U.S. PATENT AND 

TRADEMARK OFFICE

Observations on the 

Covered Business Method 

Patent Review Program

Statement of John Neumann, Director, 

Natural Resources and Environment

Testimony 

Before the Subcommittee on Courts, 

Intellectual Property and the Internet, 

Committee on the Judiciary, House of 

Representatives

For Release on Delivery 

Expected at 2:00 p.m. EST

Tuesday, March 20, 2018

GAO-18-451T

United States Government Accountability Office
Page 1 GAO-18-451T U.S. Patent And Trademark Office

Chairman Issa, Ranking Member Johnson, and Members of the 

Subcommittee:

I am pleased to be here today to discuss our recent report on the Patent 

Trial and Appeal Board’s Transitional Program for Covered Business 

Method Patents (CBM program).

1

As you know, to promote the progress of science and the useful arts, 

inventors are granted exclusive rights to their inventions—in the form of 

patents—for a limited time. Patent owners can bring infringement lawsuits 

against anyone who uses, makes, sells, offers to sell, or imports a 

patented invention without authorization. By restricting competition, 

patents allow their owners to earn greater profits on inventions than if the 

inventions could be freely imitated. In the late 2000s, however, legal 

commentators, technology companies, and others began raising 

questions about whether the patent system was working well to promote 

innovation. By law, before granting a patent, the U.S. Patent and 

Trademark Office (USPTO) must determine whether a patent application 

meets patentability requirements for subject matter, novelty, nonobviousness, and clarity and specificity.2 Questions were raised about an 

increase in the number of patents granted that did not meet these 

requirements and about the increase in patent infringement litigation, 

especially in the software and technology sectors. As we have previously 

reported, patent infringement lawsuits can take years and cost several 

million dollars.3

In 2011, Congress passed the Leahy-Smith America Invents Act (AIA),4

which authorized three administrative proceedings for challenging a 

 1

GAO, U.S. Patent and Trademark Office: Assessment of the Covered Business Method 

Patent Review Program, GAO-18-320 (Washington, D.C.: Mar. 12, 2018).

2

35 U.S.C. §§ 101, 102, 103 112(a), 131. A patent application that is unclear or overly 

broad, for example, could be denied a patent under section 112(a) of title 35 of the United 

States Code.

3

GAO, Intellectual Property: Assessing Factors That Affect Patent Infringement Litigation 

Could Help Improve Patent Quality, GAO-13-465 (Washington, D.C.: Aug. 22, 2013). 

Bringing a patent infringement lawsuit can also be costly but is generally less costly than 

defending one. In civil lawsuits, the parties must exchange certain information relevant to 

the litigation, a process known as discovery. Discovery costs in complex litigation, 

including patent infringement litigation, can run into the millions of dollars. In many cases, 

patent owners have less information to disclose and thus have lower discovery costs.

4

Pub. L. No. 112-29, 125 Stat 284 (2011).

Letter
Page 2 GAO-18-451T U.S. Patent And Trademark Office

patent’s validity, including the CBM program.

5 A “covered” business 

method patent is a patent that claims a method or corresponding 

apparatus for performing data processing or other operations used in the 

practice, administration, or management of a financial product or service. 

The CBM program provides entities facing infringement lawsuits an 

opportunity to challenge a patent’s validity before administrative patent 

judges at USPTO’s board. As reported by the House of Representatives 

Committee on the Judiciary, the program is intended to provide a more 

efficient and less costly alternative to district court for deciding patent 

validity. The CBM program began in September 2012 and is slated to 

sunset in September 2020.

My testimony today summarizes the findings and recommendation from 

our report.6 Accordingly, this testimony addresses

1. the extent to which the CBM program has been used to challenge 

patents and the results of those challenges,

2. the extent to which USPTO ensures timeliness of trial decisions, 

reviews decisions for consistency, and engages with stakeholders to 

improve its administrative proceedings for the program, and

3. stakeholder views on the effects of the CBM program and whether it 

should be extended past its scheduled September 2020 sunset date.

To conduct this work, we obtained and analyzed data on board 

proceedings from September 2012 through September 2017,7 reviewed 

the AIA and USPTO documents, and interviewed USPTO officials. We 

also assessed USPTO’s efforts to review decisions for consistency 

against federal standards for internal control and USPTO’s current 

strategic plan, and we interviewed a nongeneralizable sample of 38 

stakeholders knowledgeable about the CBM program, who provided a 

broad spectrum of opinions on the CBM program.8 Additional information 

 5

The other board proceedings are the inter partes review program and the post-grant 

review program.

