Patents & the Financial Services Industry

Over the past decade it has been common for companies to use their intellectual property rights as collateral to secure loans from financial institutions.  Likewise, recognizing that patents and other IP assets represent substantial value, it has also become common for commercial lenders to secure obligations of borrowers using as collateral not only their tangible assets but also their intangible intellectual property assets.  Not surprisingly, the issue of how state law and the UCC interact with the U.S. Patent Act has become increasingly important as banks and other lenders are finding more and more borrowers defaulting on secured loans.

In Sky Technologies v. SAP AG (Fed. Cir. 2009), the CAFC addressed the issue of chain of title of a patent portfolio that was used as collateral in a defaulted loan.  In short, the Court reaffirmed that, if assignment is the method of transfer of patent ownership, it must be done in writing, but that assignments are not the only method by which to transfer patent ownership.  Patent ownership may be transferred by means other than assignment, for example by foreclosure under state law, which may properly foreclose a security interest and transfer full title and ownership of a patent in accordance with a state’s law.  That is because state law controls any transfer of patent ownership by operation of law not deemed an assignment.

Background

The patents-in-suit had a somewhat detailed chain of title:

1)      Jeffrey Conklin founded TradeAccess, Inc. in 1996 and, along with the other inventors, assigned all of his right in his patent portfolio to TradeAccess.  The assignments were recorded with the USPTO.

2)      TradeAccess later changed its name to Ozro, Inc.

3)      On April 2, 2001, Ozro granted a security interest in the patents to Silicon Valley Bank (“SVB”).  The collateral included the entire patent portfolio.  The SVB Agreement was recorded with the USPTO on April 2, 2001.

4)      On April 3, 2001, Ozro executed a similar security agreement with Cross Atlantic Capital Partners, Inc. (“XACP”).

5)      Ozro used both agreements to secure loans.  In the event of default by Ozro, both SVB and XACP had “the right to exercise all the remedies of a secured party upon such default under the Massachusetts UCC,” which included right to take possession and sell the intellectual property collateral.  In the event of default, Ozro would also be required to “assemble the Intellectual Property Collateral and any tangible property in which [SVB or XACP] has a security interest and to make it available to [SVB or XACP].”

6)      In December 2002, SVB assigned its security interest to XACP through a Non-Recourse Assignment, giving XACP all of the right, title, and interest formerly held by SVB. This Assignment was recorded with the USPTO.  At that point, XACP held the security interest in all of the patents.

Ozro defaulted on its loan obligations and XACP foreclosed on the patents.  In the meantime, Conklin started a new company, Whitelight Technology, later known as Sky Technologies LLC (“Sky”).  At the foreclosure sale, XACP was the only bidder at a public auction and purchased the patent rights. Then, XACP assigned the patent rights to Sky Technology.  Nowhere in the chain of title did Ozro execute a written agreement assigning all of its right, title, or interest in the patents to XACP.

Sky subsequently filed a patent infringement suit against SAP asserting the patents, and SAP moved to dismiss the complaint for lack of standing arguing that, because no writing exists transferring the patents to XACP, Sky did not obtain legal title from XACP and therefore does not have standing in the matter.

Akazawa

The district court, relying on Akazawa v. Link New Technology International, Inc., 520 F.3d 1354 (Fed. Cir. 2008), held the patents were transferred from Ozro to XACP through the foreclosure proceedings. Akazawa held that patent ownership is determined by state, not federal law.  Because XACP properly complied with the Massachusetts UCC foreclosure requirements by placing the patent collateral up for sale at a public auction and notifying Ozro of the sale, the district court held title was transferred on the foreclosure, and the chain-of-title had not been broken.

Transfer of Title Under State Law

On appeal, the Federal Circuit found that Akazawa controls in this case and therefore Massachusetts UCC is the controlling law for governing patent title transfer.  Massachusetts UCC § 9-610 permits a secured party to sell the collateral after default, in a commercially reasonable manner, and that same party may purchase the collateral at a public disposition.  Moreover, section 9-617 of the UCC states that once a secured party disposes of collateral after default, the transferee for value takes all of the debtor’s rights in the collateral. Therefore, because XACP foreclosed on the patents in conformity with these provisions, XACP properly obtained title to the patents.

