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INSIGHT: SIPCO and Covered Business Methods—Courts Continue to Struggle with PTAB Regs

Nov. 15, 2019, 9:01 AM

The 2012 America Invents Act granted the Patent Trial and Appeal Board jurisdiction to consider challenges to “covered business method” (CBM) patents. That provision is scheduled to sunset in September 2020 unless extended by Congress.

Unlike its sister procedure, inter partes review (IPR), which is more limited, this important procedure allowed petitioners to bring post-issuance challenges to the PTAB based on all grounds of patentability, including: statutory subject matter; enablement and written description; and prior-art-based novelty and obviousness, so long as the patent in question qualified as a CBM.

As illustrated below, however, the statute and regulations that define a CBM patent have been criticized as confusing and creating a lack of consistency. Should Congress extend the CBM procedure beyond 2020, it should provide more definitional guidance for courts, the PTAB, and practitioners.

Qualifying as a CBM

Importantly, to qualify as a CBM patent, the patent must meet the following statutory definition: “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions.”

While this definition may appear narrow, its application has been broad. Congress provided little guidance aside from the above definition as to how to determine whether a patent is eligible for CBM review. Therefore, the PTAB and courts have weighed in to shape the meanings “covered business method” and “technological invention.”

Unsurprisingly, practitioners face inconsistency and uncertainty in the application of these terms. For example, the PTAB has determined that “an interactive communication system for transmitting video game … software via communication lines,” a system for authenticating web pages, and a computerized system to provide “personalized nutritional information” all were appropriate for CBM review.

In contrast, the PTAB has denied CBM review for a patent related to “integrating public data and private data to form integrated data” which included “bank account records, 401k account information, and credit card balance information.”

The Federal Circuit last weighed in on Sept. 25. In SIPCO LLC v. Emerson Electric Co., where it considered whether the ‘842 patent directed to the manner in which a previously unconnected, remote device communicates with a central location is subject to CBM review.

Determination Is Critical

The patent described that the invention could be used in communication between ATMs and banks, and two of the dependent claims claimed use of the technology with vending machines and ATMs. Emerson Electric filed a CBM petition challenging the patent’s claims pursuant to 35 U.S.C. § 101—patent eligible subject matter. Notably, section 101 arguments are available in CBMs, but are not available in IPRs. So, whether the patent claims in question met the CBM definition was crucial.

The PTAB determined that the dependent claims associating the invention with vending machines and ATMs recited “apparatuses used in the practice, administration, or management of a financial product or service,” such that it would qualify for CBM review, so long as it was not a “not patent[] for technological inventions”—which would disqualify the patent from CBM review.

For this inquiry, the PTAB looked to the two-part test recited in 37 C.F.R. § 42.301(b): (1) “whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art”; and (2) “solves a technical problem using a technical solution.”

The PTAB maintained that both prongs must be satisfied to exempt a patent from CBM review, and concluded that because the ’842 patent failed to provide a technical solution to a technical problem, it did not satisfy the second prong. Thus, the PTAB determined the patent eligible for CBM review.

SIPCO appealed to the Federal Circuit. The court agreed with the PTAB that the patent recited apparatuses used in financial products or services, and noted that it previously interpreted “the definition of ‘covered business method patent’ [not to be] limited to products and services of only the financial industry, or to patents owned by or directly affecting the activities of financial institutions such as banks and brokerage houses.”

The Federal Circuit next turned to the PTAB’s decision that the ’842 patent did not qualify as a “technological invention,” emphasizing that “[u]nhelpfully, Congress did not ... define a ‘technological invention.’”

‘Technological Invention’

On this point, the Federal Circuit disagreed with the PTAB’s conclusion that the claimed invention was not a “technological invention.” It stated that the PTAB’s reasoning was arbitrary and capricious because it “did not appreciate that the claims provide a technical solution to a technical problem.” The court reasoned that the patent explained that the invention “implement[ed] a communication system” solving technical problems (including “unwanted circumvention of the electromagnetic signals”), and using a technical solution (the creation of a two-step system using a low-power mode).

The Federal Circuit remanded with regard to prong one (which the PTAB did not reach), instructing the PTAB to explain what that prong “means and then apply it as so explicated.”

The Federal Circuit’s SIPCO decision about CBM review eligibility provides another example of a court struggling to interpret the PTAB’s regulations, and further, the PTAB’s interpretation of the CBM statutory language itself.

That Congress did not define “technological invention” and instead left it for the Patent Office to define appears to have caused difficulties in determining which patents may be challenged in CBM review—and that has broad implications for practitioners who may prefer to use the PTAB’s broader CBM post-grant procedures than the more narrow, and strictly prior-art-based, IPR procedures.

If Congress extends the CBM procedure beyond 2020, courts, the PTAB, and practitioners would welcome further definitional clarity as to which patents are eligible for this procedure—and which are not.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Craig C. Martin is chair of Jenner & Block and represents clients as lead counsel in a wide range of substantive legal areas.

Sara Tonnies Horton is a partner at Jenner & Block and concentrates in complex civil litigation focusing on intellectual property/technology.