The Federal Circuit recently changed the scope of CBM eligible patents. While the Patent Trial and Appeals Board (PTAB) had previously interpreted its jurisdiction broadly, the Federal Circuit, in two recent decisions, considerably narrowed the universe of patents eligible for CBM review. This post analyzes the results of those decisions as they have played out in practice.
To recap briefly: On November 21, 2016, the Federal Circuit held in Unwired Planet, LLC v. Google Inc., 841 F.3d 1376 (Fed. Cir. 2016), that the PTAB had incorrectly and over-broadly interpreted the “financial product or service” requirement to include a patent that claimed a method or apparatus incidental or complementary to a financial activity. See a previous post discussing that case. The Federal Circuit re-emphasized this holding three months later, in the case Secure Axcess LLC v. PNC Bank Nat’l Ass’n, 848 F.3d 1370 (Fed. Cir. 2017). Following these decisions, the PTAB must look to the statutory definition (from AIA Section 18(d)(1)) of a “covered business method patent,” and not such non-statutory terms as incidental or complementary to a financial activity.
Following the latest Federal Circuit decision (Secure Axcess, dated February 21, 2017), up until June 27, 2017 (when this post was written), there have been 16 CBM petitions filed (over a span of about five months). In the preceding five-month period, there were 33 CBM petitions filed, and in the five months before that, 37 CBM petitions were filed. This appears to indicate a drop in number of petitions filed of roughly 50%. This may indicate that potential petitioners are deciding not to file a CBM petition where they would have before under the looser standard of what was CBM eligible. Though this drop appears to be significant, given that the volume of CBM petitions is small, especially as compared to IPR petitions, and may fluctuate for other reasons, these numbers alone do not reveal the full effect of the Federal Circuit’s decisions.
To see more clearly what effect the decisions have had, we next look at institution decisions, and particularly at those decisions denying institution. Because an institution decision issues approximately six months after filing a petition in most cases, decisions that are now being denied institution were filed when practitioners were still operating under the looser standard of what was considered CBM eligible. Since February 21, 2017, 90% of CBM institution decisions have denied institution. In 15 of 17 (~88%) of the decisions denying institution in that period, the denial was premised on the challenged patent not being CBM eligible. In the preceding five-month period, only about 47% of CBM institution decisions were denied institution, and 8 of 24 (~33%) of the decisions denying institution in that period were premised on the challenged patent not being CBM eligible. In the five months before that, about 30% of CBM institution decisions were denied institution, and 6 of 11 (~55%) of the decisions denying institution in that period were premised on the challenged patent not being CBM eligible.
These numbers are even more stark than the roughly 50% drop in CBM petitions being filed. Whereas before the Federal Circuit decisions in Unwired Planet and Secure Axcess, most CBM petitions were instituted, now an overwhelming percentage are denied (~90% of petitions), and they are being denied mostly because of eligibility problems (~88% of denials). Because of the large difference in numbers of IPR petitions and CBM petitions filed, it is difficult to tell if there is any appreciable increase in IPR petitions due to the decline in CBM petitions. Notwithstanding, what is clear is that the high rate of denial will signal to future potential CBM petitioners that they should carefully consider whether a challenged patent meets the more narrow test for eligibility following the decisions in Unwired Planet and Secure Axcess.