Financial services and software companies have a new tool for attacking the validity of business method patents. The America Invents Act (AIA) created a new type of administrative proceeding called Covered Business Method (CBM) review, which may be used before, during or even after a district court trial. Twenty-five such CBM review petitions have been received by the U.S. Patent & Trademark Office (USPTO) as of May 6, 2013, and many more are likely in the future.

For CBM review, the petitioner must show it has been sued or at least charged with infringement of a covered business method patent. AIA § 18(a)(1)(B); 37 C.F.R. § 42.302(a). AIA Section 18(d)(1) broadly defines what is a covered business method patent. At least one claim must be directed to “a method or apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.” Id. This may include activities incidental to, or even complementary to a financial activity, and is not strictly limited to products or services of the financial services industry. 77 Fed Reg. 157 (Aug. 14, 2012) at 48734-36.

However, patents for “technological inventions” are excepted from CBM review. According to the USPTO, this excludes only patent claims “as a whole” that recite, “a technological feature that is novel and unobvious over the prior art; and solves a technical problem using a technical solution.” 37 C.F.R. § 42.301(b).

The petitioner also must show either that it has been sued for infringing the patent, or that suit has been threatened. 37 C.F.R. § 42.302(a). If the petitioner has standing to seek declaratory judgment against the patent, it can seek CBM review. Id.

Finally, the petitioner must show it is “more likely than not” that at least one challenged claim is unpatentable. 35 U.S.C. § 324(a); AIA § 18(a)(1). A CBM petition can rely on any statutory grounds, including prior art-based defenses (§§ 102 and 103) as well as more technical statutory defenses (§§ 101 and 112).

CBM review may provide financial services and software companies several important advantages over district court litigation alone. First, CBM review must be completed within one year of institution of the proceeding, except that the time may be extended up to six months for good cause. 37 C.F.R. § 42.300(c); see also 35 U.S.C. §326(a)(11). This speed may decrease cost, and provide business certainty more quickly.

Second, the CBM review is before the newly created Patent Trial and Appeals Board (PTAB), which may be a better forum for challenging patent validity. The burden of proof is the lower because there is no presumption of validity. A petitioner need only provide a “preponderance of the evidence” showing that a claim is unpatentable. 35 U.S.C. § 326(e); AIA § 18(a)(1). In contrast, district courts use the higher clear and convincing standard. See Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct 2238, 2243 (2011). Also, patent claims are given their broadest reasonable construction in CBM review. 37 C.F.R. § 42.300(b). In district court litigation, claims are given a narrower construction under the Phillips v. AWH Corp. standard. See 415 F.3d 1303, 1316 (Fed. Cir. 2005) (claim terms given “their ordinary and customary meaning”). Further, the PTAB has a highly trained administrative law judges focused on patent validity challenges, whereas a lay jury may decide patent validity in district court. These differences make CBM review particularly attractive in some instances. Further still, CBM review can slow down district court litigation. AIA Section 18(b)(1) specifies four factors for determining whether a district court case should be stayed while CBM review proceeds.

These benefits must be balanced against the potential disadvantages. CBM review permits only limited discovery. Discovery is largely limited to cross-examining declarants offered by the opposing party, and receiving exhibits and any documents inconsistent with a party’s position before the PTAB.

Estoppels are created after the PTAB renders a final decision. The CBM petitioner is estopped in a subsequent district court or International Trade Commission action from asserting that a claim is invalid on any ground actually raised. In addition, the CBM petitioner also is estoppel from raising any in a subsequent USPTO proceeding any grounds that “reasonably could have been raised.” 37 C.F.R. §42.302(b).

In sum, CBM review is an important litigation tool. A CBM review petition can be filed any time, and at least two pending CBM reviews have been instituted after the district court jury reached its verdict. If CBM review finds the patent invalid, this could lead to dismissal of parallel district court litigation, or even relief from an earlier district court judgment. Thus, whether to file a CBM review petition remains an important strategic choice throughout the course of business method patent litigation, and all financial services and software companies confronted with such litigation should consider, and re-consider this choice.