Factual Disputes Cloud Early Dismissal of Software Patent – Ineligible Subject Matter Section 101

The Court of Appeals for the Federal Circuit (the “Federal Circuit”) denied rehearing en banc Aatrix Software Inc. v. Green Shades Software Inc., Case No. 2017-1452 (Fed. Cir. May 31, 2018)(reh. en banc denied) (Available Here) and issued two concurring opinions and a dissent by Judge Reyna on the topic of whether a computer software patent can or should be invalidated under Section 101 at an early pleading stage with a Rule 12(b)(6) motion to dismiss. The opening comments in the two concurring opinions and the dissent show divisions in the Court.

Concurring opinion by Judges Moore, Dyk, O’Malley, Taranto and Stoll: “Berkheimer and Aatrix stand for the unremarkable proposition that whether a claim element or combination of elements would have been well-understood, routine, and conventional to a skilled artisan in the relevant field at a particular point in time is a question of fact.”

Concurring opinion by Judges Lourie and Newman: “The law needs clarification by higher authority, perhaps by Congress, to work its way out of what so many in the innovation field consider are § 101 problems. … The Supreme Court put a gloss on this provision by excluding laws of nature, natural phenomena, and abstract ideas.”

Dissent by Judge Reyna: “This court’s opinion in Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018), was issued six days after the release of the court’s opinion in Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018). … Perhaps the single most consistent factor in this court’s § 101 law has been our precedent that the § 101 inquiry is a question of law. Stated differently, there is no precedent that the § 101 inquiry is a question of fact. The Aatrix and Berkheimer decisions are contrary to that well established precedent.”

Judges Moore, Dyk, O’Malley, Taranto and Stoll focused on whether a claim element or combination of elements would have been well-understood, routine, and conventional to a skilled artisan in the relevant field at a particular point in time is a question of fact. The Supreme Court described historical facts as “a recital of external events.” Thompson v. Keohane, 516 U.S. 99, 110 (1995). Facts relating to “who did what, when or where, how or why” are typically questions of fact. U.S. Bank Nat’l Ass’n ex rel. CWCapital Asset Mgmt. LLC v. The Village at Lakeridge, LLC, 138 S. Ct. 960, 966 (2018).

Questions of fact may require “weigh[ing] evidence,” “mak[ing] credibility judgments,” and addressing “narrow facts that utterly resist generalization.” Id. at 967 (quoting Pierce v. Underwood, 487 U.S. 552, 561–62 (1988)). The Supreme Court in Alice asked whether the claimed activities were “previously known to the industry,” and in Mayo asked whether they were “previously engaged in by researchers in the field.”1 Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347, 2359 (2014); Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 73 (2012).

Judge Moore’s concurring opinion further noted that every other type of validity challenge is either entirely factual (e.g., anticipation, written description, utility), a question of law with underlying facts (e.g., obviousness, enablement), or a question of law that may contain underlying facts (e.g., indefiniteness). eligibility and utility. Both have long been treated by courts as questions of validity. See, e.g., Internet Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 1349 (Fed. Cir. 2015); DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1259 (Fed. Cir. 2014); Juicy Whip, Inc. v. Orange Bang, Inc., 185 F.3d 1364, 1367 (Fed. Cir. 1999).

The patent challenger bears the burden of demonstrating that the claims lack patent eligibility, 35 U.S.C. § 282(a), and there must be evidence supporting a finding that the additional elements were well-understood, routine, and conventional.

Regarding Berkheimer v. HP Inc., 881 F.3d 1360, 1370 (Fed. Cir. 2018), the only evidence discussed and addressed was the additional limitations in claims 4–7 and the conclusory statement from challenger’s expert that the features disclosed and claimed in the ’713 patent, including one-to-many changes, “were known functions at the time the application was filed” and “[w]hen combined into a single computerized system, these known features perform[ed] the exact same functions to yield predictable results.”

The Eleventh Circuit, where the Aatrix case arose, holds that the Rule 12(b)(6) standard requires accepting as true the complaint’s factual allegations and construing them in the light most favorable to the plaintiff. Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121, 1124 (Fed. Cir. 2018) (citing Speaker v. U.S. Dep’t of Health & Human Servs. Ctrs. for Disease Control & Prevention, 623 F.3d 1371, 1379 (11th Cir. 2010)).

