IP Law Daily CBM review, invalidation of financing patent claims not barred by prior CBM review of other claims
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Friday, June 9, 2017

CBM review, invalidation of financing patent claims not barred by prior CBM review of other claims

By Cheryl Beise, J.D.

The Patent Trial and Appeal Board did not err in instituting Covered Business Method ("CBM") review and finding several claims of a financing method patent owned by Credit Acceptance Corporation ("CAC") to be directed to a patent-ineligible abstract idea, the U.S. Court of Appeals for the Federal Circuit has ruled. The Board correctly rejected CAC’s argument that a prior CBM proceeding invalidating other claims of the same patent estopped petitioner Westlake Services from maintaining the present proceeding. In a dissenting opinion, Circuit Judge Mayer expressed his view that the court lacked jurisdiction to review the Board’s estoppel ruling because it was closely tied to a non-appealable institution decision (Credit Acceptance Corp. v. Westlake Services, June 9, 2017, Dyk, T.).

CAC owns U.S. Patent No. 6,950,807 (the ’807 patent), which includes both system and method claims directed to "provid[ing] financing for allowing a customer to purchase a product selected from an inventory of products maintained by a dealer," such as vehicles for sale at a car dealership. Westlake Services LLC petitioned for review of all 42 claims of the’807 patent. In March 2014, the Board instituted review of claims 1–9, 13, and 34–42, but declined to review the remaining claims (10-12 and 13-33), finding that they were more likely than not patentable under existing judicial precedent interpreting 35 U.S.C. §101.

Shortly after the Board’s institution decision, the Supreme Court issued its decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), and vacated and remanded the main Federal Circuit decision relied upon by the Board, WildTangent, Inc. v. Ultramercial, LLC, (Fed. Cir. 2013) ("Ultramercial II"). On August 20, 2014, Westlake filed a second petition for CBM review, again challenging claims 10–12 and 14–33 as patent-ineligible under §101. In November 2014, the Federal Circuit issued a revised decision in Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) ("Ultramercial III"). Citing Alice and Ultramercial III, the Board instituted review of claims 10-12 and 14-33. The Board rejected CAC’s argument that the existence of the first CBM proceeding estopped Westlake from challenging claims 10–12 and 14–33.

In March 2015, the Board issued a final decision in the first CBM proceeding, concluding that claims 1–9, 13, and 34–42 of the ’807 patent were unpatentable under §101. CAC moved to terminate the second proceeding on estoppel grounds. On May 14, 2015, in a decision later designated as precedential, the Board denied the motion, explaining that estoppel under § 325(e)(1) applies on a claim-by-claim basis. On January 25, 2016, the Board issued a final written decision in the second CBM proceeding, concluding that claims 10–12 and 14–33 of the ’807 patent were invalid under §101. CAC appealed the Board’s decision in the second proceeding.

On appeal, CAC argued that Westlake should have been estopped from challenging claims 10–12 and 14–33 and that the Board had erred in finding that the claims were patent-ineligible.

Post-grant estoppel. CAC contented that Westlake was estopped from challenging claims 10–12 and 14–33 of the ’807 patent in light of the first CBM institution decision. CBM review proceedings are governed by Section 18 of the Leahy-Smith America Invents Act ("AIA"), which incorporates the "chapter 32 provisions of title 35 of the U.S. Code, governing post-grant review (‘PGR’)." Under the PGR estoppel provision, 35 U.S.C. §325(e)(1), a petitioner "may not request or maintain a proceeding before the Office with respect to [a previously-challenged] claim on any ground that the petitioner raised or could have raised in [the prior] post-grant review."

Judicial review. Westlake and the PTO argued that the Federal Circuit lacked jurisdiction to review the Board’s institution decision. According to the PTO, the Board’s decision regarding estoppel under §325(e)(1) was akin to a non-appealable Board decision regarding the institution of post-grant review under §324(e). The Federal Circuit disagreed. Section 325(e)(1) does not refer to an institution decision and the provision can be applied at any stage of the proceeding, the court noted.

Section 325(e)(1) provides that an estopped petitioner "may not request or maintain a proceeding before the office" (emphasis added). The plain language contemplates more than an institution decision, the court said. This reading also was consistent with other statutory provisions, and with Congressional intent in enacting the AIA. Section 18(a)(1)(D) of the AIA applies estoppel to subsequent district court and International Trade Commission ("ITC") proceedings as well. It would be inconsistent to preclude the appeal of the Board’s estoppel decision under §325(e)(1), but not ITC or court decisions, according to the court. "[The] practical need for uniformity weighs strongly in favor of appealability," the court said.

