As patent litigation reform goes through Congress, there has been a lot of discussion about the expansion of the CBM program. However, there has also been a lot of confusion as to what the CBM program is and what expansion will actually mean. So, I’ve put together a FAQ to help you understand what everyone is talking about.

What is CBM?

Covered business method (CBM) patents are a category of patents that includes software patents. Today, CBM patents account for the majority of patents granted by the U.S. Patent and Trademark Office (USPTO).

What is the Transitional Program for CBM Patents?

The Transitional Program for CBM Patents (CBM Program), as authorized by the America Invents Act of 2011 (AIA), allows interested parties to bring a patent which has already been issued back to the USPTO for review, known as a post-grant review. The only patents which can be brought under the current CBM program are financial services patents (a very narrow category of CBM patents). The CBM Program was created to address the specific concern about improperly-granted financial services patents. The program is set to cease or “sunset” on September 16, 2020.

Unlike the other post-grant programs, the CBM Program can be used at any time during the life of the patent and can challenge the patent’s novelty (prior art) and non-obviousness. If a patent is challenged under this program, the USPTO would reevaluate the patent and the patent could be found to be invalid.

Why was the CBM Program enacted?

As far back as 2007, the financial services industry had been concerned about a few very specific patents, such as check scanning, which were affecting their industry. When the AIA was being debated in Congress in 2011, the industry was able to add the CBM Program to the bill to specifically deal with those patents to which they objected.

When the CBM Program was added to the AIA, Members of Congress were assured that the program was designed to apply narrowly and would be around for a limited time.

What is the problem with expansion of the CBM Program?

The CBM Program was created as a necessary and temporary measure to deal with a very specific type of patent. However, new legislation looks to remove the sunset data and expand the program to include software patents.

So far it is being used by big companies to mess with little companies

The first case to complete the CBM program was SAP America, Inc. v. Versata Development Group, Inc., slip op. CBM2012-00001 (PTAB Jan. 9, 2013). SAP filed a petition seeking review of Versata’s patent which two federal courts had said SAP had violated. Those same courts had reviewed Versata’s patent and found it valid.

At least 70% of the cases being brought to the CBM Program have large companies suing smaller companies with whom they are competitors or licensed patents from. The program is being used by large companies to have a second and third bite at the apple to take out their competitors.

The program is unproven

The current CBM Program has only been in existence since September 2012. During that time, only one case has been successfully completed and only around 70 cases have been filed. We simply do not have the data on how well the CBM Program is currently working to justify a massive expansion. A report on the program is due from the USPTO to Congress in 2015, which would allow for a much better evaluation of the program.

David Kappos, former director of the USPTO, has testified before Congress that expansion of the CBM program is premature.

Legal costs of the CBM program are still very high

Though the legal cost of using the CBM Program are less than the cost of going through the courts, there are still significant costs associating with bringing a case to the UPSTO. You will still need to hire an attorney and go through a legal process which is designed to take at least 14 months to complete. The average legal cost of going through the program runs between $200,000-300,000. While this is less than the legal costs associated with a suit in federal court, it is not the “low cost” option its supporters suggest.

We believe the money which would be spent on this program is better used to invest in better pre-grant screening to ensure only high-quality patents are issued.

Weakens good patents

The proposed plan to extend is concerning because it weakens and devalues software patents. Under current law, after a patent is granted it can be challenged in a process known as a post-grant review by a third party at the United States Patent and Trade Office (USPTO) for nine months after that patent is granted. This allows interested parties the opportunity to challenge that patent but in a time frame which allows for the person who owns the patent to have confidence in its value and reliability.

If the CBM Program is expanded, anytime an owner of a software patent brings a party to court for infringing on their patent, the infringer can stop the case and move it over to the USPTO for post-grant review of the patent. Owners of patents could no longer rely on the courts for swift protection of their intellectual property. Patents are meant to give an owner confidence that they can use the ownership of an innovative idea to recover the expenses they had creating it. If those patents could at any time challenged at the USPTO, it reduces the value of the patent and the incentive to innovate.

Even if you don’t have a patent, chances are the software you build relies on devices or services which use patents to protect their innovation and earn back the money they spent in inventing it. Patents are an important part of the ecosystem and good patents deserve the protection they are granted under the Constitution.

How do we get rid of bad patents without expanding the CBM Program?

While patents are important, bad patents can and are exploited by patent trolls who go after small businesses. However, there are a lot of things that have been done and are currently being done to get at those bad patents.

There are several options to go after bad patents

In addition to bringing a suit in federal court, two post-grant programs at the USPTO were enacted by the AIA. While these two programs have more limited grounds under which you can bring a patent back before the USPTO for review, they are the best balance of allowing post-grant review while not diluting the value of the granted patent.

Additionally, current legislation which has already passed the House of Representatives requires more transparency in patent ownership, allows courts more power to grant attorney’s fees to the prevailing party, and grants the FTC the power to go after trolls sending out bad-faith demand letters.

The FTC and state attorneys general are cracking down on demand letters

Let’s face it, most small businesses do not have the time, money or inclination to deal with a patent lawsuit in federal court or at the USPTO. When the demand letter only asks for $5,000 and it would cost hundreds of thousands to fight it, most will end up paying. Patent trolls know this.

The best way to deal with demand letters is to actually look at demand letters. The FTC is currently using its power to investigate patent trolls and demand letters and state attorneys general are looking at ways to make patent trolls more accountable for the letters they send and making the demands more transparent.

We need to work on patent quality

The majority of patents used by patent trolls are in the last four to five years of their 20-year terms. While it is important to try to clear away bad patents, we also need to be looking to improve patent quality of the patents which will be granted in the future. We need better prior art, more patent reviewers, and better quality training for USPTO employees to ensure that quality going forward.

What can I do about it?

If you would like to work with ACT to advocate for patent reform, please contact Sara Kloek at [email protected].