by Dennis Crouch

Adaptive Streaming Inc. v. Netflix, Inc. (Fed. Cir. 2020)

In this non-precedential decision, the Federal Circuit has affirmed the lower court’s finding that Adaptive’s asserted claims are ineligible under Section 101. In 2019, Adaptive sued Netflix in C.D. Cal. for patent infringement.  Rather than filing its answer, Netflix immediately filed a motion to dismiss for failure to state a claim. Fed. R. Civ. Pro. 12(b)(6).  That motion was granted — case dismissed.

The patent claims a personal broadcasting system that transcribes an incoming video into a more usable format.  Us7047305 (1999 priority date).  I subscribed to Netflix back in 2001 — receiving rental DVDs in the mail each month.  Netflix has changed dramatically — and one bit of its process appears to be a user-based translation engine.

Claim 39 at issue here requires a “broadcasting server” coupled to a “processor” with the capability of transcoding an incoming video signal from a first compression format into a second compression format “more suitable” for the client device — and available in multiple video stream outputs.  A dependent claim includes the functionality of changing the compression output “in response to a change in bandwidth conditions.”

Abstract Idea: The district court identified the abstract idea here as “collecting information and transcoding it into multiple formats.”

Directed To: With regard to what the claims are directed to, the court looked to the written description coupled with the claim language to deduce the “focus of the claimed advance of over the prior art.” (quoting Solutran (2019) and Affinity Labs 2016).  Here, the court concluded that the focus of the invention is format conversion of incoming video. “The focus is not any specific advance in coding or other techniques for implementing that idea; no such specific technique is required.”

Something more: The court offered a grade for the patent’s performance under Alice Step 2: “The claims also flunk the second step of the Alice inquiry.”  In particular, the court notes the presence of “generic” hardware carrying out its common function known in the art.  That much was admitted in the specification.

Patent Spec.  Regarding novelty + obviousness, the court here reiterated that satisfying those inquiries “does not imply eligibility under § 101, including under the second step of the Alice inquiry, because what may be novel and non-obvious may still be abstract.”

In its reply-brief, the patentee argued also that the commercial success of its invention should be used as evidence of patent eligibility.

[C]ommercial success and industry recognition serves as evidence that the technology underlying the asserted patent is far from well-understood, routine or conventional, and supports that the patent claims are directed to a technological solution to a technological problem.

[Adaptive_Streaming_Inc._v._Net_21]. The court did not consider that argument – considering it forfeited because not raised in the opening brief.

= = = = =

The patent here was originally owned by the dot com LUXXON, a company developing streaming services.  The patents were then assigned to an offshore holding company Hutchison Mediator (Bahamas) as part of an asset sale (part of CK Hutchison Holdings). Then WI-LAN took ownership and transferred rights to Adaptive Streaming, which appears to be a wholly owned subsidiary of WI-LAN (at least no other company owns >10%).

by Dennis Crouch

Primbas, et al. v. Iancu (Supreme Court 2020)

This new petition for certiorari asks the following question:

Whether recitation in a patent claim of a combination of steps determined to be inventive over an idea is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [idea] itself.”

Petition, quoting Alice.

Christopher Primbas and his co-inventor Philip Stamataky are seeking to patent their method of eliminating coins from cash transactions. [claim 1 is below].  The figures below attempt to highlight the invention — instead of receiving coins from a transaction, you receive a merchant credit.

The examiner actually allowed the claims back in 2014 with a notice of allowance just before the Supreme Court’s decision in Alice. The applicant paid the issue fee, but the PTO withdrew the application from issue.  The examiner then issued a new rejection — finding the claims ineligible as directed to an abstract idea under Alice. That decision was affirmed by the PTAB and by the Federal Circuit (R.36 judgment without opinion).  This setup leads folks to fight hard — they were given real hope via notice of allowance and that was pulled-out from under them.

The basic

Here is the claim now on appeal:

1. A method involving a retail cash transaction in which a customer uses physical currency to pay a merchant for goods or services received, in which an amount between 1¢ and 99¢ in coin change is due to the customer and used as payment for credit purchased, the method comprising the steps of:

the customer tendering cash to the merchant as payment for the goods or services and there being an amount of coin change due back to the customer, which amount the customer does not receive in the form of physical coins but rather in the form of a cash purchase of credit equal to the amount of coin change otherwise due;

in a different financial transaction than the cash-tender transaction, debiting, using an electronically readable device physically present at the customer-merchant transaction and in electronic communication with an electronic processor and a financial network, one or more accounts associated with the customer in an amount equal to a tracking fee, which is equal to the entire amount of the cash purchase of credit; and

subsequently crediting to the one or more accounts associated with the customer the sum of both the cash purchase of credit and the tracking fee;

wherein the debiting and crediting steps are performed electronically and the tracking fee reflects both the cash purchase of credit and its transfer into the one or more customer accounts.

See Petition Appendix.  The petition argues that the claim here recites a patent-eligible “technical solution” that the patent office has expressly admitted is a novel solution to a long-considered problem.

