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IP Alert: Federal Circuit Addresses Eligibility for CBM Review

October 9, 2019

On September 25, in SIPCO, LLC, v. Emerson Electric Co., the Federal Circuit acknowledged the difficulty in determining when a patent is directed to a “technological invention” under the statute providing for covered business method (CBM) review. In reversing the Patent Trial and Appeal Board (PTAB) decision in this case, the court provided guidance for evaluating CBM eligibility.

The patent at issue, U.S. Patent No. 8,908,842, discloses a two-step communication system for communicating information from a low-power transceiver to a network of intermediate nodes and then from the intermediate nodes to a central location. Emerson filed a petition requesting CBM review of the ’842 patent on sections 101 and 103 grounds. The PTAB instituted review and ultimately found the claims ineligible under section 101 and obvious under section 103.

SIPCO appealed, challenging the PTAB’s determination that the ’842 patent was subject to CBM review. Specifically, SIPCO challenged the PTAB’s analysis of the “technological invention” exception. Under 37 C.F.R. § 42.301(b), a patent that would otherwise be subject to CBM review is properly excluded as disclosing a “technological invention” when (1) the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art, and (2) the patent solves a technical problem using a technical solution. Both prongs of this test must be met to avoid CBM eligibility.

To conclude that the ’842 patent was CBM-eligible, the PTAB first found that the patent included dependent claims associating the disclosed communication scheme for use in an ATM and a vending machine. Second, the PTAB addressed the “technological invention” exception, finding that the ’842 patent did not solve a technical problem under step 2 of section 42.301(b). Specifically, the PTAB opined that the claimed two-step communication scheme recited “no more than generic and known hardware elements and routine computer functions,” and the problem being solved was “automating service requests of vending machines and ATMs,” which was a financial problem—not a technological one.

Although the Federal Circuit agreed that the ’842 patent was directed to a financial product or service, meeting the threshold test for CBM eligibility, the court found that the PTAB erred in its analysis of the technological invention exception. Specifically, the court held that the PTAB had mischaracterized the technical problem and solution at issue, finding that the ’842 patent concerned the problem of “how to extend the reach of an existing communication system from a central location to a remote, unconnected device while protecting against unwanted interference with the transmitted signals.” In addition, the court found that the technical solution was “the creation of a two-step communication system that communicates information through a low-power, i.e., limited transmission range, transceiver over a first, wireless step, that taps into the intermediate node’s existing network connection to transport information to the central location.”

Interestingly, the court openly acknowledged the difficulties involved in determining what exactly qualifies as a “technological invention” under section 42.301(b). Citing its prior Versata case, the court held that “neither the statute’s punt to the USPTO nor the agency’s lateral of the ball offer anything very useful in understanding the meaning of the term ‘technological invention.’” Further, “[t]he omission of any definition for the phrase ‘technological invention’ underscores the importance of meaningful guidance from the patent office on § 42.301(b).” Because the PTAB had erred in finding the claims were eligible for CBM review, the court vacated the PTAB’s unpatentability determinations and remanded for the PTAB to determine whether the patent likewise satisfied step 1 under section 42.301(b).

This decision is relevant to any clients owning patents that claim financial or financially related aspects. Given the Federal Circuit’s apparent frustration with the difficulty in determining what precisely qualifies as a “technological invention,” we can expect this area of law to continue to develop as more cases are heard by the PTAB and the Federal Circuit.

For more information on this decision, please contact Fitch Even partner David A. Gosse, author of this alert. 

Fitch Even attorney Evan Kline-Wedeen contributed to this alert. 

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