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19 March 2018
Two recent Federal Circuit decisions, Berkheimer v HP Inc (2017-1437) and Aatrix Software, Inc v Green Shades Software, Inc (2017-1452), have identified certain circumstances that hinder early or summary Section 101 determinations in litigation.
In Alice Corp Pty Ltd v CLS Bank Int'l (134 S Ct 2347 (2014)) the Supreme Court established the following two-step test for assessing patent eligibility under 35 USC Section 101. The court must:
The second step is met when the claimed invention involves "more than performance of well understood, routine, [and] conventional activities previously known to the industry" (Content Extraction & Transmission LLC v Wells Fargo Bank, Nat'l Ass'n, 776 F3d 1343, 1347-48 (Fed Cir 2014)).
A number of district court decisions since Alice have held patent claims to be ineligible under Section 101 during Fed R Civ P 12(b)(6) motions brought at the start of litigation, or on motions for summary judgment. However, the Federal Circuit decisions discussed below indicate that factual disputes over aspects of the Alice inquiry may, in certain circumstances, hinder such early or summary Section 101 determinations.
In Berkheimer, the District Court for the Northern District of Illinois granted HP's summary judgment motion that claims 1 to 7 and 9 of Berkheimer's US Patent 7,447,713 – for the digital processing and archiving of files in a digital asset management system – were ineligible under Section 101. The district court also held claims 10-19 invalid for indefiniteness. Berkheimer appealed.
On February 8 2018 Judges Moore, Taranto and Stoll of the Federal Circuit upheld the district court's indefiniteness ruling regarding claims 10-19 and its Section 101 summary judgment regarding claims 1 to 3 and 9, but vacated the Section 101 summary judgment regarding claims 4 to 7. The Federal Circuit held that Berkheimer could argue the Section 101 eligibility of claims 4 to 7 separately on appeal, crediting Berkheimer's assertions that claims 4 to 7 included limitations on patent eligibility and that he had never agreed that claim 1 was representative of other claims.
Turning to step one of Alice, the Federal Circuit determined that claims 4 to 7 were directed to the abstract idea of parsing, comparing, storing or editing data. However, referring to step two, the Federal Circuit held that "whether claims 4-7 perform well-understood, routine, and conventional activities to a skilled artisan is a genuine issue of material fact making summary judgment inappropriate with respect to these claims".
In so holding, the Federal Circuit noted that "whether the claimed invention is well-understood, routine, and conventional is an underlying fact question for which HP offered no evidence". It continued:
"While patent eligibility is ultimately a question of law, the district court erred in concluding there are no underlying factual questions to the § 101 inquiry. Whether something is well-understood, routine, and conventional to a skilled artisan at the time of the patent is a factual determination. Whether a particular technology is well-understood, routine, and conventional goes beyond what was simply known in the prior art. The mere fact that something is disclosed in a piece of prior art, for example, does not mean it was well-understood, routine, and conventional."
Despite this, the Federal Circuit was quick to defend the propriety of previous decisions in which Section 101 eligibility had been decided on motions to dismiss or on summary judgment:
"Nothing in this decision should be viewed as casting doubt on the propriety of those cases. When there is no genuine issue of material fact regarding whether the claim element or claimed combination is well-understood, routine, conventional to a skilled artisan in the relevant field, this issue can be decided on summary judgment as a matter of law."
Aatrix sued Green Shades in the District Court for the Middle District of Florida, alleging that Green Shades had infringed US Patents 7,171,615 and 8,984,393, which were directed to systems and methods for designing, creating and importing data into a viewable format on a computer. Green Shades moved to dismiss Aatrix's complaint under Fed R Civ P 12(b)(6), arguing that all of the patent claims were ineligible under Section 101. The court agreed and granted the motion to dismiss. Aatrix moved to modify and vacate the judgment for reconsideration and for leave to file a second amended complaint, on the basis that it contained additional allegations and evidence which would have precluded dismissal under Section 101. The district court denied Aatrix's motions. Aatrix appealed.
On February 14 2018 Judges Moore, Reyna and Taranto of the Federal Circuit vacated the motion to dismiss, reversed the denial of Aatrix's motion for leave to file a second amended complaint and remanded the case for further proceedings.
The Federal Circuit rejected the district court's sua sponte holding that claim 1 of the 7,171,615 patent was ineligible because it was not tangible. According to the Federal Circuit, claim 1:
"claims a data processing system which clearly requires a computer operating software, a means for viewing and changing data, and a means for viewing forms and reports. This is very much a tangible system. The district court erred in holding claim 1 ineligible because it was directed to intangible matter and should have instead performed an Alice/Mayo analysis of claim 1."
Regarding the other claims, the Federal Circuit determined that the district court's "subsequent refusal to permit an amended complaint was erroneous because at that stage there certainly were allegations of fact that, if Aatrix's position were accepted, would preclude the dismissal". The Federal Circuit explained that:
"[t]he proposed second amended complaint contains allegations that, taken as true, would directly affect the district court's patent eligibility analysis. These allegations at a minimum raise factual disputes underlying the § 101 analysis, such as whether the claim term 'data file' constitutes an inventive concept, alone or in combination with other elements, sufficient to survive an Alice/Mayo analysis at the Rule 12(b)(6) stage."
As in Berkheimer, the Federal Circuit in Aatrix observed that "[w]hile the ultimate determination of eligibility under § 101 is a question of law, like many legal questions, there can be subsidiary fact questions which must be resolved en route to the ultimate legal determination". Further, it focused on factual issues implicated in the second step of the Alice test to rule that the district court's Section 101 determination was improper:
"There are concrete allegations in the second amended complaint that individual elements and the claimed combination are not well-understood, routine, or conventional activity. There are also concrete allegations regarding the claimed combination's improvement to the functioning of the computer. We have been shown no proper basis for rejecting those allegations as a factual matter."
Reyna both concurred and dissented in part. In his dissent, he asserted that "the majority opinion attempts to shoehorn a significant factual component into the Alice § 101 analysis" and expressed concern that this would permit parties to raise "an inexhaustible array of extrinsic evidence" in both Rule 12(b)(6) and summary judgment proceedings. Reyna also noted that the allegations in Aatrix's second amended complaint were not addressed by the district court and that "[a]s an appellate court, we should not pass judgment on matters not addressed by the district court".
For further information on this topic please contact Christopher Loh at Fitzpatrick, Cella, Harper & Scinto by telephone (+1 212 218 2100) or email (firstname.lastname@example.org). The Fitzpatrick, Cella, Harper & Scinto website can be accessed at www.fitzpatrickcella.com.
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