6

GAO-18-320.

7

We tested the quality of the data, interviewed relevant officials, and reviewed relevant 

documentation for the data and found the data to be sufficiently reliable to describe board 

petitions and their outcomes.

8

Stakeholders were selected from the following sets of stakeholder groups: board 

petitioners and patent owners; attorneys in board proceedings; technology trade groups; 

public interest groups; legal and academic commentators; and venture capitalists.
Page 3 GAO-18-451T U.S. Patent And Trademark Office

on our scope and methodology is available in our report. The work on 

which this testimony is based was conducted in accordance with 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on 

our audit objectives.

We found in our March 2018 report that, from September 2012 through 

September 2017, parties accused of patent infringement filed 524 

petitions with the Patent Trial and Appeal Board challenging the validity of 

359 distinct patents under the CBM program, resulting in rulings against 

about one-third of these patents. The average monthly number of CBM 

petitions fluctuated during this period and tapered off over time (see fig. 

1). Specifically, during this 5-year period, an average of more than 9 

petitions per month were filed under the CBM program, but this average 

rate declined to fewer than 5 per month in the last fiscal year, with no 

petitions filed in August or September 2017. 

Figure 1: Number of Petitions Filed for Review under the Covered Business Method Program per Month, September 2012 

through September 2017

More Than 350 

Patents Have Been 

Challenged under the 

CBM Program, and 

About One-Third of 

These Patents Were 

Ruled Unpatentable
Page 4 GAO-18-451T U.S. Patent And Trademark Office

Stakeholders we interviewed suggested several possible reasons for the 

decline in CBM petitions, including recent decisions from the U.S. Court 

of Appeals for the Federal Circuit and U.S. Supreme Court that clarified 

which patents are eligible for CBM review;9 that CBM petitioners 

successfully targeted the lowest-quality business method patents—

patents that should not have been issued because they did not meet the 

patentability requirements—in the early years of the program, and now 

those patents have been eliminated; and that owners of business method 

patents are more wary of asserting their intellectual property through 

infringement lawsuits and risking its invalidation.

Some stakeholders expressed concern about multiple petitions being filed 

against the same patent. Specifically, stakeholders have suggested that 

petitioners are, in some cases, using the CBM program and the inter 

partes review program as tools to increase costs borne by patent 

owners,10 and in the case of the CBM program, as a tool to delay district 

court proceedings. In addition, some stakeholders asserted that this 

manner of use of the administrative proceedings authorized by the AIA 

amounts to harassment. However, our analysis of petition data showed 

that the vast majority of patents challenged under the CBM program were 

challenged once or twice. Stakeholders we interviewed outlined several 

reasons why petitioners may file more than one petition against a single 

patent. For example, the board limits the number of pages that a 

petitioner may use to submit prior art and arguments for invalidity and 

therefore some petitioners might file more than one petition so they can 

present all of their art and arguments at once.

Overall, through September 2017, the Patent Trial and Appeal Board had 

completed reviews of 329 of the 359 patents challenged under the 

program, and for about one-third of these patents the board ruled at least 

some challenged patent claims unpatentable. Data on petition outcomes 

are open to different interpretations depending on how they are 

presented. For example, under the CBM program, board judges ruled 

some or all of the patent claims considered at trial unpatentable in 96.7

percent of the petitions for which they issued a final written decision from 

 9

See, for example, Unwired Planet, LLC v. Google Inc., 841 F. 3d 1376 (2016) and 

Secure Axcess, LLC v. PNC Bank Nat’l Assoc., 848 F. 3d 1370 (2017).

10The inter partes review program is a separate board proceeding for challenging patents. 

Under the program, any patent can be challenged for non-novelty or obviousness at any 

point during the life of the patent. For more detail on the differences between the 

proceedings, see GAO-18-320. 
Page 5 GAO-18-451T U.S. Patent And Trademark Office

September 2012 through September 2017. On the basis of this statistic, 

the board could seem to invalidate the majority of the patents it reviews, 

as noted by some stakeholders. However, this outcome is predictable 

given the criteria for accepting, or instituting, a CBM trial—a judge panel 

will institute a petition to the trial phase if it is “more likely than not” that at 

least one of the claims challenged in a petition is unpatentable—which 

tips outcomes for instituted petitions toward rulings of unpatentability. In 

addition, board judges do not issue final written decisions for all petitions 

that enter the trial phase because the parties often reach a settlement 

before the final written decision. When taking into account all of the CBM 

petitions that had an outcome as of September 30, 2017, board judges 

ruled some or all of the claims considered at trial unpatentable in 35.6 

percent of the cases.

