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Banks Fear Patent Lawsuit ‘Avalanche’ After Review Program Ends

Sept. 15, 2020, 8:59 PM

Banks and credit card companies worry they could face more infringement lawsuits related to financial services patents after a U.S. Patent and Trademark review program expires.

Congress created the program, called covered business method (CBM) review, in the 2011 America Invents Act for challenging patents on business methods related to financial products or services. The patent office’s authority to take requests to review CBM patents sunsets Wednesday.

Banking, retail, and restaurant groups worry about looming litigation if Congress doesn’t move to extend the review program, which alleged infringers could use to attack patents. Owners of business method patents may be waiting to bring infringement lawsuits until the program expires.

“I’m sure it is happening,” Axinn Veltrop & Harkrider LLP partner Eric Krause said of patent owners making strategic decisions to wait. “It’s just a question of how much.”

‘Rapidly Stockpiling’

Non-practicing entities, which hold patents for a product or process but don’t plan to develop it, are “rapidly stockpiling business method patents,” the Quality Patents Coalition, a group of banking, retail and restaurant groups, said in a letter last week to Sens. Richard Blumenthal (D-Conn.) and David Perdue (R-Ga.), citing data showing an increase in the number of patent sales early in 2020.

Patent transactions can signal future litigation, as buyers look to assert them. The coalition, which includes groups like the American Bankers Association and the Credit Union National Association, suggested an “avalanche of meritless litigation” could be on the horizon.

Challengers are able to attack patents at the patent office on broader grounds in a CBM review than they can under the more widely used inter partes review process. That includes being able to argue the patent covers an abstract idea.

Companies that are sued for infringement can also argue in district court that a patent covers an abstract idea not eligible for protection. But judges in some courts, including the U.S. District Court for the Western District of Texas, have been reluctant to decide patent eligibility early in a case.

Lawsuits in those courts may proceed through expensive stages, including discovery and claim construction hearings, known as Markman hearings, before courts rule.

“If you’ve been sued in one of the districts that is resistant to allowing eligibility to be addressed on a 12(b)(6) motion, you’re going to miss having the option of going back to the agency for review, rather than spending a million dollars on discovery and a Markman hearing,” said Haynes and Boone LLP partner Joseph Matal, referring to the federal rule for a motion to dismiss for failure to state a claim.

To be sure, some attorneys doubt that a new litigation wave will form. Kory Christensen, a principal at Polsinelli PC, said he didn’t expect there was a “raft of people waiting to spring their business method patents.”

‘Open Secret’

CBM reviews were a response to patents issued following the Federal Circuit’s 1998 decision in State Street v. Signature Financial, which broadened what was eligible for patent protection, according to people involved in the legislative process.

Following the U.S. Supreme Court’s decision over a decade later in Bilski v. Kappos, which invalidated a business method patent as abstract, it became clear that many of those patents shouldn’t have been issued, so lawmakers decided to “create a simple mechanism for cleaning this up,” Matal said.

Matal, who helped draft the AIA while working for the U.S. Senate Judiciary Committee, and David McCombs, another partner at Haynes and Boone, said in a post on the Fed Circuit Blog the CBM program is a cautionary tale about the Supreme Court’s delay in enforcing patent eligibility standards.

“It’s unfortunate that we had a decade and a half hiatus when eligibility law was not enforced,” Matal said. “It doesn’t benefit the system in any way to have a large number of invalid patents issued.”

Critics saw the CBM program as a political favor to banks, which paid hundreds of millions of dollars to a company called DataTreasury Corp. to settle infringement allegations involving check cashing patents. The PTAB invalidated two DataTreasury patents in CBM review in 2015.

“It was an open secret that the CBM program was intended to give banks a second bite at the apple on attacking digital check cashing patents owned by people like DataTreasury,” said Kenneth Weatherwax, a founding partner of Lowenstein & Weatherwax LLP. “But obviously it had a much bigger effect than that.”

Stunted Potential

Over 475 petitions for CBM review were filed the first four years the program was in effect, according to USPTO data. After that, the program’s popularity started to fade. There have been fewer than 120 petitions for review in the last four years.

The CBM program is “inherently problematic,” patent office director Andrei Iancu said Tuesday at an event hosted by the Hudson Institute, in that it isolates a particular area of technology.

“It’s not good, and it’s not the tradition of the American patent system, to isolate for whatever purpose a particular area of technology,” Iancu said, while noting a declining use of the program in recent years.

Jason Stach, leader of the PTAB trials practice at Finnegan Henderson Farabow Garrett & Dunner LLP, said it took time for lawyers to become comfortable with CBM reviews. Then, the Federal Circuit pushed back on the patent office’s view of what patents were CBM review eligible, limiting its access.

“The program never reached its full potential,” Stach said.

Other factors likely contributed to the drop-off in petitions, including patent owners becoming more savvy and avoiding claiming financial activities, attorneys said. But challengers who were able to get CBM reviews instituted often won at the patent office.

Of the cases that went to a final decision, less than 2% ended with all of the reviewed patent claims being found valid, according to Finnegan statistics that included reviews decided through March 31. By comparison, all instituted claims survived in 19% of IPRs during that time.

—With assistance from Ian Lopez.

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Keith Perine at kperine@bloomberglaw.com

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