CHARLES E. SCHUMER
`NEW YORK
`
`COMMITTFFS:
`
`BANKING
`DEMOCRATIC POLICY & COMMUNICATIONS
`FINANCE
`JUDICIARY
`RULES
`
`Idnitcd States Senate
`
`WASHINGTON, DC 20510
`
`April 10, 2012
`
`Submitted Via Electronic Mail:
`TPCBMP_Rules@uspto.gov;
`TPCMBP_Definition@uspto.gov; &
`patent trial rules@uspto.aov
`
`Attention: Lead Judge Michael Tierney, Covered Business Method Patent Review
`United States Patent and Trademark Office
`Alexandria, VA 22313
`
`Re:
`
`Proposed Rulemakings ImplementingThe Transitional Program For Business
`Method Patents
`
`Iwrite to commend the Office for the Proposed Rulemaking Regarding Section 18 of the
`America Invents Act, which creates a transitional business method review program, and to
`further reinforce the intent of the provision. Iwas the principal author of Section 18 of the
`legislation, along with my colleague from Arizona, Senator Kyi, and thus can provide you
`unique insight into our intent in drafting and expectations for implementation.
`
`Iunderstand that some commenters on the Proposed Rulemakings have urged you to
`construct a narrow program under Section 18; however, this would be directly at odds with our
`intent in drafting and is merely an attempt to achieve through the regulatory process what they
`could not through the legislative process. The transitional program was enacted for the dual
`purposes of improving patent quality and reducing meritless litigation of low quality business
`method patents and should be constructed in a way that achieves each purpose. The proposed
`rule takes significant strides toward meeting the legislative intent, but some commenters seem
`bent on restrictions that would limit its applicability. Indeed some commenters purport to rely on
`my own statements in the congressional record to support their flawed positions. I write to
`correct those interpretations and provide additional clarification as to my position.
`1.
`Comments suggest
`the business method review program should be limited to
`that
`petitions brought by companies in the financial services industries, arguing that definitions of
`covered business method patents that include "any financial transaction" are not within the intent
`of Section 18 and should be rejected. Nothing could be further from the truth. In fact, many of
`the problematic business method patents this program is intended to weed out are asserted
`against small businesses, especially internet startups. This program was designed to target
`problematic patents, regardless of the business identity of the party against whom they are
`asserted. The limitation commenters suggest is not only contrary to basic common sense and
`fairness, it is plainly refuted by the record.
`
`The Program Is Not Limited to Financial Services Companies
`
` CBM2017-00008 Ex. 1003
`Broadsign International, LLC Petitioner
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`
`First, the definition of "covered business method patent" in the statute was drafted to
`encompass all patents "claiming activities that are financial in nature, incidental to a financial
`activity or complementary to a financial activity." 157 Cong. Rec. S5432 (daily ed. Sept. 8,
`2011) (statement of Sen. Schumer). The text of section 18(d)(1) of the ALA provides that a
`patent is eligible for review if it can be applied to the "practice, administration, or management"
`of a financial product or service. The breadth of this definition was emphasized during the
`Congressional debates on the AIA:
`
`This language is intended to make clear that the scope of patents eligible for
`review under this program is not limited to patents covering a specific financial
`product or service. In addition to patents covering a financial product or service,
`the "practice, administration and management" language is intended to cover any
`ancillary activities related to a financial product or service, including, without
`limitation, marketing,
`interfaces, Web site management and
`customer
`functionality,
`transmission or management of data, servicing, underwriting,
`customer communications, and back office operations—e.g., payment processing,
`stock clearing.
`
`157 Cong. Rec. S1363, S1365 (daily ed. March 8, 2011) (statement of Senator Schumer).
`
`Moreover, contrary to the commenter's arguments, "[n]othing in the American Invents Act limits
`use of section 18 to banks, insurance companies or other members of the financial service
`industry... . The plain meaning of 'financial product or service' demonstrates that section 18 is
`not limited to the financial services industry. At its most basic, a financial product is an
`agreement between two parties stipulating movements of money or other consideration now or in
`the future."
