Addressing the standard for initiating a covered business method (CBM) review, the US Court of Appeals for the Federal Circuit vacated a Patent Trial and Appeal Board (PTAB or Board) decision invalidating a patent, and in the process instructed the PTAB how to determine if a challenged patent is subject to CBM review under the America Invents Act (AIA). Unwired Planet, LLC v. Google Inc., Case No. 15-1812 (Fed. Cir., Nov. 21, 2016) (Reyna, J).

Unwired asserted against Google a patent directed to restricting access to a wireless device’s location information. In response, Google sought CBM review of certain method claims of the asserted patent. The PTAB instituted the CBM review and ultimately found in Google’s favor, cancelling the challenged claims as being directed to non-statutory subject matter. Unwired appealed, arguing that the challenged claims were ineligible for CBM review.

Under the AIA, a CBM patent is defined as one 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.” In its decision to institute the CBM review against Unwired’s patent, the PTAB relied on an oft-quoted portion of the AIA’s legislative history for a broader working definition of a CBM patent. Specifically, according to the PTAB, “[t]he legislative history explains that the definition of [CBM] patent was drafted to encompass patents ‘claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.’” The PTAB further stated that “[t]he proper inquiry . . . is whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity,” citing prior PTAB decisions for support. Using this as its working definition, the PTAB reasoned that the challenged claims were eligible for CBM review.                                               

On appeal, the Federal Circuit found that the PTAB failed to use the AIA’s statutory definition of a CBM patent, and that it was improper for the PTAB to rely on the broader floor-debate statement of Senator Schumer, which the PTAB had used as a definition of a CBM patent. As the Court explained, the terms “incidental to” and “complementary to” were nowhere to be found in the actual text of the AIA. Moreover, the Court noted that the legislative history of the AIA reflected disagreement among various senators about the proper scope of a CBM patent, and cited to Supreme Court of the United States precedent for the proposition that such policy statements are non-binding unless adopted by the agency (in this case the US Patent and Trademark Office) during formal rulemaking. 

Illustrating the scope of the PTAB’s working definition, the Federal Circuit employed multiple reductio ad absurdum arguments, finishing with the following: “Take, for example, a patent for an apparatus for digging ditches. Does the sale of the dirt that results from use of the ditch digger render the patent a CBM patent?” Having concluded that the PTAB’s reliance on the terms “incidental to” and “complementary to” was plainly outside of the limits Congress had placed on the definition of a CBM patent, the Court vacated the PTAB’s decision.