Federal Circuit reverses PTAB, says CBM patents must be financial in nature according to the claims

Federal CircuitSecure Axcess LLC v. PNC Bank Nat’l Ass’n, (Fed. Cir. Feb. 21, 2017) (Before Lourie, Plager, and Taranto, J.) (Opinion for the court, Plager, J.) (Dissenting opinion filed by Lourie, J.)

Appellant Secure Axcess, LLC challenged a Final Written Decision of the Patent Trial and Appeal Board. The Board decided the Secure patent at issue was a covered business method (“CBM”) patent and was unpatentable as obvious from the cited prior art.

The Secure patent relates to computer security, more particularly to systems and methods for authenticating a web page.  The description focuses on web page authentication; however, it contains references that the Federal Circuit stated “might be considered to concern (at least facially) activities that are financial in nature….”  The description provides several examples and exemplary embodiments including a “system [that] contemplates the use, sale or distribution of any goods, services or information over any network having similar functionality described herein” (i.e. relating to the authentication of a website that sells goods or services).

In its determination that the patent was a CBM patent, the Board reasoned that because the “patent is directed to solving problems related to providing a website to customers of financial institutions … the [] patent covers the ancillary activity related to a financial product or service of website management and functionality and so, according to the legislative history of the AIA, the method and apparatus of the [] patent perform operations used in the administration of a financial product or service.”  The Board also considered Secure’s post-grant behavior, alleging infringement of the patent by approximately fifty financial institutions.  The Board then concluded that the patent would have been obvious over the cited prior art.  Secure appealed.

The Court analyzed “whether the Board properly understood the scope of the [CBM] statutory definition” and concluded, as a matter of law, that “the statutory definition of a CBM patent precludes the Board’s determination.”  The Court interpreted the statutory definition of a CBM patent under AIA § 18(d)(1).  Beginning with Congress’ definition of a “covered business method patent” the Court identified and interpreted two clauses: (1) “a patent that claims” and (2) “a financial product or service.”  The Court also interpreted the relationship of the two clauses and the boundaries of the CBM definition.

First, the Court recognized that “what a patent ‘claims’” was “determinative of the threshold requirement for coming within the defined class [of a CBM patent].”  The Court focused on what the Secure patent actually claimed, noting examples the Board relied upon in its CBM determination.  The Court found that the Board’s analysis of “the written description alone” was improper “and therefore does not in isolation determine CBM status.”

Second, the Court found that the Board’s view of the “financial product or service” clause was too broad. Reliance upon non-statutory phrases like “complementary to” or “incidental to” a financial activity was improper.  Such reliance could unintentionally encompass any patent that produces financial rewards.  The statutory language of “financial in nature” was a sufficiently accurate description for the CBM determination and that no extra-statutory sources were necessary.

In view of the statutory language, the Court stated that both clauses should be considered together. Specifically, the claims, “[w]hen properly construed in light of the written description, … need only require one of a ‘wide range of finance-related activities,’ examples of which can be found in the cases which [the Court] have held to be within the CBM provision.” See Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 1312-13, 1325-26 (Fed. Cir. 2015); Blue Calypso, LLC v. Groupon, Inc., 815 F.3d 1331, 1339-40 (Fed. Cir. 2016); Sightsound Techs., LLC v. Apple Inc., 809 F.3d 1307, 1315-16 (Fed. Cir. 2015).

Further, the Board’s reliance on post-grant activity, that Secure Axcess alleged infringement against financial institutions, was improper. “Those choices do not necessarily define a patent as a CBM patent, nor even necessarily illuminate an understanding of the invention as claimed.”

Finally, the “the statutory definition of a CBM patent requires that the patent have a claim that contains, however phrased, a financial activity element.”  The Court reversed the Board’s conclusion that the underlying patent was a CBM patent and vacated the Board’s other determinations, including claim constructions, as they bear on the obviousness determination itself.

Judge Lourie, noting that the Court’s narrow analysis missed that the Secure patent is directed to financial management,  emphasized that the Court’s statutory interpretation “virtually ignores the statutory language ‘used in practice.’”  Thus, the invention’s use, as evidenced by the written description and post-grant litigation, leads to the unmistakable conclusion that the patent is “’used in the practice’ of a financial product” and is, therefore, a CBM patent. The Court did not need to “probe the limits of the statutory language … to show that a sensible interpretation of this statute must include what Secure itself considers a financial product,” finally concluding that “[c]ommon sense is not precluded from use in interpreting statutes and claims.”

The CBM determination includes patents that are “financial in nature” according to the claims; not patents that are “complementary” or “incidental” to financial activity according to the specification or post-grant assertion of the patent.

About Troutman Sanders and the Federal Circuit Review

Founded in 1897, Troutman Sanders LLP is an international law firm with more than 650 lawyers practicing in 16 offices located throughout the United States and Asia. Each week, partners Joe Robinson and Bob Schaffer, succinctly summarize the preceding week of Federal Circuit precedential patent opinions. They provide the pertinent facts, issues, and holdings. This Review allows you to keep abreast of the Federal Circuit’s activities – important for everyone concerned with intellectual property. IPWatchdog.com is pleased to publish these summaries each week.

The Author

Joseph Robinson

Joseph Robinson has over 20 years of experience in all aspects of intellectual property law. He focuses his practice in the pharmaceutical, life sciences, biotechnology, and medical device fields. His practice encompasses litigation, including Hatch-Waxman litigation; licensing; counseling; due diligence; and patent and trademark prosecution. He has served as litigation counsel in a variety of patent and trademark disputes in many different jurisdictions, and has also served as appellate counsel before the Court of Appeals for the Federal Circuit. Joe also focuses on complex inter partes matters before the U.S Patent and Trademark Office, inventorship disputes, reexaminations and reissues. His experience includes numerous interferences, a particular advantage in new U.S. Patent and Trademark Office post-grant proceedings. He also counsels on patent–related U.S. Food and Drug Administration issues, including citizen petitions, Orange Book listing, and trademark issues. For more information and to contact Joe please visit his profile page at the Troutman Sanders website.

Joseph Robinson

Robert Schaffer is an intellectual property partner at Troutman Sanders. Bob applies more than 30 years of experience to IP counseling and litigation. His work includes patent procurement, strategic planning and transactional advice, due diligence investigations, district court patent cases, and Federal Circuit appeals. He regularly handles complex and high-profile domestic and international patent portfolios, intellectual property agreements and licensing, IP evaluations for collaborations, mergers, and acquisitions. In disputed court cases Bob’s work includes representing and counseling client in ANDA litigations, complex patent infringement cases and appeals, and multidistrict and international cases. In disputed Patent Office matters his work includes representing and counseling clients in interferences, reexaminations, reissues, post-grant proceedings, and in European Oppositions. For more information and to contact Bob please visit his profile page at the Troutman Sanders website.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 2 Comments comments.

  1. Mark Nowotarski March 12, 2017 4:22 pm

    If I understand the CAFC’s opinion correctly, then if the patentee had a dependent claim limiting the invention to a financial application, then Court would have agreed with the Board that the patent was a covered CBM?

  2. BG March 30, 2017 3:31 pm

    What if you have broad claim language, like in this case, with a particular claim term defined to cover 100 disclosed embodiments and of those, 99 were financial in nature or finance-related activities and 1 was not. Taking this to it’s extreme, does that mean the claim is not CBM eligible? In other words, must every embodiment covered by the claim be financial in nature and if even just 1 embodiment out of 100 is not financial in nature, then the claim is not CBM eligible?