`157 Cong. Rec. S5432 (daily ed. Sept. 8, 2011) (statement of Sen. Schumer).
`Accordingly,
`"[a]ny business that sells or purchases goods or services 'practices' or
`'administers' a financial service by conducting such transactions." Id.
`
`Also, the fact that a business method review can be brought by "a person's real party in interest
`or privy" who has been sued or charged with infringement under the patent refutes the
`commenters argument. As discussed inthe legislative history, the use of the word "privy" in the
`statute is intended to broaden the scope of the program so that a petition may be brought when
`customers of the petitioner are charged with infringement. "Thus, the addition of the 'privy'
`language clearly demonstrates that section 18 applies to patent that may be used be entities other
`than the financial services industry." Cong. Rec. S5432 (daily ed. Sept. 8, 2011) (statement of
`Sen. Schumer).
`
`It is ironic that the very same interests who opposed this provision as a "bank bailout" now file
`comments to limit the program to financial services companies. Section 18 was not then, and
`should not be now, construed to be a program for the financial services sector. Rather, it creates
`a post grant review of patents that, by consensus, are the most likely to lack substantive merit
`and be asserted purely for financial gain in an abuse of the patent litigation system.
`
`2.
`
`The "Technological Invention" Exception Should Be Narrowly Construed
`
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`invention" should not provide a haven for clever lawyers.
`The term "technological
`Arguments that the "technological invention" exception is broad are false. As stated in the
`legislative history, "Clever drafting of patent application should not allow a patent holder to
`avoid PTO review under [the program]. Any other result would elevate form over substance."
`157 Cong. Rec. S1363, S1364 (daily ed. Mar. 8, 2011) (statement of Sen. Schumer). Indeed, the
`invention' exception only excludes those patents whose novelty turns on a
`'"technological
`technological innovation over the prior art and are concerned with a technical problem which is
`"the recitation of computer hardware, . . .
`solved with a technical solution" and therefore,
`software, . . . databases, specialized machines, such as an ATM or point of sale device, or other
`known technology, does not make a patent a technological invention...." Id. Moreover, many of
`the problematic patents this program targets involve practices that are in widespread use by
`companies through their digital platforms - an often-cited example is a patent for one-click
`check-out. A broad construction of the technological invention exception would exclude any
`patent that involved the internet, and would render the program effectively meaningless. For
`these reasons, the commenters' suggestions to categorically exclude particular types of patents
`from the program should be rejected.
`
`The Office should also reject commenters suggestions to define technological invention
`based on a Section 101 subject-matter patentability test. We explicitly declined to amend or
`address the categories of patent-eligible subject matter under Section 101 as part of this
`legislation (although that was a suggestion of some critics). The commenters who are suggesting
`a Section 101 test are merely trying to find additional ways to limit the program that are
`inconsistent with legislative history or intent.
`
`3.
`
`The Business Review Program Should Be Available For Previously Reviewed
`Patents
`
`Comments suggest that patents that have been reviewed in Court or in the Office should
`not be eligible for review under the business method review program. This suggestion has no
`basis in the statute or legislative history. In fact, suggestions to include language indicating such
`an exception were explicitly and repeatedly rejected during the legislative negotiations leading
`up to the passage of the AIA, including in amendments filed which did not ultimately receive a
`vote. The suggestion that constitutional principles require a bar on previously reviewed patents
`does not hold water.