The petition particularly point to its claims that require debiting with a e-readable device (credit card) and communication with a financial network.  The petitioner argues that a benefit of the solution here is that it works with existing credit card networks and thus does not need an expensive merchant retrofit. “[T]he ability to use a conventional card reader and an existing credit card network are advantages of this technical solution, as the use of conventional electronic hardware and card networks that are already in use at most point of sale registers allows for use of this solution by retailers without purchasing or installing any new hardware.”

Jeremy Doerre filed the petition in this case and also filed Judge Rader’s recent amicus brief in Chamberlain Group.

Boom! Payments, Inc. v. Stripe, Inc. (Fed. Cir. 2021)

I used to play golf fairly regularly and got into the habit of announcing “BOOM!” on every drive.  It didn’t help my game.  BOOM!’s great name here also didn’t save its patent from dancing the Alice Two Step. (Note: I was 15 years old at the time–on my high-school freshman team getting free-rounds for the season). 

This case is another affirmance of a dismissal for lack of patent eligibility. Under Alice/Mayo, the Supreme Court’s patent eligibility analysis is a two step process.  At Step 1, the court asks whether the claims at issue are “directed to” a patent-ineligible concept, such as an abstract idea. Claims that fail Step 1 can be saved by Step 2, looks for “something more” beyond the ineligible concept sufficient to transform the claim’s nature into a patent eligible invention.

The claims at issue here are somewhat similar to the exchange-settlement process found ineligible in Alice. In particular, Boom’s patents all claim “methods for confirming that a transaction has been consummated prior to releasing electronic payment.”  U.S. Patents 8,429,084; 9,235,857; and 10,346,840. The ‘840 patent issued June 2019 and so the PTO should have gotten this one right.  The examiner initially rejected claims 1 as ineligible (then listed as claim 21).  The patentee made several minor “clarifying amendments” and the examiner then allowed the case.  In its reasons for allowance, the examiner wrote the following:

The claims as amended have been analyzed under 35 U.S.C.101, and although directed at some level to an abstract idea, confirming that a proposed sale transaction has been consummated, the claims as currently amended are found to integrate the abstract idea into a practical application sufficiently that they are patent-eligible under §101.  They do not amount merely to having a computer apply an abstract idea, or using communication between computers to carry out a commercial interaction that could plausibly be done without computers or telecommunication (“could not plausibly be done” does not require that there be no conceivable parallel without computers or telecommunication).

93219_16212317_05-23-2019_NOA.  Claim 1 is pretty long, but it is directed to a computer system “for confirming that a proposed sale transaction has been consummated.”  The system is programmed to do the following:

• Receive/store a buyer’s payment information;
• Receive a request from the buyer to purchase an item from an online store;
• Generate a “transaction-specific buyer acceptance identifier” using human-readable characters
• Provide the TSBA identifier to the buyer’s computer who apparently provides it to the seller when purchasing.
• Receive from a seller an identifier of the transaction (as well as the buyer and seller identities);
• Compare the transaction and identity information;
• If everything corresponds, then charge an account associated with the buyer.

This is basically a passcode system or checksum.

In its decision, the district court found the claims directed to the abstract idea of authenticating sales through the use of a third-party intermediary, and without any sufficient additional inventive concept.  On appeal, the Federal Circuit affirmed:

Boom argues that the claims are not directed to an abstract idea, but rather to a technological improvement over prior art systems for confirming and processing online payments. Specifically, Boom argues that the elements of the claims provide specific steps for processing an online payment, and therefore are not directed to the general concept of escrow. . . .

We agree with Stripe that the claims are directed to the abstract idea of payment escrow. They only describe steps of passing information back and forth by a computer. The very purpose of the patents, as explained in the written description, is verifying consummation of a transaction before releasing payment by a third party, which is the definition of escrow. . . . Indeed, the claims are reminiscent of those at issue in Alice.

Slip Op.

The patentee also disputed whether the case was properly dismissed at the pleading stage. Although eligibility is a question of law, some aspects of the determination may require a fact-finder to consider evidence (and thus creating a genuine issue of material fact that precludes dismissal on the pleadings). Here, the patentee particularly amended its complaint to allege that the claimed invention was not routine or conventional at the time of the invention. On appeal, the Federal Circuit disregarded those statements as conclusory because they were not supported by particularly “plausible factual allegations.”

Drilling-in on this, the complaint makes the following allegations:

The particularized manner in which the ‘transaction specific buyer acceptance identifier’ and ‘transaction consummation completion identifier’ of the claims of the Asserted Patents are generated, stored, used, and related to other identifiers was not well-understood, routine, or conventional at the time of Mr. Bogaard’s inventions.

The Federal Circuit identifies the assertion here as conclusory and thus gives it no weight in determining whether the complaint generates disputed material facts.  This is a bit odd since we’re asking the patentee to prove a negative, but perhaps the patentee could have cited to the reasons-for-allowance within the complaint itself or submitted an affidavit from an expert on-point as an attachment to the complaint.  At that point though we’re getting pretty far from the “short and plain statement of the claim” required by Fed. R. Civ. Pro. 8.

