The Federal Reserve has been at the forefront of daily news in connection with its efforts to revive the national economy in the wake of the COVID-19 pandemic. At the same time, the U.S. Court of Appeals for the Federal Circuit in Bozeman Financial LLC v. Federal Reserve Bank of Atlanta et al. recently ruled that Federal Reserve banks are now permitted to file administrative patent challenges with the Patent Trial and Appeal Board (PTAB). In its April 10 decision, the Federal Circuit Panel distinguished the features and organizational structure of the Federal Reserve banks from traditional “government entities” that were previously barred from initiating such patent challenges.
The America Invents Act (AIA) permits “a person who is not the owner of a patent” to petition for inter partes review or post-grant review (PGR) for purposes of challenging a patent’s validity. In June of last year, the United States Supreme Court ruled in Return Mail Inc. v. United States Postal Service, 139 S. Ct. 1853 (2018), that federal government agencies such as the United States Postal Service (USPS) could not challenge patents at the PTAB. In Return Mail, an automated mail service provider had sued the USPS for infringing its patent related to processing undeliverable mail. The USPS then challenged the patent’s validity at the PTAB. In determining the definition of “person” as it applies in the AIA, the Supreme Court applied a “longstanding interpretive presumption that ‘person’ does not include the sovereign,” in the absence of a statutory definition. The Supreme Court noted that “the Patent Act and the AIA refer to ‘person’ in at least 18 different places, and there is no clear trend: Sometimes ‘person’ plainly includes the Government, sometimes it plainly excludes the Government, and sometimes—as here—it might be read either way.” Justice Sotomayor further reasoned that the presumption that “person” excludes federal agencies, including the USPS, reflects “common usage” of the term.
The Bozeman Financial LLC case represents a test of the reach of the Supreme Court’s prior decision in Return Mail. The patent dispute in Bozeman Financial LLC began after the Federal Reserve banks filed challenges in 2017 to two of Bozeman’s patents after an inventor sought royalty payments. The Bozeman patents at issue concerned a “universal positive pay” system covering financial transactions. The PTAB accepted the Federal Reserve banks’ PGR petition and cancelled all the challenged claims of U.S. Patent Nos. 6,754,640 and 8,768,840 as patent ineligible under 35 U.S.C. § 101. On appeal, Bozeman contended that the Federal Reserve banks carry out government functions, such as implementing monetary policies and providing financial services, and must be considered part of the federal government under Return Mail. In response, the Federal Reserve banks argued that Bozeman waived its “persons” argument as established in Return Mail by not raising it at the PTAB. However, on appeal, the Federal Circuit decided to overlook any potential waiver issue “because the [‘person’ determination] issue [was] narrow and legal, and the parties [were] not prejudiced by our resolution.”
The Federal Circuit’s decision analyzed in detail the differences between traditional government entities and the Federal Reserve banks. The panel concluded that Federal Reserve banks could qualify as a “person” under the AIA because, unlike the USPS, the Federal Reserve bank enabling statutes do not establish the banks as part of an executive agency; rather, each bank is a “body corporate.” “Like any other private corporation, the Banks each have a board of directors to enact bylaws and to govern the business of banking. Moreover, the Banks may sue or be sued in ‘any court of law or equity.’” In distinguishing the banks from government entities for AIA purposes, the panel placed emphasis on the fact that Federal Reserve banks could be sued for patent infringement in any federal court. Further, the panel drew additional distinctions by noting that the individual banks do not receive funds from Congress or have officials appointed by the president or someone else from the government.
After carving out Federal Reserve banks from the grasp of the Return Mail decision, the panel went on to uphold the PTAB’s findings in the PGR, invalidating all the challenged claims.
The Federal Circuit’s analysis and decision in Bozeman Financial LLC was specifically limited to the post-grant patent challenge context and the statutory language of the AIA. It will be interesting to see how subsequent quasi-governmental entities will attempt to argue application of Bozeman Financial LLC’s “person” holding in order to obtain standing to file administrative patent challenges with the PTAB. Depending on the circumstances, such an organization might be in a position to argue that its corporate structure is distinguishable from a traditional government entity by establishing elements of self-governance, liability to patent infringement and an inability to promulgate regulations with the force of law.