`
`Congress received a constitutional analysis of the business method review program from
`distinguished law professors and academics during the debate, which verily that the use of the
`program to review patents that were previously litigated has no constitutional or other legal
`infirmities. See 157 Cong. Rec. S5374, 5376 (daily ed. Sept. 7, 2011) (letter from Prof. Michael
`W. McConnell). Moreover, the Court of Appeals for the Federal Circuit has recently confirmed
`that the analysis in Professor McConnell's comments remains good law. In particular, the court
`[of
`there is "no contradiction between an affirmed litigation judgment
`reiterated that
`infringement and no invalidity] and the Examiner's rejection during [subsequent]
`reexamination." Inre Construction Equip Co., 665 F.3d 1254, 1256 n.3 (Fed. Cir. 2011).
`
`The Office is capable of determining whether a business method review should be
`initiated following an earlier reexamination by applying the proper statutory threshold for
`
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`invoking a business method review set forth in 35 U.S.C. § 314(a). To the extent a petition for
`business method review of a patent is filed based on prior art and arguments previously raised
`before the Office in a prior reexamination proceeding, that fact may justify denying the petition
`for failure to show a "reasonable likelihood that the petitioner would prevail."
`
`This program was designed to expose and eliminate low quality business method patents.
`Indeed,
`legitimate patent holder will be unduly burdened.
`The Congress has no fear that
`reaffirmation by the office will enhance the quality of the underlying patent.
`
`4.
`
`The Office Should Apply A Standard Similar To That For Invoking Declaratory
`Judgment Jurisdiction In Determining Whether A Petitioner Has Been Charged
`With Infringement
`
`Some commenters suggest that the program should not be available unless the petitioner
`can show that the patentee has used the magic word "infringement" in its correspondence with
`petitioner or its privies. This approach should be rejected, and the Office should adopt a standard
`similar to the test for invoking declaratory judgment jurisdiction inthe federal courts.
`
`The purpose of the business method review program is to be an efficient and cost-
`effective alternative to litigation. As with petitions for post-grant review, the program is not
`available to a petitioner if, prior to the date a petition is filed, the petitioner has already brought a
`declaratory judgment action in federal court regarding the patent. 35 U.S.C. § 315(a)(1). If the
`commenters' suggestion were adopted, patentees concerned about the ability of their patent to
`survive a business method review in the office could simply send threatening letters to potential
`targets that avoid use of magic words such as "infringement." This would force those target
`companies either to forego business method review in the Office by filing a declaratory judgment
`action, or to continue with their activities under the cloud of uncertainty created by patentee's
`correspondence, while waiting for the patentee to decide to file its own action in court. This is
`not consistent with the statutory language or the intent of Congress in establishing the business
`method review program.
`
`Accordingly, the Office should adopt a rule establishing that if the correspondence
`between the parties has reached the point where a real and substantial controversy regarding a
`business method patent has arisen, such that the petitioner would have standing to bring a
`declaratory judgment action in federal court, the petition also has standing to initiate a business
`method review.
`
`In short, it would turn the purpose of the business method program on its head if the
`Office were to adopt a rule establishing that a patentee can avoid exposing its patent to review
`under the business method review program simply by avoiding use of "magic words" in its
`correspondence with target companies.
`
`Again, the program is constructed by Congress to target low quality business method
`patents and provide a post-grant review for those patents that are so suspect that they are "more
`likely than not invalid." It is certainly true that the transitional program for business method
`patents requires more interpretive judgments by the Office than other post-grant programs
`(where "gate-keeping" is provided by the date the patent issues). For business method patents,
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`the Office is required to make threshold a determination about the "type" of patent, and its likely
`validity. This determination may be uniquely challenging, but that is because business method
`patents are uniquely problematic. Still, common sense should still prevail. The Office has a rich
`history of dealing with business method patents and those which read on the critical
`infrastructure of financial services should be reviewed if they are, as determined by the Office,
`"more likely than not invalid." The rules governing Section 18 should thwart any effort to evade
`review though clever drafting or narrow construction of definitions.
`
`Iappreciate your consideration of my comments, and look forward to working with you
`if you have any further questions.
`
`Sincerely
`
`Cusd
`
`Charles E. Schumer
`United States Senator
`
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