In SightSound Technologies, LLC v. Apple, Inc. (CBM2013-00020), the Court of Appeals for the Federal Circuit (the patent appellate court) recently affirmed the decision of Patent Trial and Appeal Board (PTAB) to invalidate certain claims of SightSound’s patents 5,191,573 and 5,966,440 in a covered business method (CBM) proceeding based on an obviousness ground that was not expressly raised by the petitioner (Apple).

The ‘573 and ‘440 patents relate to methods for electronic sale and distribution of digital audio and video signals. Each of the relevant claims required forming a connection, through telecommunications lines, between a party’s first memory and a second party’s second memory, selling the desired digital signals for a fee through the telecommunications lines, transmitting the desired signal from the first memory to the second memory through the telecommunications lines, and storing the transmitted signal in the second memory.

In instituting the review of the challenged claims, PTAB found that the patents qualified for CBM review because they involved an activity that was “financial in nature,” namely, the electronic movement of money between financially distinct entities. The PTAB further found that the challenged claims did not include inventive technological features that would have otherwise excluded them from CBM review. The PTAB instituted the review not only based on anticipation grounds advanced by Apple but also based on an obviousness ground that was not specifically alleged by Apple, though the evidence upon which the PTAB relied for the obviousness ground was included in Apple’s petition. This evidence involved a series of disclosures relating to a computer system developed by CompuSonics in 1980’s. The Board reasoned that its reliance on this evidence was proper because while Apple’s petitions did no explicitly assert obviousness based on those disclosures, they nonetheless supported such a ground based on Apple’s detailed explanation of the CompuSonics references.

In its final decision, the Board held claims 1, 2, 4 and 5 of the ‘573 patent and claims 1, 64 and 65 of the ‘440 patent invalid as obvious. SightSound appealed the Board’s decision. SightSound argued that the proceedings were improperly instituted since Apple had not explicitly raised the obviousness issue, and hence the Board’s decision should be set aside.

The appellate court disagreed and explained that “generally institution decisions are not reviewable, and in particular a challenge based on a defect in the initiation that could have been cured by a proper pleading is not reviewable.” The appellate court held that the statute did not limit the Board’s authority at the final decision stage to grounds alleged in the CBM petitions.

SightSound also argued that the ‘573 and ‘440 patents were not CBM patents and hence the Board did not have authorization to institute their review. On this issue, the appellate court held that it did have jurisdiction to review the Board’s decision because “the question of whether a patent falls within the scope of the Board’s authority … as a CBM patent is a limitation on the Board’s authority to issue a final decision and may be reviewed on appeal from a final written decision of the Board.” The appellate court, nonetheless, agreed with the Board that the patents at issue were in fact CBM patents.

On the substantive issue of obviousness, the appellate court affirmed the Board’s decision that the challenged claims were obvious.