The GAO report found that “stakeholders agree that the CBM program has reduced litigation, and many see value of maintaining aspects of the program.”[vi] The report also found that the “CBM program has decreased the value of business method patents” and “stakeholders generally agreed the CBM program has had positive effects on innovation and investment.”[vii]
With emerging innovations in the financial area, particularly in the areas of mobile payments and blockchain, should CBM review be allowed to live at least through adolescence? Maybe. In the end, under this backdrop, policymakers are struggling to strike the right balance between incentivizing innovation and main