Transitional Proceeding for Covered Business Method Patents

The Transitional Program for Covered Business Method Patents (CBM) is a new review procedure, regarded by statute as a post-grant review (PGR), which will generally employ the same standards and procedures. Unlike the PGR procedure, however, there is no nine-month time limit for filing a petition for review of covered business method patents. In addition, a petitioner may only request review of business method claims if the petitioner has been sued for infringement of the patent or has been charged with infringement under that patent. Although post-grant review of covered business methods will be available for patents subject to both first-to-invent and first-to-file provisions, as of the effective date, there are limitations as to the prior art available under §§ 102 and 103 for patents subject to existing first-to-invent provisions.

Filing the Petition

What may be challenged? A covered business method patent is “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.”

This definition requires a two-part analysis: (1) whether the patent claims involve “the practice, administration, or management of a financial product or service;” and (2) whether the patent is directed to a “technological invention.” Although the statute language is somewhat ambiguous regarding what it means to be used “in the practice, administration, or management of a financial product or service,” the legislative history provides some indication that the definition will be construed broadly. Additionally, whether a patent is for a technological invention is determined on a case-by-case basis, considering whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art, and whether it solves a technical problem using a technical solution

Possible grounds for filing? Any ground of invalidity can serve as basis for petition, e.g. §101, §112, and, with caveats, §§102 and 103. Limited prior art shall apply for those challenged covered business method patents granted under first-to-invent provisions. Specifically, a petitioner in a transitional proceeding who challenges the validity of 1 or more claims in a covered business method patent having an effective filing date prior to March 16, 2013 based on prior art will be limited to relying on prior art defined by pre-AIA 35 U.S.C. §102.

Timing? The review may be filed any time except for when PGR is available, starting September 16, 2012. This review applies to all patents, regardless of issue date, but the petition itself must be filed before this portion of the America Invents Act sunsets on September 16, 2020.

Cost? Same as PGR. The fee for filing a petition for CBM is $12,000 to challenge the validity of up to 20 claims and $250 per each additional claim beyond the twentieth. If the petition for review is granted, there is a post-instituion fee of $18,000 for challenging up to 15 claims and a $550 fee per each additional claim beyond the fifteenth.

Who can bring? A patent is eligible for CBM review only if all the following prerequisites are established by the CBM review Petitioner (i.e., the party seeking CBM review): (1) petitioner has been sued for infringement of the patent in question (recent PTO comments suggest this likely includes parties served with cease and desist letters); (2) the patent claims are directed to “financial products or services”; and (3) the patent claims do not recite a “technological invention.”

Statutory and regulatory requirements a petitioner must meet in a petition for a PGR? In a petition for a PGR, the petitioner must by statute (i) identify all real parties in interest; (ii) identify all claims challenged and all grounds on which the challenge to each claim is based; and (iii) provide copies of evidence relied upon. The petition must be accompanied by a fee. In addition, the petitioner must by rule (i) identify the grounds for standing; (ii) provide a claim construction for each challenged claim; (iii) specifically explain the grounds for unpatentability; and (iv) specifically explain the relevance of evidence relied upon.

Threshold for granting petition for hearing? Same as PGR. Petition for CBM must contain information that “if not rebutted,” demonstrates that it is more likely than not that at least one of the claims challenged in the petition is unpatentable.

The Proceeding

Pendency? Same as PGR. CMB must be completed within one year from institution of the trial (up to approximately 18 months from filing the petition), with a single six month extension available for a showing of “good cause.”

Before who? Same as PGR. The Patent Trials and Appeals Board (PTAB). Each case will be heard by a panel of three technically-trained, patent-savvy judges in a single-phase trial.

Patent Owner Preliminary Response? Same as PGR. The patent owner has a right to file a preliminary response to the petition, within a time period set by the Director, that sets forth the reasons why no CBM should be instituted based on failure of the petition to meet any requirement of chapter 32 of title 35, United States Code. A patent holder may challenge the standing of a petitioner in the preliminary response. For example, a patent holder may provide evidence that the petitioner has filed a civil action challenging patentability prior to filing the petition or that the petitioner otherwise is estopped from challenging the patent owner’s claims.

The patent owner has no obligation to file a preliminary response and may, but is not required, inform PTAB if it does not intend to file a preliminary response.

Burdens and Standard for challenge? Same as PGR. The default evidentiary standard is a preponderance of the evidence, which is more favorable to the petitioner than the “clear and convincing evidence” standard used in district court. In addition, the Office will apply the broadest reasonable construction standard to PGRs, and there will be no presumption of validity.

Discovery? Same as PGR. Routine discovery includes cited documents, cross-examination of declaration testimony, and information inconsistent with positions advanced during the proceeding. The parties may agree mutually to provide additional discovery or either party may file an authorized motion seeking additional discovery.

The standard for additional discovery is “good cause.” Good cause (PGR and CBM) and interests-of-justice (IPR and Derivation Proceedings) are closely related standards, but on balance, the interests-of-justice standard is a slightly higher standard than good cause. While a good cause standard requires a party to show a specific factual reason to justify the needed discovery, interests-of-justice would mean that the Board would look at all relevant factors. The interests-of-justice standard covers considerably more than the good cause standard, and in using such a standard the Board will attempt to consider whether the additional discovery is necessary in light of ”the totality of the relevant circumstances.