The Court’s discussion noted that, although assignments transferring patent ownership must be done in writing, assignments are not the only method by which to transfer patent ownership.  Patent ownership may be transferred by means other than assignment, for example by foreclosure under state law, which may properly foreclose a security interest and transfer full title and ownership of a patent in accordance with a state’s law.  That is because state law controls any transfer of patent ownership by operation of law not deemed an assignment.

The Federal Patent Act requires that all assignments of patent interest be in writing. 35 U.S.C. § 261 (2006). This requirement dates back to the 1881 Supreme Court decision in Ager v. Murray, which held that a debtor’s interest in a patent that would be used to satisfy a judgment against him was property, “assignable by him, and . . . [could not] be taken on execution at law.” 105 U.S. 126, 131–32 (1881). The Court held that the patentee was required to execute a writing to assign title, or a trustee would be appointed to execute an assignment, “if the patentee should not himself execute one as directed.” Id. at 126, 132. This decision was based on the idea that a creditor cannot reach incorporeal property, such as a patent, due to its intangible nature; the transfer (either voluntary or involuntary) to a purchaser must be done by written assignment “in order to vest [the purchaser] with a complete title to the property.” Id. at 130 (citing Stephens v. Cady, 55 U.S. (14 How.) 528, 531 (1852)).

 

Even though a transfer of patent ownership, if through an assignment, must be in writing, this court has held, “[T]here is nothing that limits assignment as the only means for transferring patent ownership. . . . [O]wnership of a patent may be changed by operation of law.” Akazawa, 520 F.3d at 1356.

 

. . .

 

We find that Akazawa controls in the instant case, and that the district court’s reliance on its reasoning was appropriate because transfer of patent ownership by operation of law is permissible without a writing. Akazawa says nothing about permitting assignments without a writing; rather, this court made it clear that if assignment is the method of transfer of patent ownership, it must be done in writing, pursuant to § 261. See Akazawa, 520 F.3d at 1356. However, assignment is not the only method by which to transfer patent ownership. As noted below, foreclosure under state law may transfer patent ownership. Here, XACP’s foreclosure on its security interest was in accordance with Massachusetts law; therefore, Sky received full title and ownership of the patents from XACP providing it with standing in the underlying case.

The Court also reaffirmed that 35 U.S.C. §261 (Ownership; Assignment) is not preempted by finding that state law allows transfers of patent ownership without a writing.  The opinion reasoned that § 261 “speaks only to assignments of patents; there exists no federal statute requiring a writing for all conveyances of patent ownership,” and therefore no federal law preempts the use of Massachusetts UCC foreclosure provisions to transfer patent ownership by operation of law.

IP Innovation, LLC v. Red Hat, Inc., No. 2009 WL 2460982 (E.D.Tex. Aug. 10, 2009).

Judge Davis of the Eastern District of Texas recently issued an opinion interpreting the requirements for computer-related means-plus function claims articulated in WMS Gaming and its progeny.  Specifically, the court ruled that when a means-plus-function limitation is just a “structure” within a larger executable program, and it does not rely on the external input/output functionality of the computer, WMS Gaming’s requirement for disclosing an algorithm does not apply.  Rather, the corresponding structure is computer code that performs the required function of the means-plus-function limitation within the larger computer program.

The court wrote:

WMS Gaming requires an algorithm “[i]n a means-plus-function claim in which the disclosed structure is a computer, or a microprocessor.” This is because “[a] general purpose computer, or microprocessor, programmed to carry out an algorithm creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.” Thus, the term “means for assigning” required an algorithmic structure when “a computer” or “microprocessor” performed the function of “assigning.”

 

WMS Gaming and its progeny are inapplicable to this case. Here, the specified function is not performed through interaction of a programmed computer with external elements using the computer’s input/output functionality (i.e., assigning numbers for rotating reels of a slot machine). Instead, the “control means” interacts with workspace data structures that are part of a program of code that is executable on a computer and performance of the specified function is not carried out through a computer’s input/output functionality. This understanding is reinforced by claim 11, which adds the “input means” limitation and provides for interaction of the executable program with a user, which would involve a computer’s input/output functionality.

