Federal Circuit Offers Guidance on the Legal Standard for CBM PatentsJuly 18, 2018

On July 11, 2018, in Apple Inc. v. ContentGuard Holdings, Inc., the United States Court of Appeals for the Federal Circuit (CAFC) clarified what the proper legal standard is for determining whether a patent qualifies as a covered business method (CBM) patent. The CAFC vacated and remanded a decision made by the Patent Trial and Appeal Board (PTAB) in which it held that a patent relating to a digital rights management (DRM) system qualified as a CBM patent. The CAFC vacated the decision, because it held that PTAB used the wrong legal standard.

The patent in question involves a DRM system. These types of systems “allow content owners to control how their digital works are subsequently used”. For example, a DRM system may prevent users from using the digital content without paying a fee or may prevent users from creating unauthorized duplicate copies of the digital content.

PTAB found that the patent in question qualified as a CBM patent because it was “incidental to” or “complementary to” financial activity. This, however, is not the correct standard to determine whether a patent qualifies as a CBM patent. Quoting Unwired Planet, LLC v. Google, Inc., 841 F.3d 1376, 1379 (Fed. Cir. 2016) and further quoting the America Invents Act, the CAFC writes that CBM patents must have “claims that are directed to methods and apparatuses of particular types and with particular uses ‘in the practice, administration, or management of a financial product or service’”. The CAFC says that “the mere possibility that a patent can be used in financial transactions is not enough to make it a CBM patent”. In this case, even though the specification does describe some embodiments where the invention is used for financial transactions, it also describes embodiments where it is not. The CAFC held that simply describing in the specification how an invention can be used, in certain embodiments, to facilitate financial transactions is not enough for a patent to qualify as a CBM patent.

Although the CAFC offers some guidance on the issue of what qualifies as a CBM patent, it decides not to answer the question of whether describing any embodiments where the invention is not used for financial transactions bars the invention from being a CBM patent.

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