CBM Review Standard Changes, ‘Complements’ of the Federal Circuit

Posted by Stuart Duncan Smith on Nov 23, 2016

Covered business method (CBM) review is a popular alternative to IPR, but is available only for patents related to financial activities. In Unwired Planet, LLC v. Google Inc., No. 2015-1812 (Fed. Cir. Nov. 21, 2016), the Federal Circuit held that the Board has been too generous in its definition of which patents can be subject to CBM review—allowing some only because they could be used in a way that relates to financial activities.

The popularity of CBM review is due, at least in part, to how deadly it has been to patents—even compared with IPR. Of the claims subject to a final determination on patentability, the Board found just 5% patentable in CBM review, compared with 21% in IPR. Just 3% of final CBM review decisions found all claims at issue to be patentable, compared with 16% of final IPR decisions.

Fortunately for patent owners, CBM review is limited to challenges of CBM patents. By statute, CBM patents claim methods and products used “in the practice, administration, or management of a financial product or service.” When deciding whether to institute CBM review, the Board includes in that definition patents that claim activities that are “incidental” or “complementary” to financial activities.

In Unwired Planet, the patent owner challenged the Board’s application of the statutory definition. The patent subject to CBM review concerned location privacy settings for a wireless device, such as a smartphone. The Board determined that since the location information could be used to provide “relevant advertising,” the patent claims were incidental or complementary to financial activities and subject to CBM review.

The Federal Circuit disagreed and concluded that the Board’s “incidental” or “complementary” to financial activities test is inconsistent with the statutory limits of CBM review. As the court explained, “[t]he 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.”

The decision in Unwired Planet is good news for owners of patents that only concern financial products or services because of the way that they could be used. The court’s decision excludes those patents from CBM review, in effect shielding them from its higher rate of unpatentability, and forcing the would-be petitioner to look for another means to bring its validity challenge.

Those needing to challenge a patent should still consider CBM, as many business method patents will meet the more narrow definition that requires use in the practice, administration, or management of a financial product or service. If not, other avenues for challenge should be considered, including post-grant review, which allows all of the challenges that might be made in a CBM review, or an IPR.

Also, watch for further changes to the standard: the Patent Office may yet help delineate the scope of CBM review. In Versata Development Group v. SAP America, Inc., 793 F. 3d 1306 (2015), the Federal Circuit recognized that the Patent Office has “broad” authority to implement CBM review. In Unwired Planet, the Federal circuit hinted that the result may have been different had the Patent Office defined the test for eligibility for CBM review as part of a formal rule-setting process. Perhaps the Patent Office will use that authority to reinstate its definition of a CBM patent.

Topics: CBMs

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