Extracted from Law360
The U.S. Supreme Court’s decision in Alice Corp v. CLS Bank[1] has reshaped the legal landscape of patentable subject matter under Section 101 of the Patent Act. Ten months after that decision, the long-term effects are starting to emerge. Perhaps the most notable is a shift in the court’s willingness to consider the issues at the earliest stages of the litigation, leading to frequent pretrial decisions that a computer-based business method patent lacks patent-eligible subject matter.
Before Alice, courts rarely granted pretrial dispositive motions that challenged the validity of a patent under Section 101 because of the high “clear and convincing” threshold required to prove patent ineligibility and the limited facts available at early stages of litigation.[2] Even after claim construction, the potential success of a pretrial dispositive motion was further lessened by the evidentiary deference a court must give the nonmoving party. Thus, a pretrial ruling that a patent covered ineligible subject matter was uncommon under Rule 56 motions, rare under Rule 12(c) motions, and equivalent to a mythical Jabberwock under Rule 12(b)(6) motions.
In the wake of Alice, however, many courts are willing to grant pretrial dismissal of patent infringement cases based on patent-ineligible subject matter. Courts have cited to Circuit Judge Haldane Robert Mayer’s concurrence to address the Section 101 issue “at the very outset” of a case.[3] Since Alice, there have been more than 60 cases that address pretrial dispositive motions based on patent-ineligible subject matter.[4] In over 70 percent of those cases, the court granted or affirmed dismissal.[5] Remarkably, courts granted 11 of the 15 motions to dismiss under Rule 12(b)(6), thus affirming invalidity at the earliest stage of litigation.
This significant shift to pretrial motion practice is largely caused by lower courts’ eager application of the two-part Mayo test, which was reemphasized in Alice.[6] The test requires that a court first determine whether the claims are directed to a patent-ineligible concept such as an abstract idea.[7] If so, then the court must determine whether the claims nonetheless describe a sufficiently inventive concept to “transform that abstract idea into a patent-eligible invention.”[8] This second step determines whether there is an “inventive concept” that “ensure[s] that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”[9]
Courts after Alice usually find that computer-based claims are directed to an abstract idea, thus satisfying part one of the Alice test. Courts then focus on whether the claim’s elements “transform the nature of the claim” into patent-eligible subject matter.[10] On this issue, post-Alice courts overwhelmingly hold that they do not, commonly citing generic computer implementation, traditional human performance, or insufficient limitations merely reciting conventional features as reasons for denying patent-eligibility.[11] Analyses of the cases, especially those that survive pre-trial dismissal, offer a glimpse into the post-Alice world.
First, patentability of a business method does not necessarily depend on human performance. This “pencil and paper” test historically denied patentability to method claims that could conceivably be performed by a human, and has been relied upon by post-Alice courts.[12] Recent holdings provide that whether a human can accomplish the task is not dispositive.[13] Accordingly, while historical performance of a method by a human may be probative, it does not necessarily follow that the method covers patent-ineligible subject matter.[14] Likewise, claims are not necessarily patentable just because the claims could not be performed by a human being alone.[15] As stated in Alice, the question is whether the claim is directed to an abstract idea and whether the claim contains an inventive concept, not whether the claim could be performed by a human.[16]
Second, generic use of a computer or the Internet to implement a business method has been fatal. Claims must do more than simply instruct the practitioner to implement the abstract idea on a generic computer.[17] In every case where the court found the claims to say nothing more than “apply it” on a computer, the court granted the defendant’s motion to dismiss for lack of patent-eligible subject matter.[18]
Third, software that alters the generic function of a computer may be patentable. In denying the claims at issue in Alice, the Supreme Court reasoned that a failure to “improve the functioning of the computer itself” supports a finding of patent ineligibility.[19] Accordingly, software that is narrowly tailored to alter the generic function of a computer and does implement a specific task that helps solve a specific problem supports a finding of patentability.[20]
Supporting this premise, three courts addressed patentability of software that alters the normal operation of a computer. The Enfish court instructed that a chess program that reallocates a computer’s normal memory distribution based on the importance of the remaining “factors” is patentable because it is limited by its dynamic memory allocation.[21] The Citigroup court found that a verification process incorporating a computer network may be patentable because it is limited by pseudorandom tag generating software.[22] The Hughes court found that encoding data using a linear transform operation was patentable because it, inter alia, improved computer performance.[23] In their reasoning, these courts unanimously agreed that limitations that are narrowly defined and tied to a specific computer process may transform an abstract idea into a patentable claim. In other words, Section 101 protects specific computing solutions that address specific computing problems.
Finally, one court suggested that resolving computer-based problems using computer-based solutions may be patent-eligible. This is a relatively unique application of the Mayo-Alice test. In DDR Holdings, the court found that although the claims at issue were similar to those in Alice, the claims stood apart because they did not “merely recite” the performance of some business practice with the requirement to perform it on the Internet.[24] Instead, the claimed solution was “necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.”[25] In other words, there was no online performance of an existing business method because the business method never existed outside of the online world. Notably, this logic is usually applied under step-two of the Alice test. In this case, however, the court addressed this logic under step one, before inevitably deciding the issue under step two.[26] It remains to be seen if this approach will be followed more widely in view of step-one, where courts regularly hold the claims to be directed to an abstract idea.
