Is Everyone Skeptical of the U.S. Patent Office’s New Guidelines?

The U.S. Court of Appeals for the Federal Circuit recently cast doubt on the 2019 Updated Guidelines on Subject-Matter Eligibility issued by the U.S. Patent and Trademark Office. In Fed. Circuit Cleveland Clinic Found. v. True Health Diagnostics LLC, No. 2018-1218, 2019 U.S. App. LEXIS 9451 (Fed. Cir. Apr. 1, 2019), the Court stated, “While we greatly respect the PTO’s expertise on all matters relating to patentability, including patent eligibility, we are not bound by its guidance.”

In its first informative decision following the 2019 Guidelines, the Patent Office’s own Patent Trials and Appeals Board has indicated its own ambivalence about the proper impact the 2019 Guidelines should have. In Ex parte Smith, No. 2018-000064, 2019 Pat. App. LEXIS 725 (P.T.A.B. Feb. 1, 2019), the Board reversed an examiner’s rejection for lack of subject-matter eligibility. The panel specifically confirmed that claims to a hybrid trading system for concurrently trading securities or derivatives through both electronic and open-outcry trading mechanisms were eligible to seek patent protection under 35 U.S.C. § 101.

The Board initially agreed with the examiner that the claims recited a patent-ineligible abstract idea: the fundamental economic practice of derivative trading. However, a majority of the panel concluded that the claims integrated that abstract idea into a practical application. The majority reasoned that the claims limited the conventional practice of automatically executing matching market orders by requiring a specific timing mechanism in which the execution of a matching order is delayed for a specific period of time. This enables other matching orders to be received from market participants so that orders can be allocated between offers and executed upon expiration of the delay period. The majority characterized this difference as a specific technological improvement, reasoning that the claims imposed specific limitations on the timer that were specifically tied to the context of hybrid trading platforms. Under the 2019 Guidelines, it concluded that the presence of a technological improvement rendered the claims patent-eligible.

One panel member wrote a dissent, arguing that delay in timing by at least some amount was an inherent feature of every derivative trade. As a result, the addition of timing delays did nothing to distinguish the claimed practices from conventional ones. The flexibility in perspective still permitted under the 2019 Guidelines enabled the dissenting panel member to view the claimed subject matter differently from those in the majority. As a result, two groups of people looking at the same patent claims under the same rules came to opposite conclusions regarding how the rules should apply to the claims.

With uncertainty as to how the 2019 Guidelines will help in front of the U.S. Patent Office’s Patent Trials and Appeals Board, and an assurance that they do not bind its controlling Court, patent applicants and patentees should proceed with caution when relying on them. Patent challengers may still meet with success, despite the additional hurdles introduced by the 2019 Guidelines.

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