Wither the Threshold for Patent Eligibility Following Berkheimer, Aatrix, and Exergen

Monday, April 9th, 2018 at 1:09 pm by Erica L. Wu

Introduction and the Alice Test

In 2014, the Supreme Court decided Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), a landmark in patent law. Alice sets out a unified approach to determining whether inventions relying on abstract ideas, laws of nature, or products of nature constitute “patentable subject matter” under Section 101 of the patent act. Prong one under Alice asks if the patent claim is “directed to” one of those three judicially created exceptions to §101—a product of nature, a law of nature, or an abstract idea.  If the claim is directed at any of them, prong two asks if there are additional elements to the claim, singly or in combination, that constitute an inventive concept to the claim and makes the invention more than simply an application of the abstract idea, law of nature, or product of nature—rendering the invention patent-eligible under §101. However, the Court did not, nor has it since Alice, specify in detail what qualifies as an “inventive concept” that makes a claim on an abstract idea, law of nature, or product of nature patent eligible, only that eligibility requires the addition of “significantly more” to the underlying idea.

The Court in Alice invalidated patent claims directed at a computer-implemented financial trading system that alleviated credit risk by establishing shadow escrow accounts to assure contract performance by buyers and sellers. The Court found that the claims were merely implementations of an abstract idea—mitigation of risk by escrow accounts. Although the claims required use of a computer programmed in a generic way, that did not make this patent-eligible—there was no inventive concept.

Following Alice, the number of USPTO rejections of software and business method patents on the basis of §101 eligibility increased dramatically, a year later more than doubling the percentage of rejections prior to the decision. In addition, many such patents issued prior to Alice have been litigated, and invalidated, and thousands more are surely invalid, with no recourse to litigation.

The patent eligibility cases in the wake of Alice have almost all stood or fallen on whether or not prong one was satisfied. In other words, the courts found ineligibility if they deemed the patent claim one “directed to” an abstract idea, law of nature, or product of nature. Litigation was terminated at early stages by Rule 12(b)(6) motions to dismiss and Rule 56 motions for summary judgment. District courts summarily pronounced that claims had no additional elements that went beyond the routine. Hence, there was no prong two issue.

3 New Cases on Patent Eligibility

In the past two months, however, Federal Circuit issued three opinions that suggest the Federal Circuit is putting a check on these threshold §101 decisions by insisting that prong two of Alice requires close attention to factual matters. The three cases, each written by Judge Moore, all found error in district court rulings of invalidity where alleged issues of fact that require resolution.

In Berkheimer v. HP Inc., No. 2017-1437 (Fed. Cir. Feb. 8, 2018), the first and only precedential case of the three, the Federal Circuit stated that though “[p]atent eligibility under 35 U.S.C. §101 is ultimately an issue of law . . . . The patent eligibility inquiry may contain underlying issues of fact.” The patent in Berkheimer was directed to a digital asset management system. The Federal Circuit affirmed some District Court findings that certain claims—reciting “an improvement to computer functionality and digital asset management systems”—did not capture inventive enough concepts. However, the Federal Circuit remanded claims regarding the manner of archiving documents back to the District Court, holding that summary judgment was inappropriate with respect to these claims. The Federal Circuit found genuine issues of material fact as to whether the claimed elements of storing and editing data were well-understood, routine, or conventional to a skilled artisan in the field or if they were improvements of the disclosed archival system. Importantly, the Federal Circuit held whether an element was known in the prior art was not decisive of whether, in combination, it might be part of an “inventive concept.”

Prior to the Federal Circuit’s opinion in Aatrix Software, Inc. v. Green Shades Software, Inc., No. 2017-1452 (Fed. Cir. Feb. 14, 2018), the District Court invalidated Aatrix’s patent for a system and method for designing, creating, and importing data on a computer so that the user can generate viewable forms and reports. The District Court refused Aatrix’s motion to amend the complaint, in order to assert that the claim was not routine and satisfied prong two of Alice. The amended complaint alleged that the claim term “data file” would constitute an inventive concept sufficient to withstand prong two of Alice and that the invention improves the functioning and operation of the computer itself. The Federal Circuit held that it was an abuse of discretion by the District Court to deny amendment of the complaint at the Rule 12(b)(6) stage, as the complaint presented factual allegations strongly indicating that the invention was not well-understood, routine, or conventional activity.

Lastly, in Exergen Corp. v. Kaz USA, Inc., No. 2016-2315, 2016-2341 (Fed. Cir. Mar. 8, 2018), there was no dispute that the patent for a body temperature detector that scanned the forehead to detect the temporal artery was directed at a natural law. However, the Federal Circuit again held that there was an issue of material fact for prong two of Alice, particularly as the patented invention employed claim elements that were a new application of methods previously known in the art. In examining the underlying facts, the Federal Circuit recognized the many years and millions of dollars of research and development applied to discovering “the relationship between temporal-arterial temperature and core body temperature and incorporat[ing] that discovery into an unconventional method of temperature measurement.”

Conclusion

These three Federal Circuit decisions will likely have significant implications in patent litigation. Patent holders, both large players in the communications and computer industry as well as the non-practicing entities disparaged as “trolls,” will have a significant litigation advantage by being able to delay threshold adjudication. And it is not clear whether prong two factual issues are ones for the jury. Patent litigants will assert that their invention does not rely on well-understood, routine, or conventional steps to implement the particular judicial exceptions, most often an “abstract idea.” By preventing district courts from quickly resolving matters of patent eligibility under Rule 12(b)(6) or Rule 56, these assertions will ratchet up litigation costs and induce settlement.

The cases further raise questions, touched on in Exergen, regarding the right to a jury trial in patent eligibility cases. There will likely be further uncertainty as to whether the presumption of validity generally provided to patent holders extends to this legal question with underlying factual issues regarding claim elements constituting an inventive concept. Whether or not the Federal Circuit has rejected treating the issue of “inventive concept” like claim construction, as a matter for the court, remains to be seen.

 

The author would like to thank Professor Harold Edgar for his assistance in writing this post.