Federal Government Not Barred from Petition for CBM Review

Federal CircuitReturn Mail, Inc. v. United States Postal Serv., No. 2016-1502, 2017 U.S. App. LEXIS 16364 (Fed. Cir. Aug. 28, 2017) (Before Prost, C.J., Newman, and Wallach, J.) (Opinion for the court, Prost, C.J.) (Dissenting opinion, Newman, J.).

In a case of first impression, a majority of a Federal Circuit panel held that the U.S. Postal Service and the United States (collectively, “USPS”) were not statutorily barred from filing a petition for review of a covered business method patent (“CBM”). The majority also affirmed the Board’s determination that all challenged claims of the patent are directed to ineligible subject matter.

Return Mail owns a patent directed to processing mail items that are undeliverable due to an inaccurate or obsolete address for the intended recipient. The patent teaches encoding information on mail items via a barcode, such as the name and address of intended recipients. Undeliverable mail items are returned to a processing location, the barcodes are scanned, and the scanned information is processed to obtain corresponding updated address data from a computer or database. The updated information can then be electronically provided to be used as appropriate. After trying unsuccessfully to license the patent to USPS, Return Mail filed a 25 U.S.C. § 1498(a) suit against the United States in Claims Court. USPS subsequently filed a petition for CBM review, and Return Mail contested USPS’s ability to do so. The Board held that USPS was properly before the Board and instituted review of all challenged claims under § 101 for ineligible subject matter. (While the Court notes that judicial standing is distinct from whether a party is properly before an agency, the Board and the Court refer to whether USPS was properly before the Board as “standing.”) The Board later issued a final written decision in which it reiterated its standing determination and held that all challenged claims are directed to patent ineligible subject matter.

“The ‘starting point’ for determining whether a party is properly before an agency is ‘the statute that confers standing before that agency.’” The Board held that USPS had standing because it had been sued for infringement under AIA § 18 when Return Mail filed its Claims Court action to hold USPS “liable for its use of manufacture of a patented invention without license or lawful right,” which the Board found “falls within the definition of patent infringement.”

On appeal, the Court first evaluated whether the Board’s decision could be appealed under the AIA, which provides that “[t]he determination…whether to institute…[CBM] review” is “final and nonappealable.” The Court pointed out that although the AIA draws a clear distinction between a decision whether to institute review (which is nonappealable) and a final written decision by the Board (which is appealable), “not all issues fall neatly into that dichotomy.” The Court explained that some issues may fall into both categories, and a decision made at the institution phase may be revisited by the Board in its final written decision, as the Board did regarding USPS’s standing in this case. The Court also distinguished the facts from previous decisions, including the Supreme Court’s recent decision in Cuozzo Speed Techs. LLC v Lee, 136 S. Ct. 2131 (2016). In Cuozzo, the dispute was whether the petitioner met a statutory requirement to set forth grounds for an IPR petition with particularity. Here, the Court explains, the issue is whether a party is statutorily allowed to petition for CBM. The Court found that this is “a condition precedent independent from a threshold analysis regarding the likelihood of success on the information contained in the petition,” and accordingly, “[t]here is no doubt that, despite the AIA’s no-appeal provisions, judicial review remains available on questions of ‘whether the [Board] exceeded statutory limits on its authority to invalidate.’”

The Court then turned to the Board’s finding that USPS had standing to petition for CBM. The government is immune from suit under the Patent Act, but under § 1498(a), “an eminent domain statute” and the provision under which Return Mail sued USPS in Claims Court, “the government ‘has consented thereunder only to be sued for its taking of a patent license.’” Return Mail argued that because § 1498(a) is grounded in eminent domain, it cannot be a suit for “infringement.” The Court, however, was not persuaded, finding that it has often described § 1498(a) suits as alleging “infringement.” The Court also found that § 1498(a) provides that liability attaches when the government acts “without license…or lawful right,” satisfying the definition of infringement, which requires action without authority.

The Court then turned to the specific language of 35 U.S.C. § 18(a)(1)(B), which provides:

A person may not file a petition for…[CBM review] unless the person…. has been sued for infringement of the patent or has been charged with infringement under that patent.

As an initial matter, the Court pointed out that neither party addressed whether “person” applies to the government. And while statutes employing that term will not ordinarily be construed to include the government, the Court found that Return Mail waived the issue by failing to address it. Although the dissent would have held this issue nonwaivable, the Court pointed out that the cases on which the dissent relies “address waiver in the Article III context or implicate [the Court’s] case-by-case discretion to entertain a waived issue in spite of…well established precedent to the contrary.” Further, “when determining the scope of the term ‘person,’ there is ‘no hard and fast rule of exclusion, and much depends on the context, the subject matter legislative history, and executive interpretation.’” And precedent holds that the exclusion of sovereigns from “person” “‘is particularly applicable where it is claimed that Congress has subjected the States to liability to which they had not been subject before.’” Thus, the Court found that any presumption “carries less weight here because the statute ‘confer[s] a benefit or advantage’ to the government, rather than a ‘burden or limitation.’” The Court also found no use of “person” in other provisions of the AIA that excludes the government. Ultimately, the majority concluded: “[W]e believe the better reading of “person” in § 18(a)(1)(B) does not exclude the government.”

The Court then addressed the scope of the term “sued for infringement,” noting that nothing in § 18(a)(1)(B) restricts “infringement” to suits falling under the Patent Act or precludes § 1498(a) suits from being suits for infringement. Thus, the Court found no reasons “to curtail the ability of the government to initiate a CBM proceeding when, like a party sued in federal district court or the ITC, it has interests at stake with respect to the patent it has been accused of infringing,” stating that it “may not rewrite the statute on Congress’s behalf.” The Court noted that its decision “may create tension with the estoppel provision for CBM review,” which applies to petitioners litigating in district court or the ITC but is silent regarding petitioners litigating in the Claims Court. This, “tension” the Court acknowledged, “means that the government would enjoy the unique advantage of not being estopped in the Claims Court from re-litigating grounds raised during a CBM review proceeding.” And “[a]lthough this raises certain policy concerns,” the Court left the matter for Congress to address should it see fit.

Turning finally the subject matter eligibility of the claims, the Court found the claims to be directed to the abstract idea of “relaying mailing address data” as “[e]ncoding and deconding mail recipient information…are processes that can, and have been, performed in the human mind.” Reciting that practice with the benefit of generic computer technology is insufficient to make the claims any less abstract, and regardless, the claims merely apply the functionalities of a generic computer and barcode system without improving the functioning of those systems. Accordingly, the Court found all challenged claims to be directed to patent ineligible subject matter.

In her dissent, Judge Newman would have vacated the decision of the Board, as she would have found the CBM proceeding to be beyond the Board’s statutory authority because the AIA permits a “person” to file a CBM petition and the government is not a person, an issue Judge Newman views as nonwaivable. Further, in contrast to the majority’s apparent view that “legislative intent was to silently give the [government] the benefit of the AIA, but not the burden of the estoppel provision,” Judge Newman points out that the estoppel provision “is the quid pro quo that underlay enactment of the AIA.” Accordingly, Judge Newman believes the majority’s decision goes against the legislative intent of the AIA.

The government qualifies as a “person” who may petition for CBM, and a party suing the government for improper use of a patented business method may be required to litigate issues before the Board in a CBM proceeding, and further the government appears to be exempt from the AIA’s CBM estoppel provision in a parallel litigation.

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