Alert June 07, 2018

Federal Circuit Declares Questions of Fact Prevent Early Resolution to Patents Directed Toward Abstract Ideas, Laws of Nature, and Natural Phenomenon

Summary

Since the Supreme Court’s 2014 decision in Alice v. CLS Corp., courts have invalidated countless patents directed toward computer-implemented inventions at the pleadings and summary judgement stage of the case. Earlier this year, in two panel decisions—Berkheimer v. HP, Inc. and Aatrix Software, Inc. v. Green Shades Software, Inc.—the Federal Circuit revived patents invalidated by district courts by declaring that at least some of the patent-eligibility analysis is a factual inquiry that, if there is a genuine dispute of material fact on eligibility, cannot be resolved at the summary judgment or motion to dismiss phases. Many commenters saw Berkheimer and Aatrix as a fundamental shift in the Federal Circuit’s approach to patent eligibility. On May 31, 2018, the full Federal Circuit declined to reconsider either case, with seven of the 12 Federal Circuit judges expressing the view that the two cases were correctly decided—leaving the panel decisions intact for now.

Under Alice, courts apply a two-part test to evaluate the patent eligibility of computer-implemented inventions. In the first step, the court determines whether the claims at issue are directed to an abstract idea.  In the second step, the court evaluates 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. For many computer-implemented inventions, the second part of the Alice test requires the court to determine whether the “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.” The Berkheimer and Aatrix decisions held that for some patents this inquiry is a question of fact that cannot be resolved on the pleadings.

The Federal Circuit is a divided court when it comes to Section 101. Three judges wrote opinions on the denial of Hewlett-Packard’s and Green Shades’ petitions for rehearing en banc. Judge Moore’s opinion defends the original decision as standing for the “rather unremarkable” proposition that whether operations are well understood, routine or conventional in a specific field is factual in nature. Judge Moore (joined by Judges Dyk, O’Malley, Taranto, and Stoll) reasoned that such fact inquiries are no different from fact inquiries that underlay obviousness and enablement determinations. As such, Judge Moore reasoned that the same procedural rules for motions to dismiss and summary judgment must apply.

Judges Lourie and Reyna wrote separate opinions expressing their dissatisfaction with the recent trajectory of patent-eligibility jurisprudence. Judge Lourie (joined by Judge Newman) concurred with denying rehearing, but expressed that the Alice two-step analysis is unworkable and that further guidance from Congress or the Supreme Court is needed. Judge Reyna dissented in arguing that rehearing should have been granted because he views Berkheimer/Aatrix as being a sea change from prior case law treating the second step of Alice as being a purely legal question. In his discussion, Judge Reyna argues the second step should focus on whether there is a transformative “inventive concept” in the claim and less on whether the limitations are well understood, conventional or routine. He believes that the Section 101 inquiry is analogous to contract interpretation and should be carried out in a similar manner, i.e., the judge should decide whether the claims are eligible based on the patent alone and should resort to extrinsic evidence only if there is some ambiguity or other unresolved question.

It is reasonable to expect that the parties will seek further review at the Supreme Court and the Federal Circuit will continue to grapple with when and under what circumstances courts can resolve Section 101 challenges on the pleadings.