Judge Moore then stated: “Conventional processes, with no alteration of computer functionality. See, e.g., FairWarning IP, LLC v. Iatric Sys., Inc., 839 F.3d 1089, 1096–97 (Fed. Cir 2016) (holding claims ineligible which ‘merely graft generic computer components onto otherwise-ineligible method claims’); Intellectual Ventures I LLC v. Capital One Bank, 792 F.3d 1363, 1370 (Fed. Cir. 2015) (‘steps that do nothing more than spell out what it means to ‘apply it on computer’ cannot confer eligibility’); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 715–16 (Fed. Cir. 2014) (‘implement[ing] the abstract idea with routine, conventional activity’ and ‘invocation of the Internet’ is not sufficient to save otherwise abstract claims). The established precedents have thus properly permitted pretrial resolution of many eligibility disputes.”

“Whether a claim element or combination is well-understood, routine, and conventional is a question of fact. This inquiry falls under step two in the § 101 framework, in which we ‘consider the elements of each claim both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent eligible application.’” (citing Alice, 134 S. Ct. at 2355 and quoting Mayo, 566 U.S. at 78–79).

In contrast, Judge Lourie, joined by Judge Newman, concurred in the denial of the petition for rehearing en banc, and explained.

“The law needs clarification by higher authority, perhaps by Congress, to work its way out of what so many in the innovation field consider are § 101 problems. … The Supreme Court put a gloss on this provision by excluding laws of nature, natural phenomena, and abstract ideas. Le Roy v. Tatham, 55 U.S. (14 How.) 156, 174–75 (1852) (‘[A] principle is not patentable. A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.’); Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980) (‘The laws of nature, physical phenomena, and abstract ideas have been held not patentable.’). So far, so good. Laws of nature (Ohm’s Law, Boyle’s Law, the equivalence of matter and energy), properly construed, should not be eligible for patent. Nor should natural phenomena (lightning, earthquakes, rain, gravity, sunlight) or natural products, per se (blood, brain, skin). Of course, the latter are also unpatentable as lacking novelty under § 102.”

According to Judge Lourie, the decision whether or not to rehear en banc the Aatrix decision holds that step two of the two-step analysis may involve the type of fact-finding that underlies §§ 102 and 103, further complicating what used to be a fairly simple analysis of patent eligibility under § 101. “We now are interpreting what began, when it rarely arose, as a simple § 101 analysis, as a complicated multiple-step consideration of inventiveness (‘something more’).”

“If a method is entirely abstract, is it no less abstract because it contains an inventive step? And, if a claim recites ‘something more,’ an ‘inventive’ physical or technological step, it is not an abstract idea, and can be examined under established patentability provisions such as §§ 102 and 103. Step two’s prohibition on identifying the something more from “computer functions [that] are ‘well-understood, routine, conventional activit[ies]’ previously known to the industry.’”

Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2359 (2014) (alteration in original) (quoting Mayo, 566 U.S. at 73), is essentially a §§ 102 and 103 inquiry. Section 101 does not need a two-step analysis to determine whether an idea is abstract.

Judge Reyna, in dissent stated: “This court’s opinion in Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018), was issued six days after the release of the court’s opinion in Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018). … Perhaps the single most consistent factor in this court’s § 101 law has been our precedent that the § 101 inquiry is a question of law. Stated differently, there is no precedent that the § 101 inquiry is a question of fact. The Aatrix and Berkheimer decisions are contrary to that well established precedent.”

Judge Reyna stated that the Supreme Court has characterized the § 101 patent-eligibility inquiry as a threshold test that precedes the requirements described in §§ 102, 103, and 112. See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2355 (2014); Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 75 (2012); Bilski v. Kappos, 561 U.S. 593, 602 (2010). Consistent with this characterization, this court has held that patent eligibility under § 101 is an issue of law. See, e.g., Intellectual Ventures I LLC v. Capital One Fin. Corp., 850 F.3d 1332, 1338 (Fed. Cir. 2017); Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 1331 (Fed. Cir. 2015).

The two-step test for assessing subject matter eligibility under § 101 evolved from framework introduced by the Supreme Court in Mayo and refined in Alice. First, the courts determine whether “the claims at issue are directed to one of those patent-ineligible concepts,” i.e., laws of nature, natural phenomena, and abstract ideas. Alice, 134 S. Ct. at 2355. If so, then the courts proceed to step two, and consider elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “‘transform the nature of the claim’ into a patenteligible application.” Id. (quoting Mayo, 566 U.S. at 79).

