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Lechleiter, Dodge and Griffin: Alice in Wonderland — the uncertain state of patent eligibility

December 12, 2018
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By Dan Lechleiter, Reid Dodge and Kendall Griffin

The law surrounding a key patent statute, 35 U.S.C. § 101, is “a real problem” that is “almost impossible to apply consistently and coherently” and “needs clarification by higher authority.” When federal appellate judges make statements like these, the issue is worth further exploration. In this article, we do just that by addressing the reason for these stirring proclamations: the uncertain state of Section 101 jurisprudence following the U.S. Supreme Court’s decision in Alice Corp. v. CLS Bank International.

The uncertain state of Section 101

Section 101 is often referred to as the “patent eligibility” statute, as it delineates the subject matter that is eligible and ineligible for patent protection. Under Section 101, “any new and useful process, machine, manufacture, or composition of matter” is eligible for patent protection. Long ago, the Supreme Court clarified that laws of nature, natural phenomena and abstract ideas fall outside Section 101. Lately, there has been relatively little dispute over the laws-of-nature (for example, of the first law of thermodynamics) and natural phenomena (for example, of sunlight) exclusions. Instead, the most recent Section 101 cases focus on the abstract-idea exclusion.

The underlying concern of the abstract-idea exclusion is that patents should not inhibit further discovery by restraining future use of the “building blocks of ingenuity,” as this would be antithetical to the patent system’s purpose under the Constitution: “To promote the progress of science and useful arts.” These issues often arise in the context of patents claiming “computer” inventions. As demonstrated in the cases discussed in this article, such patents raise questions about whether a computer is merely automating an abstract concept (e.g., forming a contract) or whether certain hardware and/or software constitutes, or is a part of, an inventive process or system for implementing that concept.

The impact of Section 101 law on patented technologies is potentially broad. Given the ubiquity of computers and software, inventions that may be affected are prevalent in virtually every sector, especially in banking, finance, insurance, e-commerce, data processing and management and smartphone and mobile device arenas.

Alice

The current state of Section 101 law stems primarily from the Supreme Court’s 2014 decision in Alice. Before Alice, the court had not clearly articulated a framework for assessing whether an invention constitutes an abstract idea that cannot be patented under Section 101. That changed in Alice, when the Court clarified that the test involves two steps: (1) whether a patent claim is directed to an abstract idea; and, if so, (2) whether the claim contains an inventive concept sufficient to transform the nature of the claim into a patent-eligible application of the concept — e.g., by requiring something more than merely well-understood, routine or conventional activities in the field.

Applying this test, the Court determined that the Alice patents claimed ineligible subject matter under Section 101 because they covered a computer-implemented electronic escrow system for financial transactions. At step 1, the Court found the patent claims drawn to the abstract idea of intermediated settlement, i.e., the use of a third party to mitigate settlement risk — “a fundamental economic practice long prevalent in our system of commerce” and “a building block of the modern economy.” At step 2, the Court determined the claims required only a generic computer to implement this abstract idea it considered a well-understood, routine, conventional activity in the finance realm.

Post-Alice decisions

Despite the Supreme Court’s attempt to clarify Section 101 law in Alice, subsequent decisions of the U.S. Court of Appeals for the Federal Circuit — which has exclusive jurisdiction of appeals in patent cases — demonstrate Alice created as much new uncertainty as it resolved old. Although what may constitute an “abstract idea” under step 1 has stirred debate, how judges should approach step 2 of the Alice framework has caused more significant angst.

Some judges have shown little hesitation to resolve questions under Alice step 2 at the earliest stages of a case, with the benefit of little, if any, evidence derived from written discovery, depositions or expert reports. This approach has opened the door for Section 101 to become one of the few vehicles for substantively resolving a patent case in its infancy by invalidating the asserted patent claims. Of the Federal Circuit’s 50 precedential decisions substantively addressing Section 101 issues following Alice, 30 address Section 101-based Rule 12(b)(6) or Rule 12(c) dismissals, of which the court affirmed 22. And these numbers do not reflect the dozens more Section 101 decisions the Federal Circuit has summarily affirmed without a written opinion. Affirming Section 101-based Rule 12 motions seemingly became the new normal at the Federal Circuit after Alice. In the first year after Alice alone, the Federal Circuit issued five precedential decisions affirming Section 101-based Rule 12 dismissals. In these decisions, the Federal Circuit found all the challenged patent claims to be directed to abstract ideas at step 1. The patents claimed concepts ranging from creating a contractual relationship (buySAFE, Inc. v. Google, Inc.) to data collection, recognition and storage (Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat. Ass’n) to using advertising as currency (Ultramercial, Inc. v. Hulu, LLC) to optimizing e-commerce prices based on market conditions (OIP Tech., Inc. v. Amazon.com, Inc.) to retaining information in the navigation of online forms (Internet Patents Corp. v. Active Network, Inc.). At step 2, seemingly relying on little more than judicial intuition and common sense, three-judge panels of the Federal Circuit found such claims patent-ineligible under Section 101 for claiming little more than “well-understood, routine, conventional” computer functionalities for automating the claimed concepts.

Other judges, however, have opted for a more restrained approach to Alice step 2, as demonstrated in the recent decisions in Berkheimer v. HP and Aatrix Software v. Green Shades. In Berkheimer, for example, at step 1, the Federal Circuit determined that certain claims were directed to the abstract idea of parsing, comparing and storing data. At step 2, however, the court hesitated to settle the inventive concept inquiry, finding that this was a question of fact that could not be resolved on summary judgment. This was particularly true because the patent itself described the claimed method of storing and parsing data as an improvement over the prior art that increased efficiency, and the claims were drafted to cover the improvement. As a result, whether the claims recited well-understood, routine or conventional activities was a question the court could not answer on its own, without further evidence. The Federal Circuit panel in Aatrix adopted a similar analysis with respect to Section 101-based Rule 12 motions.

Conclusion

The Federal Circuit’s post-Alice decisions demonstrate that courts are struggling to consistently and coherently apply the Alice framework to resolve Section 101 issues. While there have been several calls to clarify the state of Section 101 law — including through proposed legislation and in a pending petition for a writ of certiorari before the Supreme Court in the Berkheimer and Aatrix cases — until a higher authority steps in to do so, uncertainty most likely will persist.•

Dan Lechleiter is a partner and Reid Dodge and Kendall Griffin are associates in the intellectual property practice at Faegre Baker Daniels LLP. Opinions expressed are those of the authors.

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