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Fresh From the Bench: Precedential Patent Cases From the Federal Circuit

November 28, 2016

Overview

In its sole precedential patent decision last week, the Circuit admonished the Board for applying too broad of a definition of “covered business method” patent in deciding whether to permit CBM patent review.

Thanks to my colleague Mark Meininger for his help with this report.

Pete

Unwired Planet v. Google – The Circuit reverses and remands a determination of patent invalidity by the Board in a covered business method (CBM) patent proceeding because the Board used on overly broad definition of what constitutes a CBM patent. According to the panel, the Board’s application of the “incidental to” and “complementary to” language from the legislative history and from comments by the PTO during legislative consideration of the AIA, instead of the statutory definition, renders superfluous the limits Congress placed on the ‎definition of a CBM patent. Therefore, according to the panel, the patent should never have been accepted for CBM patent review.

The ’752 patent describes a system that allows users of ‎cell phones to set “privacy ‎preferences” that determine whether “client applications” ‎are allowed to access their device’s location information.‎ The privacy preferences used to ‎determine whether client applications are granted access ‎may include, for example, “the time of day of the request, the device’s current location at the time the request is made, the accuracy of the provided information ‎and/or the party who is seeking such information.” ‎The Board determined that the ’752 patent was a CBM patent because the location service could involve ‎an eventual sale of services.

The panel applies the statutory definition of a CBM patent: “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.” The panel instructs the Board that a patent directed to an invention that is merely “incidental to a ‎financial activity, or complementary to ‎a financial activity” is not a covered business method ‎patent. This “incidental” or “complementary” language was found in one legislator’s comments during consideration of the bill that became the AIA, and the PTO’s contemporaneous “general policy statement” regarding those comments, but that language never made it into the statute. Nor did the PTO adopt this statement in its rule-making procedures.

According to the panel, it is not enough that a sale has ‎occurred or may occur, or even that the specification ‎speculates such a potential sale might occur, for a ‎patent to be deemed a CBM patent. The panel asks: “Does the sale of the dirt that results from use of the ditch digger render the patent a CBM patent? No, ‎because the claims of the ditch-digging method or apparatus are not directed to ‘performing data ‎processing or other operations’ or ‘used in the practice, administration, or management of a financial ‎product or service,’ as required by the statute.” ‎Neither the delivery of advertising, as claimed by Unwired, nor the ‎sale of dirt obtained by operation of a ditch digger, “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.”‎

 
   

Unwired Planet, LLC v. Google, Inc., Case No. 2015-1812 (November 21, 2016)

Google petitioned for a CBM patent review of an Unwired patent. The Board reviewed whether the ’752 patent was a CBM patent, basing its review on “whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.” The Board found the patent to be a CBM patent but we vacate and remand because the Board relied on an incorrect definition of CBM patent.

The ’752 patent describes a system and method for restricting access to a wireless device’s location information. The specification describes a system that allows users of wireless devices (e.g., cell phones) to set “privacy preferences” that determine whether “client applications” are allowed to access their device’s location information. The privacy preferences used to determine whether client applications are granted access may include, for example, “the time of day of the request, the device’s current location at the time the request is made, the accuracy of the provided information and/or the party who is seeking such information.” “In operation, a client application will submit a request over a data network to the system requesting location information for an identified wireless communications device.” The system then determines, based on the user’s privacy preferences, whether to provide the requested location information to a client application.

In its decision that the ’752 patent was a CBM patent, the Board reasoned:

The ’752 patent disclosure indicates the “client application” may be associated with a service provider or a goods provider, such as a hotel, restaurant, or store, that wants to know a wireless device is in its area so relevant advertising may be transmitted to the wireless device. Thus, the subject matter recited in claim 25 of the ’752 patent is incidental or complementary to the financial activity of service or product sales. Therefore, claim 25 is directed to a method for performing data processing or other operations used in the practice, administration, or management of a financial product or service.

The issues on appeal are whether the ’752 patent is a CBM patent and whether the challenged claims are directed to patentable subject matter under section 101.

