Specialized challenges at the patent office to the validity of business method patents, often covering financial or e-commerce related tasks, decreased to a trickle in 2017.

Alleged infringers filed only 34 covered business method petitions at the Patent and Trademark Office last year, down from 91 in 2016, Bloomberg Law data show. Only 10 CBM petitions were filed in the last six months of 2017, suggesting next year’s volume could be even lower.

“The decline in CBM challenges seems to demonstrate that the law is working as intended,” Erika H. Arner, Patent Trial and Appeal Board litigator at Finnegan, Henderson, Farabow, Garrett & Dunner LLP, told Bloomberg Law. “While there may still be some bad business method patents out there, they are not being asserted as frequently, likely because the patent owners recognize the threat of CBM.”

A CBM challenge gives an alleged infringer a speedier way to challenge the validity of a particular type of patent outside of court, including by attacking the invention’s eligibility for patenting.

CBM patents typically claim methods of providing a financial service, though the PTAB—the PTO body that handles CBM and other patent challenges—early on also canceled claims on more general computer-implemented methods that included at least one potentially related to moving money.

Meanwhile, the most popular type of PTAB challenge, inter partes review, grew in popularity. IPR petitions increased 4.9 percent to 1,719 petitions in 2017 compared to the previous year.

A third type of validity challenge created under the America Invents Act of 2011 (AIA) still hasn’t generated much interest. Post-grant review (PGR) petitions, which must be filed within the first nine months of a patent’s issue, rose to 42 in 2017, compared to 29 in 2016. However, these petitions also dipped in the last half of 2017 to a rate of three per month.

CBM Use Waning

The CBM patent program, which is set to expire in 2020, was never intended to be permanent. Congress designated it as a transitional program designed to cancel patents thought to have been improperly issued by the PTO in the late 1990s and 2000s.

The office started issuing CBM patents after the U.S. Court of Appeals for the Federal Circuit, in 1998’s State Street Bank & Trust Co. v. Signature Financial Group Inc. decision, found that claims related to methods of doing business can be patentable. The result was a flood of applications that, opponents contend, the PTO’s examining corps was unprepared to handle.

Two primary factors have played a role in the decrease in CBM filings in 2017, attorneys said. Most immediately, the Federal Circuit in its February 2017 decision in Secure Axcess, LLC v. PNC Bank N.A. narrowed the definition of a CBM.

“The tighter restrictions on what constitutes a CBM is reducing the number of CBMs,” William P. Atkins of Pillsbury Winthrop Shaw Pittman LLP said in an email.

More generally, patent eligibility of financial and computer-implemented inventions has eroded since the Supreme Court’s rulings in Bilski v. Kappos in 2010 and Alice Corp. Pty. Ltd. v. CLS Bank Int’l in 2014. Many holders of those patents finally concluded in 2017 that they couldn’t pass muster under those standards—so they are increasingly choosing not to assert them, attorneys said.

A CBM petitioner can’t challenge a patent without being sued first. Early on, petitions challenging CBM patents went after “low-hanging fruit"—the weakest patents ripe for nullification, both Arner and Brad Pedersen, patent attorney at Patterson Thuente Pedersen P.A., said. With “higher quality” business method patents left, accused infringers are reluctant to attack stronger patents, Pedersen said.

Also, a defendant can often get early dismissal of a case in court based on patent ineligibility, so courts “may be addressing some of what petitioners would otherwise want to bring before the PTAB,” J. Steven Baughman, a partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP, said.

A CBM will remain a “powerful mechanism for challenging eligible patents” through its expiration date, but it’s unlikely there will be a turnaround in the number of petitions being filed, he said.

“The declining filings also indicate that the eight-year sunset period Congress set was just about right,” Arner said.

Other Challenge Types Limited

The PGR option is a “first window” to challenge patents. Typically, it would come into play if a competitor that monitored PTO patent grants wanted to stop a patent from being enforced early on in its life.

A PGR petition can claim a patent is invalid for any reason—making it more powerful than an IPR petition. A challenger in an IPR can only claim an invention is obvious or not novel based on other patents or documents that were available before it was patented but missed or not adequately considered during the original examination.

Still, IPRs are up because it’s easier and less costly to challenge patents at the PTO than in district court for accused infringers. Over 80 percent of IPR filings track patent owners’ complaints in court or at the International Trade Commission—and IPRs have increased even though court actions are trending down, Pedersen said in an email.

Also, IPRs don’t face the same time restriction as PGRs, Pederson said. That’s one reason competitors may not be jumping to file PGRs.

“The nine-month limit from issuance on filing PGR petitions is probably the main reason we are seeing far fewer of these than IPR petitions,” Pedersen said. “Most patent assertions or clearance actions don’t get going in the first year that a patent is issued as it takes a while for damages to build up and/or patent owners or potential infringers to build a good business case for pursuing infringement or patentability actions.”

Another deterrent is the high “estoppel” effect. That is, PGR petitioners who are subsequently sued for infringement in federal court can’t present arguments that “reasonably could have been raised” during the PGR before the PTAB, Baughman said. “I believe this is likely to continue leading petitioners to consider PGRs only in fairly specific circumstances,” he said.

The fourth and least used AIA proceeding is called derivation. The DER petitioner does not challenge the validity of a patent, but instead claims that the patent’s listed inventor derived the invention from the petitioner’s work. Only four DER petitions were filed in 2016, and none in 2017.