Guest Post by Joseph Matal and David McCombs
The Transitional Program for Covered Business Method (“CBM”) Review will come to an end on September 16, 2020, after eight years. In our view, the CBM program’s brief history is a cautionary tale about the costs that are imposed on the system when the Supreme Court delays in rectifying a mistake.
In 1998, the Federal Circuit issued its revolutionary decision in State Street Bank & Trust Co. v. Signature Financial Group. The Court held that patent-eligible subject matter extends to “anything under the sun made by man” and includes methods of conducting business.
This was a sharp break from history. The patent eligibility statute has remained substantively unchanged since the Patent Act of 1793, and for two centuries it was always understood to limit patentable subject matter to the “useful arts”—to what we would today call technology. During these centuries, the patenting of business methods was virtually unheard-of.
State Street led to a surge in the patenting of business methods and their assertion in the courts. The impact on the character and reach of patent litigation was dramatic. Suddenly, businesses that do not deal in technology, and that had never been the target of infringement suits before, found themselves being sued for the way that they structure their transactions, for conducting their business over the internet—and notoriously, even for how they pay their taxes. These claimed “inventions” were well outside the public’s understanding of what the patent system is appropriately used for.
And the Supreme Court did—nothing. Eight years later, in eBay v. MercExchange, Justice Kennedy made passing reference to the “potential vagueness and suspect validity” of business method patents. It was not until the 2010 Bilski decision that the Court finally invalidated a business method patent as “abstract.” And it was not until the Alice decision—issued 16 years after State Street was decided—that the Supreme Court made clear that business methods are not patentable, no matter how specific they are or whether they are implemented on a computer.
In the intervening years, tens of thousands of now-ineligible business methods patents were issued by the Patent Office (which was legally bound to follow State Street). CBM review was part of an effort to put this genie back in the bottle. It was designed as a cost-effective mechanism for cancelling claims that never should have issued—that are not even directed to things that you can patent.
Looking back today, the Congress that created CBM review appears to have underestimated the scope of the problem. Indeed, few may remember this today, but the version of CBM review that first passed the Senate in March of 2011 would have eliminated the program after four years—it would have expired in September 2015. The original optimistic thinking was that now that Bilski had recalibrated the law, the Patent Office would stop issuing business method patents, and it would take only a few short years to clean up what Senators described as the “backwash” of invalid patents that had issued under the State Street decision.
The House of Representatives was more pessimistic. It foresaw that righting the eligibility ship would take longer, and it extended the program to 8 years. The House’s apprehensions proved justified—it took three more years after the AIA’s enactment before Alice brought real clarity and the issuance of new business method patents (mostly) stopped.
Today at the expiration of the CBM program, one might well ask whether even the House was too optimistic. Patents directed to economic and human activities—the “non-technological” inventions captured by CBM review—continue to be asserted in droves in the district courts and even appealed to the Federal Circuit. That Court’s consistent enforcement of Alice, nowadays usually just through summary or non-precedential decisions, does not seem to have much deterred these plaintiffs.
Use of the CBM program has dropped off in recent years, but most acknowledge that this has more to do with court decisions such as Secure Axcess, which limited access to review, than with a decline in demand for the program. (Secure Axcess adopted a formalistic rule that the claims themselves must recite a financial activity—and thus even a specification that made clear that the patent was for a business method, or the fact that it was actually asserted against financial transactions, would not be enough.) That case was later vacated, though, and it seems likely that all appeals of CBM institution will be barred under the Supreme Court’s Thryv decision. Filings would undoubtedly rise again if the agency could make full use of the program.
Subsequent events have confirmed the utility of using PTAB review. The early post-Alice cases were easy to decide: everyone knew that the patentee had not invented the internet or the computer. But as the Federal Circuit’s Berkheimer decision demonstrated, in later cases it was sometimes unclear whether the technology that was being used to implement an ineligible concept was, in fact, “well understood, routine, and conventional” when the patent was filed. In these cases, where resolution of eligibility raises subsidiary fact questions, it makes sense to address § 101 in a forum that is relatively inexpensive like a 12(b)(6) motion, but that can also assess the teachings of the prior art.
Inter partes review, of course, is still available. And in those districts that are resistant to allowing early resolution of eligibility issues, defendants can still go to the PTAB and show that a claimed business method was already known in the art. Addressing such patents in this way, however, has an other-worldly quality: it requires analyzing the patentability of what is per se unpatentable, and researching economic and business practices that often are not documented or are described in vague and contextual terms. Human activities, after all, depend on their societies and cultures, and usually are not captured in the precise and universal terms that govern technological inventions, making it harder to decide what is “new.”
It seems likely that defendants will miss the CBM program once it is gone. With today’s 20-year patent term, many ineligible business method patents still have another decade or more of life. And with rumors circulating that some patent assertion organizations are holding back their lawsuits until after the program expires, the day may come sooner rather than later when we realize that Congress underestimated how long the United States will continue to feel the after-effects of the Supreme Court’s delay in enforcing patent eligibility standards.
Joseph Matal is a partner in the Intellectual Property Practice Group in the Washington, D.C. office of Haynes and Boone, LLP. Prior to joining this firm, he served as both the U.S. Patent and Trademark’s Acting Director and Acting Solicitor. Matal is the author of A Guide to the Legislative History of the America Invents Act.
David McCombs is a partner in the Intellectual Property Practice Group in the Dallas office of Haynes and Boone, LLP and an adjunct professor at the SMU Dedman School of Law. He serves as primary counsel for many leading corporations in concurrent patent litigation in the federal courts and before the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board.