Westlake nonetheless argued that the Board’s ruling on CAC’s motion to terminate was not a final written decision subject to judicial review. This argument was without merit because in this case the Board issued a final written decision, necessarily predicated on rejecting Westlake’s estoppel argument.

Merits of estoppel. CAC argued that a final written decision under 35 U.S.C. §328(a) covers all claims challenged in a petition for post-grant review, not only the claims that were instituted for review. Section 328(a) provides that the Board "shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner and any new claim added…"

CAC’s argument was foreclosed by the Federal Circuit’s decision in Synopsys, Inc. v. Mentor Graphics Corp., 814 F.3d 1309, 1314 (Fed. Cir. 2016). In Synopsys, the court interpreted identical statutory language in the IPR context, holding that, under 35 U.S.C. §318(a), the Board may institute an IPR on a claim-by-claim basis, and a final written decision on instituted claims is not a final determination on the patentability of non-instituted claims. "Because a final written decision does not determine the patentability of non-instituted claims, it follows that estoppel does not apply to those non-instituted claims in future proceedings before the PTO," the court reasoned. This conclusion was reinforced by the Federal Circuit in Shaw Industries Group, Inc. v. Automated Creel Systems, Inc., 817 F.3d 1293 (Fed. Cir. 2016). Adopting the reasoning of its parallel IPR estoppel cases, the Federal Circuit concluded that 35 U.S.C. §325(e)(1) does not apply in a subsequent proceeding to claims upon which the Board declined to institute review.

Patent-eligible subject matter. CAC challenged the Board’s finding that the challenged claims were directed to the patent-ineligible abstract idea of "processing an application for financing a purchase." The Federal Circuit agreed with the Board.

Representative claim 25 of the ’807 patent is "directed to a system for maintaining a database of information about the items in a dealer’s inventory, obtaining financial information about a customer from a user, combining these two sources of information to create a financing package for each of the inventoried items, and presenting the financing packages to the user." Some claims contain additional details about the financing process.

"We see no meaningful distinction between this type of financial industry practice and "the concept of intermediated settlement" held to be abstract in Alice … or the "basic concept of hedging" held to be abstract in Bilski," the court said. The ’807 patent specification itself stated that processing an application for financing a purchase is "a fundamental economic practice long prevalent in our system of commerce."

CAC contended that the claims were not abstract because they "improve[] the functionality of the general purpose computer by programming fundamentally new features." However, the mere automation of previously manual loan processes using generic computers does not constitute a patentable improvement in computer technology, the court said. Similarly, "configuring a computer system to combine data from multiple electronic data sources … to synthesize a comprehensive report" was still within the realm of abstract ideas. The court has previously held that data processing to facilitate financing is a patent-ineligible abstract concept.

The court also agreed with the Board that the challenged claims do not recite an inventive concept, but merely relied on conventional and generic computer components. Merely configuring generic computers in order to "supplant and enhance" an otherwise abstract manual process is precisely the sort of invention that the Alice Court deemed ineligible for patenting. The claims do not provide details as to any non-conventional software for enhancing the financing process, the court noted. Finally, contrary to CAC’s assertion, the Board properly considered the claimed elements as an ordered combination and determined that the claims did not recite an inventive concept.

The court concluded that Westlake was not estopped from maintaining the CBM proceeding and that the Board did not err in holding that claims 10–12 and 14–33 of the ’807 patent are not directed to patent-eligible subject matter under 35 U.S.C. §101.

Dissent. Circuit Judge Haldane Robert Mayer filed an opinion that dissented in part. While Judge Mayer agreed that the challenged claims are patent ineligible under 35 U.S.C. §101, he would hold that the Board’s application of section 325(e)(1)’s estoppel provision in determining whether to institute or terminate review is "final and nonappealable" under 35 U.S.C. §324(e). In Judge Mayer’s opinion, the majority’s decision contravened the Supreme Court’s decision in Cuozzo Speed Techs., LLC v. Lee, 136 S. Ct. 2131, 2141 (2016). In Cuozzo, the Court made clear that the Federal Circuit, with certain narrow exceptions, has no jurisdiction to review determinations about the application and interpretation of statutes "closely tied" to the Patent Office’s decision to institute review. The present appeal "falls squarely within the scope of the bar, imposed by 35 U.S.C. §324(e), on appellate review of institution decisions," Judge Mayer said.

The case is No. 2016-2001.

Attorneys: Douglas R. Nemec (Skadden, Arps, Slate, Meagher & Flom LLP) for Credit Acceptance Corp. John David Van Loben Sels (Fish & Tsang LLP) for Westlake Services.

Companies: Credit Acceptance Corp.; Westlake Services

MainStory: TopStory Patent FedCirNews

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