We found in our March 2018 report that the Patent Trial and Appeal 

Board has completed all trials under AIA-authorized proceedings within 

statutorily directed time frames,11 according to board data, and the board 

has taken steps to review issues that could affect the consistency of its 

trial proceedings and decisions and to engage with stakeholders to 

improve its proceedings. Board officials we interviewed told us the 

timeliness of decisions to institute a trial and of final written decisions has 

not been a concern in the 5 years that the board has operated. According 

to board officials, as of November 2017, two AIA trials—one under the 

inter partes review program and one under the CBM program—have 

been extended, for good cause, past the typical 1-year time limit between 

the institution decision and the final written decision, as allowed by 

statute.

The Patent Trial and Appeal Board has decision review processes that 

help ensure trial decisions are reviewed as appropriate, but the board 

cannot ensure the consistency of its trial decisions because it does not 

have guidance for reviewing the decisions or the processes that lead to 

them. For trials still in progress, board officials told us there are several 

ways management gets involved in reviews—including reviews of 

ongoing trials if and when a paneled judge raises any issue deserving of 

management attention. Such issues are brought to the attention of the 

 11Under statute and regulation, the full review process at the Patent Trial and Appeal 

Board for any of the three proceedings generally takes up to 18 months and comprises 

two phases: (1) the petition phase, which lasts up to 6 months, and (2) the trial phase, 

which generally lasts up to 12 months.

The Board Met 

Timeliness 

Requirements and 

Took Steps to 

Analyze Decisions 

and Improve 

Proceedings but 

Does Not Have 

Guidance to Ensure 

Decision Consistency
Page 6 GAO-18-451T U.S. Patent And Trademark Office

chief judge or other members of the board’s management team and are 

acted upon at their discretion. Board officials also told us that a separate 

internal review process has evolved over time, whereby a small group of 

board judges, in consultation with board management, seeks to ensure 

decision quality and consistency by reading a large number of draft AIA 

trial decisions and giving feedback or suggestions to authoring judges 

prior to issuance. In addition, the board reviews any AIA trial decisions 

that are appealed to the U.S. Court of Appeals for the Federal Circuit and 

the appeals court subsequently reverses or remands. Finally, board 

officials told us that the board has begun to increase the number of trial 

decisions considered for precedential and informative designations as 

part of its efforts to ensure the consistency of trial decisions.12

Taken together, the board’s review processes help ensure that board trial 

decisions are reviewed in some manner. However, because the board 

does not have documented procedures for how to review decisions for 

consistency, the board cannot fully ensure the consistency of the 

decisions or the processes that lead to them. Under federal standards for 

internal control, management should design control activities to achieve 

objectives and respond to risks. Such control activities include clearly 

documenting internal control in a manner that allows the documentation 

to be readily available for examination. The documentation may appear in 

management directives, administrative policies, or operating manuals. We 

recommended that the Director of USPTO develop guidance, such as 

documented procedures, for judges reviewing the Patent Trial and Appeal 

Board’s decisions and the processes that lead to the decisions. USPTO 

agreed with our recommendation and stated that it has begun taking 

actions to address it.

In addition, to improve various aspects of its trial proceedings, the board 

has taken several steps to engage with stakeholders. USPTO’s strategic 

plan states that the board should expand outreach to stakeholders by 

providing opportunities for interaction and updates on board operations 

and other important issues. The board has done so through several types 

of public outreach efforts, including participating in roundtables, webinars, 

 12Under its Standard Operating Procedures, Patent Trial and Appeal Board decisions can 

be designated as “representative”, “informative,” or “precedential.” Representative 

decisions typically provide a representative sample of outcomes on a particular matter; 

they are not binding authority. Informative decisions provide norms on recurring issues, 

guidance on issues of first impression, and guidance on the board’s rules and practices; 

they are not binding authority. Precedential decisions are binding authority and emphasize 

decisions that resolve conflicts or address novel questions.
Page 7 GAO-18-451T U.S. Patent And Trademark Office

and judicial conferences, among other activities. The board has made 

several changes to policies and procedures based on stakeholder 

feedback gathered through these mechanisms.

