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Court of Appeals Affirms PTAB Decision on Person Eligibility for Post-Issuance Review and Patentable Subject Matter

The Court of Appeals for the Federal Circuit issued its decision in Bozeman Financial LLC v. Federal Reserve Bank Of Atlanta, Case No. 19-1018 (Fed. Cir. Apr. 10, 2020) [hereinafter Bozeman], holding that Federal Reserve banks (hereinafter “the Banks”) are people under the AIA, capable of petitioning for post-issuance review. The Court further affirmed the PTAB’s prior holding that the appealed patent claims are unpatentable under 35 U.S.C. § 101.

The dispute involves U.S. Patent Nos. 6,754,640 (“the ’640 patent”) and 8,768,840 (“the ’840 patent”), which are owned by Bozeman Financial, the respondent-appellant. The petitioner-appellee, the Federal Reserve Bank of Atlanta, challenged the validity of these patents in a CBM proceeding. The PTAB previously held claims 1–20, 25, and 26 of the ’640 patent unpatentable under 35 U.S.C. § 112, and claims 21-24 of the ’640 patent and claims 1-20 of the ’840 patent unpatentable under 35 U.S.C. § 101. Bozeman, at 3 and 10. Bozeman appealed the decision with respect to claims 21-24 of the ’640 patent and claims 1-20 of the ’840 patent. Bozeman, at 10.

For the first time on appeal, Bozeman Financial alleged that the Banks did not have the right to petition for post-issuance review under the AIA, arguing that the Banks are not people. Bozeman, at 3-4. The Federal Circuit exercised discretion to review this issue (which would normally be waived) because the question of whether the Banks constitute people under the AIA is “an issue of statutory interpretation, a purely legal question.” Bozeman, at 4.

The Federal Circuit identified differences between operation of the Banks and a conventional government agency, including, for example, that the Banks “do not receive congressionally appropriated funds,” do not have governmentally appointed officials, control their operations by a board of directors, and “cannot promulgate regulations with the force of law.” Bozeman, at 7 (citing 12 U.S.C. §§ 244, 301, 341 and Scott v. Fed. Reserve Bank, 406 F.3d 532, 535 (8th Cir. 2005)). Accordingly, the Federal Circuit held, for the purposes of the AIA, that the Banks constitute people because they “were established as chartered corporate instrumentalities of the United States” and can “be sued in any court of law or equity.” Bozeman, at 6 (citing 12 U.S.C. § 221 et seq.).

Further, the Federal Circuit examined the subject matter eligibility of claims 21-24 of the ’640 patent and claims 1-20 of the ’840 patent under the two-step framework set forth in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208, 216 (2014) [hereinafter Alice]. Bozeman, at 11. Under Alice step 1, the Federal Circuit held the claims “are directed to the abstract idea of collecting and analyzing information for financial transaction fraud or error detection.’” Bozeman, at 14. The Federal Circuit supports this holding by explaining that the claimed invention is “a fundamental business practice” which is a “long-standing commercial practice,” and has no meaningful distinction against the claims of recent precedential holdings in Solutran, Inc. v. Elevon, Inc., 931 F. 3d 1161 (Fed. Cir. 2019). Bozeman, at 12-14.

Under Alice step 2, the Federal Circuit holds that “there is nothing additional in the claims of the ’840 patent that would render the claims patent-eligible.” Id., at 14. Although Bozeman Financial argued that “the ordered combination of the elements … is a specific implementation of an invention that was not routine or conventional,” the Federal Circuit agrees with the PTAB’s prior holding that the ordering of the claims recites a logical sequence and does not offer an inventive sequence. Id. at 15. Regarding the machine-or-transformation test, the Federal Circuit holds that the claims do not satisfy the test because the claims provide for using “a digital-image scanner to create a digital electronic record of a check” which is “merely using a general-purpose computer and scanner to perform conventional activities in the way they always have.” Bozeman, at 15-16 (citing DDR Holdings, LLC v. Hotels.com L.P., 773 F.3d 1245, 1256 (Fed. Cir. 2014); Content Extraction & Transmission LLC v. Wells Fargo Bank, National Assoc., 776 F. 3d 1343, 1348-49 (Fed. Cir. 2014); and Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 716-17 (Fed. Cir. 2014).

Altogether, the Federal Circuit’s holdings in Bozeman allow Federal Reserve Banks to petition for post-issuance review under the AIA, which cements post-issuance review as a valuable tool for protesting a patent’s validity. Additionally, the Federal Circuit affirms previous holdings and provides another example of business method patent claims which are invalid under Alice.