Proposed expansion of the covered business method review program

April 2014 | EXPERT BRIEFING | INTELLECTUAL PROPERTY

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In recent years, the United States Congress has enacted legislation to curb abuses by patent-assertion entities (or patent trolls). Some believe that Congress has not gone far enough. But a proposed provision regarding business-method patents has created concern that Congress may go too far in its reform efforts.

A powerhouse coalition of technology companies and trade associations has written to the Senate Judiciary Committee to criticise the proposed expansion of a program at the US Patent Office called covered business method review. According to the coalition, that effort to address supposedly poor-quality patents “will hurt America’s innovators – both large and small – and weaken America’s competitive advantage around the world”.

In 2011, the America Invents Act created two new procedures at the Patent Office for challenging issued patents: post-grant review and inter partes review. The two procedures differ, among other things, in terms of timing and applicability as well as the evidence that a patent challenger may submit. Post-grant review applies only to patents filed after 15 March 2013, while inter partes review may apply to any patent issued now or later. For patents subject to post-grant review, a patent challenger must request it within nine months of patent issuance. After that nine-month window, the challenger must proceed through inter partes review. Post-grant review permits the challenger to present to the Patent Office almost the same evidence that it could rely on in a district court to invalidate a patent, including public uses and sales activities. Inter partes review, on the other hand, limits the challenger to patents and publications.

The America Invents Act, however, made post-grant review applicable to a limited class of now- or later-issued patents that cover data-processing operations relating to financial products or services, called covered business-method patents. Examples include patents concerning processes for buying and selling stocks, determining pricing for products and services, managing advertising, and managing risk. The Act restricted CBM review to those charged with infringement, e.g., in a complaint filed in court or in correspondence.

The Act included a sunset provision. It authorised CBM review for an eight-year period ending in 2020. So someone charged with infringement may request CBM review until 2020 regardless of when the patent was issued.

In addition, the Act specified four factors that courts must consider when deciding whether to stay proceedings in a concurrent infringement suit until the completion of CBM review in the Patent Office. Those factors encourage courts to grant stays, particularly if sought early in a lawsuit. In practice, almost all courts have granted stays when asked to do so.

The legislation before the Senate proposes to repeal the sunset provision and make CBM review permanent. More significantly, it seeks to increase the types of patents subject to CBM review. If that legislation became law, CBM review would apply to patents covering data-processing operations relating to any “enterprise, product, or service”.

In its January 2014 letter to the Senate Judiciary Committee, the coalition of technology companies and trade associations explained that CBM review was intended as a temporary measure for taking a second look at “a very narrow class of financial-services-related patents”. The coalition argued that the proposed expansion “would have far-reaching implications, because data processing is integral to everything from cutting-edge cancer therapies to safety systems that allow cars to respond to road conditions in real time to prevent crashes”. It also argued that expansion would “create uncertainty and risk that discourage investment in any number of fields”.

The coalition pointed out that CBM expansion seems unnecessary since inter partes review provides a less-expensive alternative to litigation. Moreover, the coalition noted that expansion could undermine and interfere with patent rights by giving infringers a procedural loophole to delay enforcement of legitimate lawsuits by initiating CBM review at the Patent Office.

The coalition also noted that CBM expansion could impact relationships between the United States and its trading partners. It asserted that if discriminatory treatment of a select category of patents became “a permanent feature of U.S. law, it would create a harmful precedent for our trading partners to enact exceptions in their laws to protect special interests in their countries”. It also asserted that CBM expansion would “significantly undermine the longstanding efforts of numerous U.S. government agencies to persuade some of our major trading partners to modify their laws to provide patent protection for important computer-implemented inventions”.

Portions of the January 2014 letter to the Senate Judiciary Committee are identical to a September 2013 letter to the House Judiciary Committee, which had before it a similar proposal to expand CBM review. The House removed that provision and in December 2013 passed the Innovation Act by a bipartisan vote of 325-91. Perhaps the Senate will also quash CBM expansion and pass further patent-reform legislation.

But proponents of CBM expansion believe it necessary to address poor-quality patents often used to file dubious infringement suits. They maintain that the program’s very existence will discourage patent trolls from suing because trolls will know that they cannot entangle a defendant in lengthy and costly litigation.

So expect further – and perhaps contentious – debate in Congress regarding the propriety of CBM expansion.

Steven M. Amundson is a partner at Frommer Lawrence & Haug LLP. He can be contacted on +1 (212) 588 0800 or by email: samundson@flhlaw.com.

Steven M. Amundson

Frommer Lawrence & Haug LLP