 

Thus, the “means” specified in the patents calls for structure within the executable program that interacts with the workspace data structure in essentially switching between first and second workspace displays. Accordingly, IPI is correct that the corresponding structure for the “control means” limitations does not require an algorithmic structure as dictated by WMS Gaming. It is, of course, the user who makes a selection of workspace displays through the use of a pointer control device (such as a mouse). Thus, the “control means” must necessarily be those program components that facilitate the user’s selection of a workspace. The mechanism for user selection of workspaces, via the pointer control device, are the displayed pop-up menus and icons. However, rather than being merely the displayed “pop up menus and icons,” the structure actually interacting with the user-guided pointer control device is the corresponding code creating the interactive menus and icons. Therefore, the structure recited in the specification for the “control means” terms is “executable computer code implementing selectable graphical user interface pop-up menus and icons and equivalents.”

The disputed term defined by the specification was the “display system object”:

When read by one skilled in the art, the specification provides that a “display system object,” an “object” being understood as a tool for data manipulation, creates “display objects,” which have their own specific meaning in the context of the patent. The specification goes on to explain that this tool may include “one or more data structures and a number of procedures, and a data structure and procedure such as an editor or other application could be called on by more than one display system object.” ‘412 Patent at 8:28-32. This language does not connote merely function, but structure. Defendants’ main complaint with this language seems to be that it does not describe particular code for implementing the “generation” function. However, that level of specificity is not required in a means-plus-function limitation in order to save its validity. See Biomedino, 490 F.3d at 950 (“While the specification must contain structure linked to claimed means, this is not a high bar: all one needs to do in order to obtain the benefit of [§ 112, ¶ 6] is to recite some structure corresponding to the means in the specification, as the statute states, so that one can readily ascertain what the claim means and comply with the particularity requirement of [§ 112,] ¶ 2.”) (internal quotation marks omitted).  As with the term “control means,” the “display object means” is not carried out through a computer’s input-output functionality. Rather, the “display object means” is yet another module within the executable code described within entirety of the patent. The function of this code is to generate display objections. Given the understood meaning of “object” within the art, disclosure of a “display system object” provides sufficient structure for the claimed functionality.

It will be interesting to see how broadly this approach will be taken.  By finding that the recited structure for the “control means” is “executable computer code implementing selectable graphical user interface pop-up menus and icons and equivalents,” rather than code or pseudo-code actually found in the specification and its structural equivalents, the opinion leaves open the question whether any executable code will suffice and how that would affect the scope of such claims.

After asserting its patent for encrypted data transmissions (U.S. Patent No. 5,412,730) against over 20 banks and major credit card companies, TQP Development reached an agreement with American Express Travel Related Services to settle the dispute.  TQP initially filed the suit in U.S. District Court for the Eastern District of Texas on March 25, 2009.

The Defendants include Barclays Bank, Prudential, Amazon,.com, Visa, and many more.  TQP previously settled the matter with MasterCard back in June and with Amazon.com in July.  This month is American Express.

This week the USPTO issued three related patents to American Express Travel Related Services Company, each directed to universal shopping cart technologies.  The idea is that the universal shopping cart will receive and store products and services from different Internet merchants as the consumer shops and then order those products or services.  When the consumer is done shopping the shopping cart system completes the order without being directed to another merchant’s site.

In operation, a consumer will shop for one or more products, and the system monitors for products meeting criteria specified by the consumer.  Then an order injection system places orders for products contained within the universal shopping cart from affiliated and non-affiliated merchants.  After the products are ordered, the consumer can track the ordered products from the shopping site.

