IP Law Daily Federal Reserve banks are ‘persons’ for purposes of the AIA
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Friday, April 10, 2020

Federal Reserve banks are ‘persons’ for purposes of the AIA

By Peter Reap, J.D., LL.M.

The Federal Circuit also ruled that two financial data processing patents were invalid under the Supreme Court’s Alice test.

A set of Federal Reserve banks (the Banks) that petitioned for covered business method (CBM) review of all of the claims of two patents for processing financial data are "persons" who may petition for post-issuance review under the America Invents Act (AIA), the U.S. Court of Appeals for the Federal Circuit has decided. Due to the way they are structured and their operations, the Banks are distinct from the government for purposes of the Act. Furthermore, Patent Trial and Appeal Board correctly determined that certain claims of the two patents asserted against the Banks were directed to a patent ineligible concept and contained no inventive concept that rendered them eligible under the Supreme Court’s Section 101 Alice test. Thus, the Board’s rulings were affirmed (Bozeman Financial LLC v. Federal Reserve Bank of Atlanta, April 10, 2020, Moore, K.).

Bozeman Financial’s U.S. Patent Nos. 6,754,640 and 8,768,840 are directed to methods for authorizing and clearing financial transactions to detect and prevent fraud. The Banks petitioned for CBM review of claims 1–26 of the ’640 patent and claims 1–20 of the ’840 patent. In a supplemental brief, Bozeman argued that the Banks are not "persons" under the AIA, and therefore they may not petition for post-issuance review under the AIA. Bozeman contended that the Banks are government entities, which the Supreme Court held were not "persons" under the AIA. Return Mail, Inc. v. U.S. Postal Serv., 139 S. Ct. 1853 (2018).

As an initial matter, the appellate court held that, even though federal appellate courts do not usually consider an issue that was not ruled on below, the circumstances here warranted review. Patent law questions of this sort fall squarely within the role of this court to create a uniform body of patent law and reaching this issue was unlikely to substantially prejudice the parties, the court reasoned.

"Person" under the AIA. In Return Mail, the Supreme Court held that federal agencies are not "persons" able to seek post-issuance review of a patent under the AIA. The Court held that the government was not a "person," such that it was capable of petitioning for any of the three post-issuance proceedings before the USPTO. Bozeman argued that the Banks are operating members of the nation’s Federal Reserve System, which is a federal agency, meaning they are government entities. The Federal Circuit agreed with the Banks that they are "persons" and, as such, are capable of petitioning the USPTO.

Unlike the Postal Service, which was at issue in Return Mail, the Banks’s enabling statute does not establish them as part of an executive agency, but rather each bank is a "body corporate." 12 U.S.C. § 341. Like any other private corporation, the Banks each have a board of directors to enact bylaws and to govern the business of banking. Moreover, the Banks may sue or be sued in any court of law or equity.

Significantly, the Banks are subject to suit for patent infringement in any court. The Supreme Court in Return Mail recognized that federal agencies face less risk for patent infringement than do private entities. Thus, this favored a finding that the Banks are separate from the government and Congress intended the Banks have access to post-issuance proceedings, the Federal Circuit noted. Moreover, The Banks are not structured as government agencies. The Banks do not receive congressionally appropriated funds and no Bank official is appointed by the President or any other Government official. Moreover, the government exercises limited control over the operation of the Banks. Instead, the "direct supervision and control of each Bank is exercised by its board of directors." 12 U.S.C. § 301. And the Banks cannot promulgate regulations with the force of law.

For these reasons, the Banks are "persons," distinct from the government, capable of petitioning for post-issuance review under the AIA, the court held.

Patent eligibility. Bozeman appealed the Board’s decisions that the asserted claims of the ’640 and ’840 patents are ineligible under § 101. Bozeman’s failure to separately argue the eligibility of the ’640 patent claims before the Board precluded it from doing so for the first time on appeal, the court held. In its patent owner response, Bozeman’s argument was limited to a single sentence incorporating by reference its eligibility arguments in the ’840 patent CBM proceeding stating, "the ’640 Patent would fall under the same Section 101 Patentability as the child parent, the ’840." Bozeman conceded that the appeal was limited to the eligibility of claims 21–24 of the ’640 patent. Thus, for the ‘640 patent, the Federal Circuit limited its review to the only argument Bozeman made to the Board, that the ’640 patent claims are eligible for the same reasons as the ’840 patent claims.

As the Board determined, under Alice Step One, the claims of the ’840 patent are directed to the abstract idea of "collecting and analyzing information for financial transaction fraud or error detection," according to the appellate court. Claim 1 of the ’840 patent claims a method of receiving data from two financial records, storing that data, comparing that data, and displaying the results. As the specification explained, "[t]he present invention relates to a Universal Positive Pay Database method, system, and/or computer useable medium to reduce check fraud and verify checks, other financial instruments and documents." Verifying financial documents to reduce transactional fraud is a fundamental business practice that, without more, is not eligible for patent protection. The ’840 patent’s claimed method, which implements basic computer equipment to achieve this verification, is similar to methods the Federal Circuit held directed to abstract ideas.

Bozeman’s argument that the claimed method is a physical process that improves handling and processing of checks and is not an abstract idea was without merit. Recording or extracting data from physical documents, such as paper checks, is not alone sufficient to render claims not abstract. As the court previously explained in a case involving similar patents, data collection, recognition, and storage are undisputedly well-known and humans have always performed these functions.

Under Alice Step Two, like the Board, the court decided that there is nothing additional in the claims of the ’840 patent that would render the claims patent-eligible. The ’840 patent specification explains that methods for inhibiting check fraud and verifying financial transactions were well-known. And, the technological components recited in representative claim 1 of the ’840 patent were conventional, off-the-shelf computer components. Bozeman’s argument that the ordered combination of the elements in claim 1 of the ’840 patent is a specific implementation of an invention that is not routine or conventional was rejected. Bozeman failed to identify what about the ordering of the steps in claim 1 provides an inventive concept. Further, the claims of the ’840 patent did not satisfy the machine-or-transformation test.

Because Bozeman did not preserve any eligibility arguments related to claims 21–24 of the ’640 patent separate from the claims of the ’840 patent, the Board’s holdings that claims 21–24 of the ’640 patent and claims 1–20 of the ’840 patent are ineligible were affirmed.

This case is No. 19-1018.

Attorneys: Scott E. Gant (Boies Schiller Flexner LLP) for Bozeman Financial LLC. Jeffrey S. Bucholtz (King & Spalding LLP) for Federal Reserve Bank of Atlanta, Federal Reserve Bank of Boston, Federal Reserve Bank of Chicago, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Dallas, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of New York, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of Richmond, Federal Reserve Bank of San Francisco, and Federal Reserve Bank of St. Louis.

Companies: Bozeman Financial LLC; Federal Reserve Bank of Atlanta; Federal Reserve Bank of Boston; Federal Reserve Bank of Chicago; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Dallas; Federal Reserve Bank of Kansas City; Federal Reserve Bank of Minneapolis; Federal Reserve Bank of New York; Federal Reserve Bank of Philadelphia; Federal Reserve Bank of Richmond; Federal Reserve Bank of San Francisco; Federal Reserve Bank of St. Louis

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