The Federal Circuit has denied a request for rehearing en banc of a case, decided last fall, that narrowed the types of patents that may qualify as a Covered Business Method. The case, Unwired Planet v Google, involves the standard to be applied for determining whether a patent is eligible for CBM review.
Key Takeaway. The Federal Circuit’s November 2016 panel decision in the case – which rejected that portion of the Board’s CBM standard covering matter “incidental” or “complementary” to a financial activity – remains in place. As a result, the PTAB will most likely be applying a narrower definition for “covered business method,” as it has done since the panel decision issued. Parties should be aware of greater scrutiny and narrower scope of patents eligible for CBM review, and that Patent Owners have more opportunity to challenge allegations that a patent meets the statutory definition for CBM patents.
Background. When determining whether to institute a CBM patent trial, the PTAB normally decides, as a threshold matter, whether the challenged patent qualifies as a covered business method. Beginning with the earliest CBM cases, the Board had applied a broad standard to that determination, such that covered business method review would encompass patents claiming “activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.” In Unwired Planet, the Board determined that U.S. patent 7,203,752, which relates to restricting access to a wireless device’s location information, qualified for CBM review as “incidental or complementary to the financial activity of service or product sales.”
On appeal, the Federal Circuit disagreed with the Board’s decision, rejecting the broad standard that the Board had applied for determining CBM eligibility. In particular, the CAFC determined that the portion of the Board’s standard relating to “incidental to a financial activity or complementary to a financial activity” would encompass patents not within the statutory bounds of CBM review. Although acknowledging that the court had previously endorsed the “financial in nature” aspect of the Board’s standard, the CAFC stated that the “incidental” or “complementary” prongs are not found in the statute. While recognizing that some patents meeting the Board’s standard would also fall within what the court termed a “narrow” statutory CBM definition, the CAFC criticized the breadth of the “incidental” or “complementary” prongs, which might capture such (hypothetical) patents as a light bulb that works in a bank vault, or a ditch digger used to extract dirt that is sold. According to the court, sales activity should not be a determinative factor, since all patents, at some level, may relate to potential sale of goods or services.
Google filed a petition for rehearing en banc in January, 2017, asserting that the court lacked jurisdiction to review whether a patent qualifies for CBM review, and that the court should have deferred to the PTO’s view of the appropriate standard for determining CBM eligibility.
En Banc Petition Denied; Panel Decision Remains in Effect. In its April 4, 2017 order in Unwired Planet, the court denied Google’s petition for rehearing en banc. The court also referred the case to the panel as a petition for panel rehearing (which was also denied). Judge Hughes, concurring in the court’s denial of rehearing of the panel decision, expressed his view that the court should not hear appeals relating to the PTAB’s determinations of CBM eligibility. Of note, as Judge Hughes mentioned, the full Federal Circuit is expected to further refine the court’s view on appealability of PTAB decisions in the Wi-Fi One v. Broadcom case.
The court’s Unwired Planet order leaves in place the panel decision in the case, which had vacated the Board’s decision and remanded for further consideration. As a result, the case now heads back to the PTAB for a new determination on CBM review eligibility – one not based on whether the claims cover matter “incidental” or “complementary” to a financial activity.
Google has indicated its intent to file a petition for certiorari to seek review by the Supreme Court. Thus, the Supreme Court may ultimately decide to weigh in on the issue – and, in particular, the question of appealability.
In the meantime, we can expect the PTAB to adhere to the panel decision regarding the standard for determining whether a patent claims a covered business method, and in particular the PTAB will not be able to rely on the “incidental” or “complementary” prongs of its former test. As such, the scope of patents potentially subject to CBM review will be narrower. Patent owners should remain alert for the opportunity to challenge allegations that a patent meets the statutory definition for CBM patents, and to seek rehearing or appeal of prior determinations, where available. Patent challengers should be aware of the narrower scope of patents eligible for CBM review, and of greater scrutiny likely to be placed on the issue.