The patents include:

7,577,592 — Method, medium, and system for a universal shopping cart having order injection and common payment determination 

7,577,593 — Method, medium, and system for a universal shopping cart having order injection and common payment determination 

7,577,594 — Medium for a universal shopping cart having order injection and common payment determination 

American Express Travel Related Services Company also received another patent on 8/18/2009, which was unrelated:

7,577,585 — Method and system for completing transactions involving partial shipments 

As previously mentioned, on July 22, 2009 RealTime Data LLC (d/b/a IXO) sued numerous financial services defendants in the U.S. District Court for the Eastern District of Texas alleging infringement of four of RealTime’s patents relating to data compression.  The defendants included Morgan Stanley, Bank of America Corporation, The Bank of New York Mellon Corporation, Credit Suisse Holdings, The Goldman Sachs Group, HSBC Bank USA, JPMorgan Chase & Co., and SWS Group. Inc., and the four asserted encryption and compression patents were U.S. Patent Nos. 6,624,761, 7,161,506, 7,400,274, and 7,417,568.

Just two days later, on July 24, 2009, the Chicago Board Options Exchange filed a complaint requesting a declaratory judgment that the four patents are not valid and are not infringed by CBOE.  The complaint was filed by CBOE in the Northern District of Illinois.

U.S. Patent No. 7,574,392 issued today and is entitled “SYSTEM, METHOD AND APPARATUS FOR INVESTMENT USING A DEED OF TRUST OR MORTGAGE INSTRUMENT.”

The invention relates to investment management of funds under contract that is customarily conducted by a registered investment advisor or a licensed money manager.  The claims are directed to a method and apparatus an aspect of the invention that replaces or supplements the traditional fixed income allocation of investments used by investment advisors and money managers with short-term (1 to 3 year), high-yield loans, secured by first (occasionally second) position mortgages on real estate.   The invention adds deeds of trust to the investments offered to clients of a federally registered investment advisor or money manager.

Ex parte Sundel, (Appeal 2008-004541)

Like a good novel, this case seems to have it all: a computer-implemented process facing rejections under 35 U.S.C. §§ 112 ¶ 1, 112 ¶ 2, 101 (utility), 101 (non-statutory subject matter), and 103.  The Board reversed each of these rejections, but it entered a new ground of rejection under 35 U.S.C. § 112 ¶ 2, asserting that the means-plus-function claims are indefinite because the specification failed to disclose any algorithms to adequately describe sufficient corresponding structure.

The application is assigned to WorldPak, Inc., and the claims are directed to a shipping method and system for facilitating shipments and shipment management through one of a multitude of shipping mechanisms.

The Board looked at representative claim 33, which invokes numerous “means” clauses, and applied the standard 2-part test for construing means-plus-function claim language: first, define the particular function of the claim, and second, look to the specification and identify the corresponding structure.  It is the second step where, according to the Board, the claim fails.

In short, the Board reviewed the record and found that the specification fails to disclose algorithms corresponding to the functions recited in claim 33.  However, the Board also acknowledged that an algorithm may be expressed in a variety of ways in a specification to provide the necessary structure to comply with § 112, 6th paragraph; e.g., as a mathematical formula, as a flow chart, even in prose or in any other manner that provides sufficient structure for one of ordinary skill in the art to perform the functions. See Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1340-41 (Fed. Cir. 2008).

But here the Board did not find any disclosure expressing algorithms corresponding to the recited functions in claim 33.  Therefore, because the programming necessary for one of ordinary skill in the art to perform the functions recited in claim 33 was not provided, the Board found that claim 33 and its dependents are indefinite under 35 U.S.C. § 112 ¶ 2.

Drafting Tips:  The Board also reviewed the pertinent discussions for computer-enabled means-plus-function language:

For computer-implemented means-plus-function claims where the disclosed structure is a computer programmed to implement an algorithm, “the disclosed structure is not the general purpose computer, but rather the special purpose computer programmed to perform the disclosed algorithm.” WMS Gaming, Inc. v. Int’l Game Tech., 184 F.3d 1339, 1349 (Fed. Cir. 1999).

Simply reciting “software” without providing some detail about the means to accomplish the function is not enough. See Aristocrat Techs. Austl. Pty v. Int’l Game Tech., 521 F.3d 1328, —- (Fed. Cir. 2008) (“For a patentee to claim a means for performing a particular function and then to disclose only a general purpose computer as the structure designed to perform that function amounts to pure functional claiming. Because general purpose computers can be programmed to perform very different tasks in very different ways, simply disclosing a computer as the structure designated to perform a particular function does not limit the scope of the claim to ‘the corresponding structure, material, or acts’ that perform the function, as required by section 112 paragraph 6.”)

