Third StrikeThe Federal Circuit has rejected for the third time efforts by the Director of the PTO to preclude appellate review of whether challenged patent claims were properly deemed “covered business methods,” and thereby subject to CBM review.  Previously, in Versata Development Group, Inc. v. SAP America, Inc., the Federal Circuit concluded that its jurisdiction to hear appeals of the PTAB’s final written decisions empowered it to examine if challenged claims qualified for CBM review (we reported here).  In doing so, the Federal Circuit rejected contrary arguments of the Director who intervened on appeal. 

That decision in Versata, however, was not unanimous.  In dissent, Circuit Judge Hughes argued that the PTAB’s decision to institute CBM review was expressly deemed “final and nonappealable” under 35 U.S.C. Section 324(e) (we discussed here). Any thought that Judge Hughes’ dissent signaled disarray among the Federal Circuit was quickly dispelled when Judge Hughes later abandoned his opposition to such appellate review, joining a unanimous panel in SightSound Technologies, LLC v. Apple, Inc., No. 2015-1159, in rejecting arguments of the Director who had once again intervened.

Now we come to the recent appeal in Blue Calypso, LLC v. Groupon, Inc., No. 2015-1396.  There the Director intervened for a third time, pressing the points made by Judge Hughes in his earlier dissent that Congress had expressly provided only that final patentability determinations be appealable to the Federal Circuit.  According to the Director, any review of the PTAB’s decision to institute CBM is reserved to the Director, under the legislation authorizing CBM review. As to the Versata case, the Director declared it was “wrongly decided.”  

The Federal Circuit panel in Blue Calypso unanimously rejected the Director’s arguments.  Declining to revisit its decision in Versata, the Federal Circuit repeated its earlier determination that, while the decision whether or not to institute a CBM review is final and nonappealable, the question of whether a challenged patent claim is a covered business method “relates to the Board’s authority to issue a final decision in a CBM review.”  The Federal Circuit concluded that because Congress granted the court with jurisdiction to review the Board’s final decisions in CBM reviews, the court was empowered to review the Board’s conclusions that the challenged claims are “covered business methods.”

 . . .the claims at issue in the instant case have an express financial component in the form of a subsidy, or financial inducement, that encourages consumers to participate in the distribution of advertisements.

Having confirmed its authority to examine whether CBM review was proper, the Federal Circuit concluded that the claims challenged in Blue Calypso were properly subject to such review.  The Federal Circuit approvingly declared that the term “covered business method” was to be “broadly interpreted to encompass patents claiming activities that are financial in nature, incidental to a financial activity or complementary to a financial activity.”   The Federal Circuit rejected the Patent Owner’s argument that the challenged claims related to the management and distribution of advertising, not a financial product or service.

According to the Federal Circuit, the claims included subsidy steps intended to induce subscribers to assist in advertising efforts.  The Federal Circuit agreed with the Board’s conclusion that the subsidy concept was “central to the claims” because “without the subsidy or subsidy program, there is no incentive for a subscriber to perform the other steps in the claims.”  The Federal Circuit found it significant that the Patent Owner had not challenged the construction of subsidy as “financial assistance given by one to another.”  (Emphasis added.)  Methods in which advertisers “financially induce” subscribers to assist their advertising efforts were, in the view of the Federal Circuit, properly subject to CBM review.

The Federal Circuit was also not persuaded by the Patent Owner’s argument that the PTAB had applied its definition of a covered business method patent in an arbitrary or capricious manner.  The Federal Circuit dismissed the handful of cases cited by Patent Owner in which the PTAB had declined to institute CBM review, noting none of those cases involved claim language “explicitly or inherently financial.”

Given that the Director has now unsuccessfully argued this issue to the Federal Circuit three times, it would appear that, short of a contrary decision by the United States Supreme Court, the jurisdiction of the Federal Circuit to review whether patents are properly subjected to CBM review is settled.  However, we may have just such an opportunity for a final word.  On Friday, March 11, 2016, Versata filed a petition for certiorari with the U.S. Supreme Court.  The case is docketed as 15-1145.