The Board’s Opinion and the Arguments by the Parties on Appeal

Unwired argues that the Board erred in applying a standard that is broader than the AIA contemplates. It notes that the challenged claims themselves do not disclose or otherwise describe a financial product or service. In Unwired’s view, the Board’s reliance on the sections of the specification discussing ways to monetize the invention by selling advertising is improper speculation. Unwired further argues that the Board erred by looking to whether the claims are “incidental” or “complementary” to financial activity because these broad terms conflict with the AIA’s limits on covered patents.

Google responds that the Board applied the correct definition of CBM patents in light of the comments the PTO made during the regulatory process. Google argues that the “Board’s broad application of CBM review is well-known and has been recognized by this Court.” Google further notes that the specification discusses using the claimed method to facilitate advertising, which would thereby facilitate financial activity. In Google’s view, proposed use of the claimed method in facilitating advertising is sufficient to support the Board’s determination that the ’752 patent is a CBM patent. We disagree.

In accordance with the statute, a CBM review is available only for a “covered business method patent,” which the AIA defines as “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.” The PTO adopted this statutory definition of CBM patents in its regulations.

Instead of applying the statutory definition, the Board stated that the proper inquiry “is whether the patent claims activities that are financial in nature, incidental to a financial activity, or complementary to a financial activity.” The Board determined that the ’752 patent was a CBM patent because the location service could involve an eventual sale of services. The Board noted that the specification provides that “client applications may be service or goods providers whose business is geographically oriented,” such as a “hotel, restaurant, and/or store.” These businesses may wish to know a wireless device and its user are nearby so that “relevant advertising may be transmitted to the wireless communications device.” The Board relied on this discussion to find that the ’752 patent is a CBM patent because “the subject matter recited in claim 25 of the ’752 patent is incidental or complementary to” potential sales resulting from advertising.

One Legislator’s Comments and PTO General Policy Statements that Were Not Adopted in PTO Rulemaking Are Not Legally Binding

This “incidental” or “complementary” language is not found in the statute. The origin of this language is a statement from Senator Schumer that the PTO quoted in its response to public comments concerning its consideration of proposed interpretations of the statutory definition for a CBM patent. The PTO did not adopt the general policy statement through ruling making procedures. General policy statements, however, are not legally binding and, without adopting a policy as a rule through rulemaking, an “agency cannot apply or rely upon a general statement of policy as law.”

The legislative debate concerning the scope of a CBM review includes statements from more than a single senator. It includes inconsistent views, some of which speak more clearly and directly on the definition than does the single statement picked by the PTO. Neither the legislators’ views nor the PTO policy statement provides the operative legal standard. The authoritative statement of the Board’s authority to conduct a CBM review is the text of the statute.

Applying a Definition that Includes “Incidental to” or “Complementary to” Renders Superfluous Limits Placed by Congress on CBM Review

The Board is only empowered to review “the validity of covered business method patents.” To be sure, claims that satisfy the PTO’s policy statement may also fall within the narrow statutory definition. But patents that fall outside the definition of a CBM patent are outside the Board’s authority to review as a CBM patent. In any event, the PTO’s regulatory authority does not permit it to adopt regulations that expand its authority beyond that granted by Congress.

The Board’s application of the “incidental to” and “complementary to” language from the PTO policy statement instead of the statutory definition renders superfluous the limits Congress placed on the definition of a CBM patent. CBM patents are limited to those with claims that are directed to methods and apparatuses of particular types and with particular uses “in the practice, administration, or management of a financial product or service.” The 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.

Likewise, it cannot be the case that a patent covering a method and corresponding apparatuses becomes a CBM patent because its practice could involve a potential sale of a good or service. All patents, at some level, relate to potential sale of a good or service. 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? No, because the claims of the ditch-digging method or apparatus are not directed to “performing data processing or other operations” or “used in the practice, administration, or management of a financial product or service,” as required by the statute. It is not enough that a sale has occurred or may occur, or even that the specification speculates such a potential sale might occur.

We hold that the Board’s reliance on whether the patent claims activities “incidental to” or “complementary to” a financial activity as the legal standard to determine whether a patent is a CBM patent was not in accordance with law. We do not reach the patentability of the challenged claims under section 101.

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