Without any corresponding structure, one of skill simply cannot perceive the bounds of the invention. Finisar Corp. v. DirecTV Group, Inc., 523 F.3d 1323, 1340-41 (Fed. Cir. 2008).

When a Specification discloses no algorithm corresponding to a computer-enabled means-plus-function limitation in a claim, an applicant has necessarily failed to particularly point out and distinctly claim the invention as required by the second paragraph of section 112. See Ex parte Catlin, 90 USPQ2d 1603 (BPAI 2009) (precedential) (during prosecution, computer-enabled means-plus-function claims will be held unpatentable under 35 U.S.C. § 112, second paragraph, as being indefinite if a Specification fails to disclose any algorithm corresponding to the function in the claims).

“[A] means-plus-function claim element for which the only disclosed structure is a general purpose computer is invalid if the specification fails to disclose an algorithm for performing the claimed function.” See Net MoneyIN, 545 F.3d at 1367.

See also Blackboard, Inc. v. Desire2Learn Inc., No. 2008-1368, slip op. at 21 (Fed. Cir. July 27, 2009), finding Blackboard’s means-plus-function claims indefinite because the patent describes an undefined component, i.e., a black box, that performs the recited function but does not disclose how the component performs the function.

Ex parte Bodin et al., (Appeal 2009-002,913)

In a somewhat rare occurrence, the Board of Patent Appeals and Interferences reversed an Examiner’s § 101 rejection.  The Board reversed the Examiner’s finding that a claim to a computer program product, wherein various means-plus-function elements are recorded upon a recording medium, is not statutory.

The claimed technology relates to a virtual camera and method for digital imaging, and the independent claims at issue, claims 17 and 21, recite the following:

17.  “[a] computer program product for digital imaging, the computer program product comprising:

a recording medium;

means, recorded on the recording medium, for creating, in the virtual camera, an unedited image request for an unedited digital image.”

21.  “[a] computer program product for digital imaging, the computer program product comprising:

a recording medium;

means, recorded on the recording medium, for identifying a browsing image request data element from among image request data elements of an image request data structure.”

Although the recited computer program product includes a recording medium, the Examiner found that the claims are non-statutory under 35 U.S.C. 101 because the claim is directed to the computer program product itself which is not embodied on a computer readable medium.  The Appellants argued that the computer program product expressly includes “a recording medium” and various means-plus-function clauses and that the means is “record[ed] on the recording medium for digital imaging.”

In its decision, the Board framed the matter as follows: “The issue thus turns on whether the Examiner properly determined that ‘recorded on the recording medium’ as it is recited in independent claims 17 and 21 is not the same as including ‘recorded on a computer-readable medium’ in the preamble of the claim.” 

The Board sided with the Appellant and reversed the Examiner’s decision.  As it turns out, the Appellant may have been saved by the fact that its Specification provided specific, physical examples of the computer program product: diskettes, CDs, and DVDs –

Computer programs and data structures are deemed “functional descriptive material,” which impart functionality when employed as a computer component. When functional descriptive material is recorded on some computer-readable medium, it becomes structurally and functionally interrelated to the medium and will be statutory in most cases since use of technology permits the function of the descriptive material to be realized.

 

Appellants disclose that their “invention may be embodied in a computer program product, such as a diskette or other recording medium, for use with any suitable data processing system”. In the alternative, Appellants disclose that the recording medium may be “a CD or DVD”. By definition, a diskette, CD, and DVD are computer-readable mediums. Hence, we find that the “recording medium” as disclosed in the Specification is equivalent to a computer-readable medium.

 

We therefore find that the Examiner has not met the burden of proof to prove that independent claims 17 and 21 are directed to nonstatutory subject matter, since the claim and Specification disclose the computer program recorded on a computer-readable medium.

