Federal Circuit Affirms CBM Unpatentability Holding; Finding Estoppel Did Not Apply

Credit Acceptance Corp. v. Westlake Servs., No. 2016-2001, (June 9, 2017) (Before Dyk, Mayer, and Reyna, J.) (Opinion for the court, Dyk, J.) (Dissenting opinion, Mayer, J.)

The Federal Circuit affirmed a decision of the Patent Trial and Appeal Board (“Board”) in a Covered Business Method (“CBM”) review proceeding, agreeing with the Board that petitioner Westlake was not estopped from maintaining a CBM review of the challenged claims and confirming that the challenged claims are unpatentable under 35 U.S.C. § 101.

Credit Acceptance Corp. (“CAC”) is the assignee of a patent that includes system and method claims directed to “provid[ing] financing for allowing a customer to purchase a product selected from an inventory of products maintained by a dealer,” such as vehicles for sale at a car dealership. Westlake asserted that all claims are ineligible for patenting under § 101. The Board instituted review based on the § 101 grounds for some, but not all, challenged claims, finding that the non-instituted claims survived under the prevailing Ultramercial II decision. Shortly thereafter, the Supreme Court issued its decision in Alice and vacated Ultramercial II.

Westlake filed a second petition for CBM review, challenging the previously non-instituted claims as under § 101, based on Alice. Noting recent decisions from the Supreme Court and the Federal Circuit, the Board instituted a review of those claims. The Board rejected CAC’s argument that Westlake was estopped from challenging these claims under 35 U.S.C. § 325(e)(1), which “bars a petitioner from requesting or maintaining a proceeding before the Patent Office, including a CBM Review, challenging a claim on any ground that the petitioner raised, or reasonably could have raised, during an earlier review.” The Court explained that the first proceeding had not yet resulted in a final written decision, and therefore, CAC’s estoppel argument was not yet ripe.

Thereafter, the Board issued a final written decision in the first proceeding, finding all claims challenged in that proceeding to be unpatentable under § 101. CAC then moved to terminate the second proceeding, arguing that Westlake was now estopped in the second proceeding due to the final written decision in the first proceeding. The Board denied CAC’s motion, explaining that estoppel under § 325(e)(1) applies on a claim-by-claim basis. Because the final written decision in the first proceeding did not rely on the same claims challenged in the second proceeding, estoppel did not apply. The Board eventually issued a final written decision in the second CBM proceeding, finding the remaining claims of the patent to be unpatentable as directed to patent-ineligible subject matter.

Both Westlake and the PTO, which intervened to support the Board’s decision on all issues, argued that an institution determination by the Board under 35 U.S.C. § 325(e)(1) is nonappealable. The PTO relied on 35 U.S.C. § 324(e), which states that the determination whether to institute a post-grant review shall be final and nonappealable, and argued that the Board’s estoppel provision in § 325(e)(1) is akin to a decision to institute review and is thus nonappealable. In Cuozzo Speed Technologies, LLC v. Lee, 136 S. Ct. 2131 (2016), the Supreme Court held that Board decisions are not appealable where the grounds for attacking the decision to institute the IPR are “closely tied to the application and interpretation of statutes related to the Patent Office’s decision to initiate inter partes review.” The Federal Circuit distinguished the instant facts from Cuozzo, stating that § 325(e)(1) “does not refer to ‘institution’ decisions and in fact, is not limited to institution decisions”; instead, § 325(e)(1) bars a petitioner from “request[ing] or maintain[ing]” a proceeding before the PTO in certain circumstances. Thus, the Federal Circuit found § 325(e)(1) not to be closely related to institution, and it did not prevent the Court from hearing the appeal.

Westlake argued that the Board’s institution determination was nonappealable because only a final written decision can be appealed and the Board’s order denying CAC’s motion to terminate was not a final written decision. Westlake further relied on 35 U.S.C. § 328(a), which provides that the Board shall enter a final written decision with respect to patentability of the challenged claims. Westlake argued that, when read together, the statutory language provides that a party may appeal only a final written decision on patentability. The Court disagreed, pointing out that the Board did issue a final written decision with respect to patentability—under § 325(e)(1) Westlake could not have maintained the proceeding if it had been estopped, and thus the Board implicitly yet necessarily found that Westlake was not estopped when it issued its final written decision in the second proceeding. The Court, therefore, concluded that it had jurisdiction to hear CAC’s appeal.

The Court next turned to the merits of CAC’s appeal. CAC argued that a final written decision covers all claims “challenged” in a petition and not only the claims instituted for review. Federal Circuit precedent, however, has interpreted statutory language in the IPR context, which is identical to that governing CBM review and has held that the Board institutes an IPR on a claim-by-claim basis. The relevant statutory language, which is identical in all relevant respects to CBM review, “only requires the Board to address claims as to which review was granted” in a final written decision. Therefore, explained the Court, a final written decision on instituted claims is not a final determination on the patentability of non-instituted claims. Thus, § 325(e)(1) does not apply in a subsequent proceeding to claims upon which the Board declined to institute a review, and Westlake was not estopped from again challenging the claims that were not instituted in the first proceeding.

Turning finally to CAC’s argument that the Board erred in determining that the remaining claims are patent ineligible, the Court quickly affirmed the Board’s determination that “the claims are directed to the abstract idea of ‘processing an application for financing a purchase.’” The Court further found that the “use and arrangement of conventional and generic computer components recited in the claims . . . do not transform the claim, as a whole, into ‘significantly more’ than a claim to the abstract idea itself.” Therefore, the Court concluded that the claims are not directed to patent-eligible subject matter under § 101.

Dissenting-in-part, Judge Mayer would have held that the Court does not have jurisdiction to review a decision by the Board regarding a motion to terminate a post-grant review proceeding as barred by § 325(e)(1). Judge Mayer finds that § 325(e)(1) is “closely tied” to the Board’s institution decision “because when it applies, the Board may not institute review on a petitioner’s challenge to particular claims.” Judge Mayer asserts that “[b]ecause the Board’s conclusion as to whether a petitioner is prohibited from bringing or maintaining a proceeding before the Patent Office is a central aspect of the determination to institute a review, it falls squarely within the scope of the bar, imposed by 35 U.S.C. § 324(e), on appellate review of institution decisions.”

A party may challenge non-instituted claims in a second post-grant proceeding, e.g. a CBM, and is not estopped, provided the Board has not issued a final written decision on those claims, on any ground that the petitioner did not raise and could not reasonably have raised during an earlier review.

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