The Software IP Report

Federal Circuit Affirms PTAB’s CBM Determinations

The PTAB was not arbitrary and capricious in determining that patent claims directed to transmitting digital data were Covered Business Method (CBM) claims, despite a seeming recitation of technological elements, and an omission of any explicit recitation of a financial element.  SightSound Technologies v. Apple, Inc., No.s 2015-1159, 2015-1160 (Fed. Cir. Dec. 15, 2015).  Although applying an admittedly very forgiving standard of review, the Federal Circuit (opinion authored by Judge Dyk, joined by Judges Hughes and Lourie) seems to have endorsed — or at least has declined an opportunity to put the brakes on — the Patent Trial and Appeal Board’s (PTAB) liberal applications of the CBM procedure.

The claims of U.S. Patent Nos. 5,191,573 and 5,966,440 were directed to things like  “transmitting a desired digital audio signal stored on a first memory of a first party to a second memory of a second party” and ” transferring desired digital video or digital audio signals.”  After wading through questions of jurisdiction and administrative law, the court explained that it would review the PTAB’s determination of a CBM under the arbitrary and capricious standard of review.

The threshold question in making a CBM determination is whether the patent claims are directed to a financial product or service.  Here, the PTAB concluded that claims of both patents were “directed to activities that are financial in nature, namely the electronic sale of digital audio.”  The PTAB relied on the patent specification, which talked about sales, purchases, and money.  Dependent claims had recitations about credit cards.  The PTAB was not arbitrary and capricious in deciding that “the electronic sale of something, including charging a fee to a party’s account, is a financial activity, and allowing such a sale amounts to providing a financial service.”

Nor was the PTAB arbitrary and capricious  in concluding “that the ’573 and ’440 patents do not claim a ‘technological invention.'”  The PTAB had explained that the claims were not “technological” just because they recited hardware.  Use of known technology in obvious combinations did not amount to a technological invention.

The court also affirmed the PTAB’s obviousness determination after considering the PTAB’s claim constructions.  Conducting a de novo review of the PTAB’s claim constructions under the broadest reasonable construction standard, the court said that the PTAB had incorrectly construed the claim term “second memory.” However, the PTAB was ultimately correct to include floppy disks in this definition; the replacement of the claim term “hard disk” with “second memory” bore out that this term was not a technological limitation.

The takeaway here is not news but nonetheless bears repeating — CBM proceedings are an effective tool for attacking a broad array of patents on multiple grounds.  The claims at issue here (see links above) are worth taking a good look at, because on their face many people would say they are not directed to a business method, and are directed to a “technological” invention.