 

Thus, since Appellants’ independent claims 17 and 21 are limited to being recorded on a computer-readable medium such as a diskette, CD or DVD, we reverse the Examiner’s rejection of independent claims 17 and 21 under 35 U.S.C. § 101 as being directed to nonstatutory subject matter, as well as that of dependent claims 18, 19, 20, 22, 23, and 24.

Ex parte Lawrence, (Appeal 2008-004133)

That Board affirmed the Examiner’s finding of obviousness in a financial services-related application.

U.S. Publication No. 20020138407 recites an invention for a method and system of facilitating the identification, investigation, assessment and management of legal, regulatory financial and reputational risks.

Claim 1 recites:

A computer-implemented method for managing risk related to a financial transaction, the method comprising:

gathering data into a computer storage, the data related to risk variables for a financial transaction;

receiving information into the computer storage relating to details of a financial transaction;

structuring the received information with a processor, according to a risk quotient criteria associated with at least one of a legal, regulatory, and reputational risk; and

generating with the processor, a risk quotient comprising at least one of a scaled numeric value and a scaled alphanumeric value based on the structured information and the gathered data.

At issue is whether one of the cited references (Basch), which is singularly concerned with financial risk, renders obvious the claim limitation of legal risk.  Appellants argued that one of ordinary skill in the art would not be lead by Basch (financial risk) to add another type of risk thereto (legal risk).  The Board disagreed, finding that “we see nothing unexpected from combining a consideration of legal risk that financial institutions are faced with to the calculation Basch conducts to manage the financial risk of a transaction. Adding legal risk to that calculation leads to a rating that accounts for a financial transaction’s financial impact as well as the legal one.”

The Board reasoned:

There appears to be no dispute that Basch discloses a system for managing financial risk of a financial transaction. See App. Br. 7 (“Basch is so specific and unambiguous regarding the direct and limited application of the methods and systems therein to financial risk [. . .] .”)

 

Also, there can be no dispute that a legal risk is a type of risk financial institutions are not only aware of but a factor in assuring their operations comply with the law. FF 3.

 

The question is whether it would have been obvious to one of ordinary skill in the art to add a legal risk as an additional factor for Basch’s system to consider in structuring information to manage the risk of a financial transaction. We find that it would have been.

 

Adding consideration of a legal risk of a financial transaction to the financial risk that Basch’s system addresses yields, as expected, a system which manages not only the financial risk of a transaction but a legal one as well.

The Board did not opine on how financial risks, which are readily and often quantified for analysis, are predictably combinable with legal risks, which are not as commonly quantified and structured for generating a risk quotient.

Ex parte Daughtrey, Appeal 2008-000202 (BPAI, 7/31/2009)

The Board of Patent Appeals and Inferences just revisited a significant §101 issue in Ex parte Daughtrey.  Whereas the Board previously found that the phrase “computer-readable medium” encompasses signals, even though the specification was silent on the issue, it more recently reversed itself and declined to adopt such a broad definition when the Appellant clearly states that he did not intend the phrase to include signals.

As background, U.S. Publication No. US 20030018500 is assigned to ITA Software, an airline IT and services provider, and the claims are generally directed towards producing fare rule summaries.  On April 8, 2009, the Board found, inter alia, that claims 19-27 and 36-39 were unpatentable as being directed to patent ineligible subject matter.  At issue was whether the claims’ recitation of a “computer readable medium” reads on a “signal”; if the claims cover material not found in any of the four statutory categories it is outside the scope of §101, and a transitory, propagating signal is not within any of the four categories. In re Nuijten, 500 F.3d 1346 (Fed.Cir.2008), cert. denied.

In other cases where the phrase “computer-readable medium” appears in the claims, the Board tries to determine whether the phrase reads on unpatentable signals, including reviewing the application’s specification.  Where the specification indicates that the “computer-readable medium” may include a signal embodied in a carrier wave the Board has found the claims unpatentable. See, e.g., Ex parte Salesin, Appeal 2008-002578 (2009).