Post-Proceeding

Estoppel? The estoppel provisions are less restrictive than other post-issuance proceedings, only attaching to arguments that were actually raised in the CBM proceeding, not arguments that could have been raised. Attaches upon final written decision of the PTAB.

Appeal? Same as PGR. Dissatisfied party may appeal to the Court of Appeals for the Federal Circuit.

Staying power? CBM has stay provisions that may be attractive to a defendant in a co-pending lawsuit.

Practice Tips

Existing law?

On January 9, 2013, the PTAB issued its first decision relating to CBMs under the AIA — SAP America, Inc. v. Versata Development Group, Inc. In May of 2011, Versata secured a $391 million dollar verdict in the Eastern District of Texas against SAP. At the the petition decision was issued, the district court verdict was pending an appeal to the CAFC (on May 1, 2013, the CAFC upheld the damages).

In its petition decision, the PTAB held that SAP’s CBM petition had demonstrated that it was more likely than not that the claims of the ‘350 patent were unpatentable under 35 U.S.C. §§ 101. By statute, a patent is eligible for CBM review only if all the following prerequisites are established by the CBM review Petitioner (i.e., the party seeking CBM review):

  • Petitioner has been sued for infringement of the patent in question;
  • The patent claims are directed to “financial products or services”; and
  • The patent claims do not recite a “technological invention.”

Although Patent Owner challenged the CBM review petition as being deficient on all three grounds, the PTAB found otherwise and ordered institution of CBM review.

The decision includes several notable takeaways. First, the Board construed “sued” to encompass litigation at any stage of the proceeding up to final judgment on appeal. Because SAP had lost on validity at trial, Versata argued that issue preclusion and claim preclusion estopped SAP from filing a petition and that the statute requires “ongoing litigation.” The Board rejected these arguments finding that the district court decision was not final because appeals were still pending and the plain language of the statute merely required that the party has been “sued for infringement.”

Second, the Board confirmed that the definition of covered business method patents would be construed broadly. The Board found that covered business method patents “encompass patents claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.” Further, the Board found that the definition of financial product or service should not “be limited to the products or services of the financial services industry.”

Third, the Board used the “machine” prong of the machine or transformation test to determine that the challenged claims did not qualify as “technological inventions.” Even though the claims required the use of a computer or software, the Board found that the claims lacked a technological feature because “no specific, unconventional software, computer equipment, tools or processing capabilities are required.” Accordingly, the challenged claims did not fall under the “technological inventions” exclusion from the definition of covered business method patents.

The PTAB agreed to expedite the trial schedule and held the oral hearing on April 17, 2013. The six month acceleration in the proceeding was provided in exchange for SAP dropping the prior art defenses, and agreeing to move forward only on their § 101 challenge to the Versata patent.

Versata filed suit against the USPTO on March 13, 2013, challenging the agency’s definition of a “business method,” and the ability to raise 101 as a statutory ground in a CBM. § 101 is argued as not being embraced by 35 U.S.C. § 282.

Although the PTAB’s decision in SAP v. Versata represents only a single data point, it arguably suggests that the PTAB is friendly to finding patents subject to CBM review. Consequently, a party that has been sued for infringement of a patent that might be characterized as relating to a business method may be well advised to consider seeking CBM review of the patent in question.

Covered Business Methods Review (CBM) Fast Facts

What is challenged?
  • Must allege invalidity of at least one patented claim involving the practice, administration, or management of a financial product or service, but not directed to a technological invention
  • Any ground of invalidity can serve as basis for petition, including §101, §112, and, with caveats, §§102/103
  • Threshold: Petition must contain information that “if not rebutted,” demonstrates that it is more likely than not that at least one of the claims challenged is unpatentable
When can you file?
  • The review may be filed any time before September 16, 2020, except for when PGR is available
Who can file?
  • Any non-owner of the patent unless the petitioner, its real party in interest or its privy: (i) previously filed an IPR, PGR, or CBM of a claim that resulted in a final written decision by the Board; (ii) or previously filed a civil action challenging the validity of a claim of the patent (Note: a counterclaim challenging validity does not bar CBM)
What are the fees?
  • To file: $12,000 for up to 20 challenged claims, $250 per additional claim
  • Post-institution: $18,000 for up to 15 claims, $550 per additional claim
Timeline for proceeding
  • Maximum 6 months from filing to decision on the petition
  • If granted, 12 months from date of institution until final written decision by the Board
  • 6 month extension possible for good cause
Discovery
  • More limited than in district court proceedings
  • Parties may mutually agree to an increased scope
  • Either party may file an authorized motion seeking additional discovery under “good cause” standard
Settlement
  • The parties may settle and submit a joint motion to terminate without prejudice
Board’s decision
  • Standard is preponderance of the evidence
  • Applies broadest reasonable construction of the claims with no presumption of validity
Appeals
  • Either party may request rehearing of the Board’s decision
  • Decision may be appealed to the Federal Circuit
Estoppel
  • Attaches upon final written decision
  • Petitioner nor real party in interest may not request or maintain a proceeding before the USPTO with respect to the challenged claim or assert in a civil action that the claim is invalid on any ground that the petitioner actually raised
  • Patent owner may not take any action inconsistent with an adverse judgment