Stakeholders we interviewed for our March 2018 report generally agreed 

the CBM program has reduced litigation involving business method 

patents because the CBM program allows these patents to be more 

easily challenged than in district courts, and many stakeholders said there 

is value in maintaining some aspects of the program. Stakeholders told us 

that fewer business method patent lawsuits are filed and that existing 

lawsuits are often dropped after patents have been through the CBM 

program. However, stakeholders also noted that the Supreme Court’s 

2014 decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l has contributed to 

the reduced number of business method patent lawsuits.13 Stakeholders 

told us that the CBM program has made it riskier to assert business 

method patents because, compared with district court, the program offers 

a cheaper and more efficient way for alleged infringers to challenge a 

patent’s validity. In addition, according to stakeholders, patent owners are 

more focused on asserting business method patents that are higher 

quality and less vulnerable to challenge either under the CBM program or 

based on the Supreme Court’s decision in Alice; these are patents that 

describe a technological invention that is not abstract and implemented 

on a generic computer.

Stakeholders we interviewed generally agreed the effects of the CBM 

program on innovation and investment have been minimal or mostly 

positive. More specifically, stakeholders told us that the CBM program is 

good for overall innovation and investment in financial technologies in that 

the program eliminates overly broad (non-specific), low-quality patents. 

Stakeholders told us they believe the existence and assertion of overly 

broad patents is bad for innovation, in part because defending against 

alleged infringement is expensive and time-consuming, even under the 

CBM program. Assertion of overly broad, unclear, or otherwise low-quality 

patents acts much like a tax on investment, according to stakeholders. 

 13Patents that are eligible for review under the CBM program must be non-technological in 

nature and, according to stakeholders, these have often been computer-implemented 

inventions that are invalid under Alice Corp. Pty. Ltd. v. CLS Bank Int’l., 134 S. Ct. 2347, 

189 L.Ed. 2d 296 (2014), in which the Supreme Court found that merely requiring generic 

computer implementation of an idea fails to transform that abstract idea into a patentable 

invention.

Stakeholders Agree 

the CBM Program 

Has Reduced 

Litigation, and Many 

See Value in 

Maintaining Aspects 

of the Program
Page 8 GAO-18-451T U.S. Patent And Trademark Office

Stakeholders also told us that removing such patents from the 

marketplace promotes innovation because it prevents these patents from 

blocking new innovation. According to stakeholders, innovation is 

represented by the quality of the patents issued rather than the quantity. 

A large number of patents in a technology space, according to 

stakeholders, can make it difficult to innovate within that crowded space.

Most stakeholders told us there was value in maintaining aspects of the 

CBM program, including the ability to challenge patents at the Patent Trial 

and Appeal Board on all four patentability requirements—subject matter; 

novelty; non-obviousness; and clarity and specificity. Stakeholders we 

interviewed pointed to inconsistencies in how federal courts interpret 

subject matter eligibility and clarity requirements, in particular. 

Stakeholders said that the federal courts and jurors do not necessarily 

have the expertise to interpret requirements for subject matter eligibility 

and clarity, and that the technically trained Patent Trial and Appeal Board 

judges were better suited to make patentability determinations on these 

grounds.

Stakeholders generally agreed that the ability to challenge a patent’s 

validity on subject matter eligibility grounds remains important, although 

there was not broad agreement among stakeholders regarding how far 

that ability should extend beyond business method patents. Some 

stakeholders said subject matter eligibility challenges were important for a 

wider scope of patents than just business methods because concerns 

about subject matter eligibility that apply to business method patents 

extend to software-related patents in general. Similarly, stakeholders told 

us that patent clarity problems exist beyond business method patents.

Chairman Issa, Ranking Member Johnson, and Members of the 

Subcommittee, this concludes my prepared statement. I would be 

pleased to respond to any questions that you may have at this time.

If you or your staff have any questions about this statement, please 

contact John Neumann, Director, Natural Resources and Environment at 

(202) 512-3841 or neumannj@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this statement. GAO staff who made key contributions to this testimony 

are Rob Marek (Assistant Director), Michael Krafve, and Cynthia Norris. 

Additional staff who made key contributions to the report cited in this 

testimony are identified in the source product.

GAO Contact and 

Staff 

Acknowledgments

(102661)
Page 9 GAO-18-451T U.S. Patent And Trademark Office

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