The substantial number of successful pretrial motions following Alice demonstrates courts’ increased willingness to invalidate computer-based patents as patent-ineligible subject matter. However, method patents that alter the generic computer environment to solve a specific computer problem have some precedential footing. Having survived the initial salvo of Alice, perhaps these patents offer a path to patentability for computer-based methods that solve problems existing in both the virtual and real world.
[1] Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
[2] Ultramercial Inc., v. Hulu LLC, 722 F.3d 1335, 1338-39 (Fed. Cir. 2013); see, e.g., CLS Bank Int'l v. Alice Corp., 717 F.3d 1269, 1304–05 (Fed. Cir. May 10, 2013) (Chief Judge Rader, and Judges Linn, Moore, and O'Malley, concluding that “any attack on an issued patent based on a challenge to the eligibility of the subject matter must be proven by clear and convincing evidence,” and Judges Lourie, Dyk, Prost, Reyna, and Wallach, concluding that a statutory presumption of validity applies when § 101 is raised as a basis for invalidity in district court proceedings.).
[3] Eclipse IP LLC v. McKinley Equip. Corp., No. 2:14-cv-00154-GW-AJW (C.D. Cal. Sept. 4, 2014) (quoting I/P Engine, Inc. v. AOL Inc., No. 2013-1307 (Fed. Cir. Aug. 15, 2014)).
[4] As of March 31, 2015, there have been 15 motions to dismiss for failure to state a claim under Rule 12(b)(6), 15 motions for a judgment on the pleadings under Rule 12(c) and 30 motions for summary judgment under Rule 56.
[5] As of March 31, 2015, courts have granted 44 of the 61 pre-trial motions based on Section 101 patentable subject matter (72 percent): 11 of the 15 Rule 12(b)(6) motions (73 percent), 12 of the 15 Rule 12(c) motions (80 percent) and 21 of the 30 Rule 56 motions (70 percent). Not included in the calculation total is the court’s partial grant of two pretrial motions, one Rule 56 motion and one Rule 12(b)(6) motion. Including these two motions in the calculation of court decisions as granted motions yields an overall rate of 75 percent.
[6] Alice, 134 S. Ct. at 2350; see also Mayo Collaborative Services v. Prometheus Laboratories Inc., 132 S. Ct. 1289, 1297 (2012).
[7] Alice, 134 S. Ct. at 2350.
[8] Alice, 134 S. Ct. at 2350.
[9] California Inst. of Tech. v. Hughes Commc'ns Inc., No. 2:13-CV-07245-MRP, at *5 (C.D. Cal. Nov. 3, 2014) (citing Alice, 134 S. Ct. at 2355).
[10] Alice, 134 S. Ct. at 2350.
[11] See buySAFE Inc. v. Google Inc., 765 F.3d 1350, 1355 (2014); Planet Bingo LLC v. VKGS LLC, 576 Fed. Appx. 1005, 1007 (2014); Digitech Image Technologies LLC v. Electronics for Imaging Inc., 758 F.3d 1344, 1351 (2014).
[12] Planet Bingo, 576 Fed. Appx. at 1007; Hughes, No. 2:13-CV-07245-MRP at *33.
[13] Hughes, No. 2:13-CV-07245-MRP at *29-30.
[14] Hughes, No. 2:13-CV-07245-MRP at *29; see e.g. Enfish LLC v. Microsoft Corp., No. 2:12-CV-07360-MRP at *10 (C.D. Cal. Nov. 3, 2014).
[15] Hughes, No. 2:13-CV-07245-MRP at *30.
[16] Hughes, No. 2:13-CV-07245-MRP at *30.
[17]Alice, 134 S. Ct. at 2358; see Mayo, 132 S. Ct. at 1294.
[18] Alice, 134 S. Ct. at 2350 (using “apply it” as a command for the computer to implement a method).
[19] Alice, 134 S. Ct. at 2359.
[20] DDR Holdings LLC v. Hotels.com LP, 773 F.3d 1245, 1257 (Fed. Cir. 2014); see also Alice, 134 S. Ct. at 2358.
[21] Enfish LLC v. Microsoft Corp., No. CV12-7360-MRP, at *21 (C.D. Cal. Nov. 26, 2014).
[22] Card Verification Solutions LLC v. Citigroup Inc., No. 13-CV-6339, at *7-8 (N.D. Ill. Sept. 29, 2014).
[23] Hughes, No. 2:13-CV-07245-MRP at *33-34.
[24] DDR Holdings, 773 F.3d at 1257.
[25] DDR Holdings, 773 F.3d at 1258-59.
[26] DDR Holdings, 773 F.3d at 1256-57