United States: Federal Banks Are "Persons" Under The AIA

The US Court of Appeals for the Federal Circuit held that the Federal Reserve Banks of several cities are "persons" under the America Invents Act (AIA) and therefore may petition for post-issuance review under the AIA. Bozeman Financial LLC v. Federal Reserve Bank of Atlanta et al., Case No. 19-1018 (Fed. Cir. Apr. 10, 2020) (Moore, J.).

Bozeman owns two patents directed to methods of authorizing and clearing financial transactions to detect and prevent fraud. The Federal Reserve Banks of Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco and St. Louis filed a petition for covered business method (CBM) review of several claims of Bozeman's patents. The Patent Trial and Appeal Board (PTAB) ultimately found the challenged claims ineligible under 35 U.S.C. § 101. Bozeman appealed.

On appeal, Bozeman filed a supplemental brief arguing that the Banks are not "persons" under the AIA, and therefore may not petition for post-issuance review under the AIA. Bozeman argued that the Banks are government entities and are precluded from seeking post-grant review based on the Supreme Court's 2018 decision in Return Mail v. US Postal Serv. The Banks responded, arguing (i) Bozeman waived the argument by not raising it to the PTAB or in its opening brief and (ii) Return Mail is inapplicable because the Banks are distinct from the US government.

Recognizing the general rule is that appellate courts do not consider an issue not presented below, the Federal Circuit found that circumstances in the present case warranted deviating from the general rule of waiver. The Court noted that whether the Banks are "persons" for the purposes of the AIA is a purely legal question and limited to interpretation of provisions of the AIA that apply to the PTAB and would appealable to the Federal Circuit, even if addressed by the PTAB in the first instance. The Court also explained that the parties were given an opportunity to fully brief the issue, and it was pertinent to multiple pending and future patent litigations involving the Banks. The Court further noted that its decision was limited to the status of the Banks and did not prejudice other entities whose status as "persons" under the AIA may be separately questioned.

Turning to the merits, Bozeman argued that the Banks are government entities because they are operating members of the nation's Federal Reserve System, implement the monetary and fiscal policies of the United States, conduct important governmental functions and transfer any profit generated by the Banks to the United States Treasury. Given these activities, Bozeman argued that the Banks are not private financial institutions, but are instead fundamentally public, government institutions whose equity interest remains with the United States. The Banks responded that the Federal Reserve Banks are not chartered corporate instrumentalities of the US and are not part of any executive agency or department. The Banks further argued that they are corporations that are not government-owned and are operationally distinct from the federal government.

Agreeing with the Banks, the Federal Circuit found the Banks are "persons," and as such, are capable of petitioning the US Patent and Trademark Office (PTO). In reaching its conclusion, the Court noted that Federal Reserve Banks were established as chartered corporate instrumentalities of the United States under the Federal Reserve Act of 1913 and, unlike the Postal Service at issue in Return Mail, the Banks' enabling statute does not establish them as part of an executive agency. The Court further noted the Banks do not receive congressionally appropriated funds and do not have any officials appointed by the President or any other government official. The Court also found that the government exercises limited control over the operation of the Banks, and instead, the Banks have a board of directors that exercises control of the Bank. Accordingly, the Court found that the Banks are distinct from the government for the purposes of the AIA and that the PTAB had authority to decide the CBM petition.

Having determined the PTAB had authority to resolve the petition, the Federal Circuit applied the two-step Alice framework to affirm the PTAB's decision, concluding that the patent claims are directed to the abstract idea of "collecting and analyzing information for financial transaction fraud or error detection," and the claims do not include an inventive concept that would otherwise render the claims eligible.

Practice Note: The Federal Circuit limited its decision to whether the Banks are distinct from government entities for the purposes of the AIA, recognizing that "there may be circumstances where the structure of the Banks does not render them distinct from the government for purposes of statutes other than the AIA."