The Aatrix Federal Circuit decision (Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018)) removes the inventive concept inquiry from the claims and the specification, and instead places it firmly in the realm of extrinsic evidence. “This is a change in our law, and is counter to guidance from the Supreme Court and our own precedent. See Alice, 134 S. Ct. at 2357 (‘[W]e must examine the elements of the claim to determine whether it contains an ‘inventive concept.’‘ (emphasis added)); Synopsys, Inc. v. Mentor Graphics Corp., 839 F.3d 1138, 1149 (Fed. Cir. 2016) (‘The § 101 inquiry must focus on the language of the Asserted Claims themselves.’).”

The approach adopted in Aatrix also threatens to upset the Alice framework by letting the inventive concept inquiry swallow the entirety of step two. Merely identifying an inventive concept is insufficient; the additional elements must also “‘transform the nature of the claim’ into a patent-eligible application.”

Although whether the claimed elements or claimed combination are well understood, routine, or conventional may be disputed, if the inventive concept is not evident in the claims, the court should not be precluded from holding the claims patent ineligible under § 101 at the pleadings stage.

A § 101 patent eligibility determination can be resolved without the need to look beyond the four corners of the patent. Thus, the analysis becomes solely a question of law for the court to properly decide. This does not mean that there will never be factual allegations that would preclude dismissal for ineligible subject matter, but consistent with our precedent, such a determination can be made based solely on the claims and written description. See, e.g., In re TLI Commc’ns LLC Patent Litig., 823 F.3d 607, 613 (Fed. Cir. 2016) (refusing to engage in fact finding in the § 101 inquiry when the specification sufficiently described the claimed functions); see also Williamson v. Citrix Online, LLC, 792 F.3d 1339, 1346 (Fed. Cir. 2015) (en banc) (“Regarding questions of claim construction . . . the district court’s determinations based on evidence intrinsic to the patent as well as its ultimate interpretations of the patent claims are legal questions that we review de novo.”).

Commentary: In the initial Federal Circuit Aatrix decision (Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018)), the Court vacated the district court decision invalidating the patent on a grant of the motion to dismiss.

The patents in play are directed to systems and methods for designing, creating, and importing data into a viewable form on a computer so that a user can manipulate the form data and create viewable forms and reports. ’615 patent at Abstract. The preferred embodiment in the specification describes a data processing system, which has three main components: a form file, a data file, and a viewer. Id. at 3:4–31, Fig. 1. The form file is created using in-house form development tools and is designed to model the physical characteristics of an existing form, including the calculations and rule conditions required to fill in the form. Id. at 3:5–14. The data file, referred to as the Aatrix Universal File (“AUF”), allows data from third party applications to be “seamlessly imported” into the form file program to populate the form fields. Id. at 3:14– 22. The viewer generates a report by merging the data in the AUF file with the fields in the form file, performing calculations on the data, and allowing the user to review and change the field values. Id. at 3:24–31. Claim 1 is representative:

1. A data processing system for designing, creating, and importing data into, a viewable form viewable by the user of the data processing system, comprising: (a) a form file that models the physical representation of an original paper form and establishes the calculations and rule conditions required to fill in the viewable form; (b) a form file creation program that imports a background image from an original form, allows a user to adjust and testprint the background image and compare the alignment of the original form to the background test-print, and creates the form file; (c) a data file containing data from a user application for populating the viewable form; and (d) a form viewer program operating on the form file and the data file, to perform calculations, allow the user of the data processing system to review and change the data, and create viewable forms and reports.

The earlier Federal Circuit decision held that: “We have held that patent eligibility can be determined at the Rule 12(b)(6) stage. See, e.g., Genetic Techs. Ltd. v. Merial L.L.C., 818 F.3d 1369, 1373 (Fed. Cir. 2016); Content Extraction, 776 F.3d at 1346, 1351. This is true only when there are no factual allegations that, taken as true, prevent resolving the eligibility question as a matter of law. Indeed, we have explained that ‘plausible factual allegations may preclude dismissing a case under § 101 where, for example, ‘nothing on th[e] record . . . refutes those allegations as a matter of law or justifies dismissal under Rule 12(b)(6).’ FairWarning IP, LLC v. Iatric Sys., Inc., 839 F.3d 1089, 1097 (Fed. Cir. 2016) (quoting BASCOM Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341, 1352 (Fed. Cir. 2016)). If there are claim construction disputes at the Rule 12(b)(6) stage, we have held that either the court must proceed by adopting the non-moving party’s constructions, BASCOM, 827 F.3d at 1352; Content Extraction, 776 F.3d at 1349, or the court must resolve the disputes to whatever extent is needed to conduct the § 101 analysis, which may well be less than a full, formal claim construction. Genetic Techs., 818 F.3d at 1373.”

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