In this case, both independent claims 19 and 36 recite “A computer program product residing on a computer readable medium,” but the specification does not define “computer readable medium” or otherwise indicate whether it includes signals.  Despite that fact that the specification did not state that a “computer-readable medium” included signals, the Board asserted that the phrase “computer readable medium” was typically used in the computer arts at the time of Appellant’s invention to cover both tangible media as well as signals and invalided the claims:

The phrase “computer readable medium” is not defined or discussed in the Appellant’s Specification. The Specification refers only generally to a storage media (Spec. 4:17) and uses the term, “computer readable medium,” only in original claim 19. The phrase “computer readable medium” was routinely used in the computer arts at the time of Appellant’s invention to refer to both tangible and intangible media. In particular, “computer readable medium” was conventionally used at the time of the invention as a term of art to refer to intangible computer readable media including “transmission” media and carrier waves embodied in electrical, electromagnetic, infrared, or optical signals, or any other media from which a computer can read. Giving claims 19 and 36 the broadest reasonable interpretation in light of the Specification and in light of the meaning of “computer readable medium” in the art, these claims are broad enough to encompass a signal.

(emphasis added) Ex parte Daughtrey, Appeal 2008-000202 (BPAI, 4/8/2009).  In support of these conclusions, the Board cited two U.S. patents that described “computer readable mediums” as covering, inter alia, remote transmissions and carrier waves, and the Board indicated that it reviewed the USPTO EAST database, which showed that “there are more than 2,400 distinct patents and published applications, filed before Appellant’s priority date, which defined “computer readable medium (or media)” as inclusive of either a “transmission medium (or media)” or a “carrier wave.” As of today that number is greater than 24,000.” Id.

The Board concluded that because claims 19-27 and 36-39 cover at least one embodiment that is directed to subject matter that is unpatentable under §101, claims 19-27 and 36-39 are unpatentable as being directed to non-statutory subject matter.

The potential pitfall for practitioners is that the commonly-used claim phrase “computer-readable medium” may cause claims to be invalid or unpatentable even if the inventors and practitioners had no intention of the phrase reading on signals.

In its request for rehearing, Appellants argued the following:

(A)  The Board based its finding only on two prior art citations that purport to cover non-statutory embodiments directed to a signal and the Board’s review of the database of U.S. Patents; the Board did not furnish Appellant any other information, such as queries used by the Board or any contrarian information that could have revealed a difference of opinion in the patent field regarding the definition of “computer-readable medium”, or any information regarding how many patents or applications did not include “transmission medium (or media)” or “carrier wave” as part of a computer readable medium.

(B)  Appellant conducted its own searches of U.S. patents and found 101,181 published applications that included “computer readable medium” but without mentioning “carrier wave,” and found 118,843 published applications including “computer readable medium” without mentioning “transmission medium/media.”

(C)  The Board committed reversible error because there are far more applications that do not define “computer readable medium” in the manner urged by the Board, the Board’s findings are not supported by substantial evidence or preponderance of the evidence, and because the Board did not consult any authoritative sources such as dictionaries or industry publications to support its contention that persons of ordinary skill in the art working in computer fields would consider computer readable media as including a carrier wave or a transmission media.

(D)  The Board has not shown that “transmission medium (or media)” or a “carrier wave” are in fact “computer readable” because Appellant has did not describe any structure that permits a computer to read a carrier wave or a transmission medium.

In its Decision on Request for Rehearing, the Board capitulated and withdrew its § 101 rejections to claims 19-27 and 36-39.  Ex parte Daughtrey, Appeal 2008-000202 (BPAI, 7/31/2009).  Specifically, the Board reconsidered its definition of “computer readable medium” and found it was “imprudent”:

Upon reconsideration, we realize that our approach to defining “computer readable medium” based on its usage in contemporaneous patents was imprudent. Based on the evidence provided by the Appellant in the Request, it does not appear that “computer readable medium” had any commonly-recognized understanding in the art at the time of Appellant’s invention. As such, we decline to adopt a definition of the phrase “computer readable medium” that broadly includes signals, when the Appellant has clearly stated on the record that he did not intend the phrase to include signals. Request 8 (“Appellant neither actively nor passively sought to encompass ‘transmission medium (or media)’ or ‘carrier wave’ within the meaning of computer readable medium”). Accordingly, we withdraw our rejection of claims 19-27 and 36-39 under 35 U.S.C. 5 101.