Transitional Program for Covered Business Methods: Scope and Distinctions from Post-Grant Review

January 8, 2013

By: N. Scott Pierce

Hamilton Brook Smith Reynolds Alert

A new method for challenging certain business method patents related to the financial industry, known as the "Transitional Program for Covered Business Methods" ("CBM Program"), took effect September 16, 2012. The CBM Program applies to all patents issued before, on or after that date, and can be initiated by petitioning the United States Patent and Trademark Office ("USPTO") on a variety of grounds. Among key limitations of the CBM Program are that:

  • Only petitioners who have been charged with or sued for infringement of a "covered business method" ("CBM") qualify;
  • Invalidity can be premised on almost any statutory basis or even on an important "novel or unsettled legal question";
  • "Prior art" is limited to publicly accessible information;
  • Discretion by district courts to stay court proceedings is limited by statute; and
  • Unlike post-grant review challenges, estoppel is more limited and arises from a CBM proceeding only for issues actually raised and decided.

What is a "Covered Business Method"?

The Leahy-Smith America Invents Act ("AIA") specifies that a "covered business method patent," is 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." The Director of the USPTO will decide on a "case-by-case basis" whether a patent is for a "technological invention," wherein "the claimed subject matter as a whole recites a technological feature that is novel and non-obvious over prior art and solves a technical problem using a technical solution." The decision by the Director is not appealable within the USPTO or to the courts.

Congressional Motivation to Single Out Covered Business Methods

According to the legislative history of the AIA, Congress believed that, following the 1998 decision by the Federal Circuit in State Street Bank, the "PTO was forced to issue a large number of business-method patents, many or possibly all of which are no longer valid." As a consequence, Congress enacted the "Transitional Program for Covered Business Methods" as a "relatively cheap alternative to civil litigation for challenging these patents" to "reduce the burden on the courts dealing with the backwash of invalid business method patents."

Distinctions from Post-Grant Review

Similar to post-grant review, on which the CBM Program is modeled, almost any basis can be employed to challenge the validity of a CBM patent. Examples of such bases include ineligible subject matter, lack of novelty, obviousness, lack of adequate written description, lack of enablement, on-sale bar, or even "a novel or unsettled legal question that is important to other patents or patent applications." As in civil actions, failure to provide an enabling description of the best mode of practicing the claimed method cannot serve as a basis for challenging validity. While post-grant review only applies to patents on applications filed on or after March 16, 2013, the effective filing date will govern the standard by which patents are challenged under the CBM Program. For example, "prior art" for challenged patents having effective patent application filing dates prior to March 16, 2013 will be defined by pre-AIA 35 U.S.C. § 102. Also, unlike post-grant review, where petitioners and parties are estopped from raising in civil litigation any issues that could have been raised or decided, petitioners under the CBM Program are only estopped from raising issues that were actually raised and decided.

Some Additional Considerations

The threshold for review set by the statute allows the Director of the PTO to institute proceedings to decide questions of patentability that were before the examiner if the Director believes the examiner was in error. Further, although most proceedings under the CBM Program will stay civil action for infringement, the AIA prescribes an exclusive four-factor test for such stays in order to limit the incentive for forum shopping. Additionally, a party dissatisfied by the stay decision of a district court may file an interlocutory appeal in the Federal Circuit, which may consider the issue de novo. A CBM proceeding, once instituted, is expected to last no more than one year, and can be extended up to six months for "good cause."

The CBM Program is transitional and will expire on September 16, 2020; no further petitions will be accepted on or after that date.

Overview

January 8, 2013

By: N. Scott Pierce

Hamilton Brook Smith Reynolds Alert

A new method for challenging certain business method patents related to the financial industry, known as the "Transitional Program for Covered Business Methods" ("CBM Program"), took effect September 16, 2012. The CBM Program applies to all patents issued before, on or after that date, and can be initiated by petitioning the United States Patent and Trademark Office ("USPTO") on a variety of grounds. Among key limitations of the CBM Program are that:

  • Only petitioners who have been charged with or sued for infringement of a "covered business method" ("CBM") qualify;
  • Invalidity can be premised on almost any statutory basis or even on an important "novel or unsettled legal question";
  • "Prior art" is limited to publicly accessible information;
  • Discretion by district courts to stay court proceedings is limited by statute; and
  • Unlike post-grant review challenges, estoppel is more limited and arises from a CBM proceeding only for issues actually raised and decided.

What is a "Covered Business Method"?

The Leahy-Smith America Invents Act ("AIA") specifies that a "covered business method patent," is 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." The Director of the USPTO will decide on a "case-by-case basis" whether a patent is for a "technological invention," wherein "the claimed subject matter as a whole recites a technological feature that is novel and non-obvious over prior art and solves a technical problem using a technical solution." The decision by the Director is not appealable within the USPTO or to the courts.

Congressional Motivation to Single Out Covered Business Methods

According to the legislative history of the AIA, Congress believed that, following the 1998 decision by the Federal Circuit in State Street Bank, the "PTO was forced to issue a large number of business-method patents, many or possibly all of which are no longer valid." As a consequence, Congress enacted the "Transitional Program for Covered Business Methods" as a "relatively cheap alternative to civil litigation for challenging these patents" to "reduce the burden on the courts dealing with the backwash of invalid business method patents."

Distinctions from Post-Grant Review

Similar to post-grant review, on which the CBM Program is modeled, almost any basis can be employed to challenge the validity of a CBM patent. Examples of such bases include ineligible subject matter, lack of novelty, obviousness, lack of adequate written description, lack of enablement, on-sale bar, or even "a novel or unsettled legal question that is important to other patents or patent applications." As in civil actions, failure to provide an enabling description of the best mode of practicing the claimed method cannot serve as a basis for challenging validity. While post-grant review only applies to patents on applications filed on or after March 16, 2013, the effective filing date will govern the standard by which patents are challenged under the CBM Program. For example, "prior art" for challenged patents having effective patent application filing dates prior to March 16, 2013 will be defined by pre-AIA 35 U.S.C. § 102. Also, unlike post-grant review, where petitioners and parties are estopped from raising in civil litigation any issues that could have been raised or decided, petitioners under the CBM Program are only estopped from raising issues that were actually raised and decided.

Some Additional Considerations

The threshold for review set by the statute allows the Director of the PTO to institute proceedings to decide questions of patentability that were before the examiner if the Director believes the examiner was in error. Further, although most proceedings under the CBM Program will stay civil action for infringement, the AIA prescribes an exclusive four-factor test for such stays in order to limit the incentive for forum shopping. Additionally, a party dissatisfied by the stay decision of a district court may file an interlocutory appeal in the Federal Circuit, which may consider the issue de novo. A CBM proceeding, once instituted, is expected to last no more than one year, and can be extended up to six months for "good cause."

The CBM Program is transitional and will expire on September 16, 2020; no further petitions will be accepted on or after that date.

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