By Jason Rantanen and Nikola Datzov. Professor Datzov is an Assistant Professor  at the University of North Dakota School of Law.

The Mayo/Alice framework used to determine patent eligibility has been a lightning rod for criticism since the Supreme Court’s decisions a decade ago. Some have argued that the two-step framework is inconsistent with earlier patent eligibility precedent, while others have focused their objections on its purported negative effects on innovation. But arguably the most popular narrative is the asserted fatal flaw that the framework lacks administrability and cannot be applied predictably.

Too many critics to count—including academics, practitioners, legislators, and judges—have lambasted the patent eligibility framework as an unpredictable morass of confusion. Even some judges on the Federal Circuit have labeled the eligibility framework as an “incoherent doctrine”[1] that might tempt district courts into “an effective coin toss,”[2] while others have openly confessed that “the nation’s lone patent court … [is] at a loss as to how to uniformly apply § 101.”[3] The latest legislative attempt to reframe patent eligibility is similarly premised on “extensive confusion and lack of consistency [in applying the 101 exceptions] throughout the judicial branch of the Federal Government and Federal agencies.”[4] These concerns for unpredictability are undoubtedly echoed by countless practitioners who have been in the trenches of litigating this polarizing issue. Given the particular emphasis on bringing predictability to patent law in creating the Federal Circuit, these criticisms raise a grave concern regarding one of the most important areas in patent law.

Yet, empirical analysis suggests that those claims of unpredictability may stand on shaky grounds. In an attempt to better understand whether judges have been able to predictably apply the doctrine, we analyzed the Federal Circuit’s entire body of 368 cases on § 101 from 2012-2022 at a more granular level than any prior study. To evaluate the level of predictability within § 101 jurisprudence, we used a multi-dimensional approach that considered: (1) whether lower tribunals are reaching the legally correct outcome (i.e., reversal rates); (2) whether lower tribunals are correctly applying existing law in each case (i.e., error rates); and (3) whether appellate judges demonstrate disagreement in applying the law (i.e., dissent rates).

What we found shocked us. It turns out that patent eligible subject matter jurisprudence looks remarkably like other patent law issues at the Federal Circuit and lacks the kinds of empirical hallmarks that we would expect given the rhetoric for unpredictability. In fact, under one of the most well-established metrics for measuring the predictability in the law, § 101 proved to be more predictable than other areas of patent law over the past decade.

Importantly, our goal was not to examine or argue where the line should be drawn for determining what is eligible for a patent. Instead, we just sought to evaluate whether judges can tell where the line has been drawn by the Supreme Court in Mayo. In other words, whether the Mayo/Alice framework has proven workable and predictable through ten years of litigation. As to that question, our analysis suggests that the popular narrative that § 101 and the Mayo/Alice framework cannot be predictably applied, particularly by judges might be more of a misconception than an accurate narrative.

Below are some of our key findings regarding predictability from the research study.  If you’d like to jump ahead to the draft paper itself, here’s a link: http://ssrn.com/abstract=4380434.

 A Historically High Affirmance Rate

Our examination of the Federal Circuit’s body of case law on § 101 revealed that from the Federal Circuit’s perspective, the district courts and the PTO are getting the right result nearly every time, boasting an overall 87.2% affirmance rate.

Figure 1

Figure 1 shows that the Federal Circuit believes district courts and the PTO are getting the right result in a very high percentage of cases. This is especially notable given that 98.2% of the district court decisions reviewed by the Federal Circuit arose in the context of a Rule 12 motion, summary judgment, or JMOL—procedural postures in which the standard of review on appeal owes no deference to the district court.

Thinking about these numbers in context, the high affirmance rate on patent eligibility is not only a far cry from the Federal Circuit’s one-time 50% affirmance rate on claim construction, it’s higher than the Federal Circuit’s track record on obviousness. In fact, this may be the highest affirmance rate of any significant patent law issue tracked over a significant period of time.

District Courts Very Rarely Err in Their Analysis

To take a deeper look, we also examined the Federal Circuit’s analysis when it did affirm to see whether maybe the lower tribunal got the right result but for the wrong reason.  Although an analysis of affirmance rates has been an established and important marker in measuring the predictability of the law, it provides a somewhat incomplete picture of judges’ ability to apply the law predictably because it focuses only on the outcomes and not the process of making the decision. It’s possible that a judge can err in the legal analysis (or incorrectly apply a legal standard) and still reach the correct overall result—in other words, get the right result for the wrong reasons. Thus, looking beyond mere outcomes to determine how often a judge applies the correct analysis is an important perspective in determining whether a law can be predictably applied.

We found that district court and PTAB judges not only rarely get the outcome wrong, they also make very few errors in applying the law. When district courts reached the right outcome (i.e., complete affirmance on § 101), the Federal Circuit noted a mistake in the district court’s § 101 analysis a mere 4.5% of the time—and 0% of the time for PTAB judges. There were a mere 7 errors in 153 affirming opinions (excluding Rule 36 affirmances). If looking only to precedential opinions (those written for the bar and interested persons other than the parties), there were 4 errors in 67 opinions, resulting in a comparable 6.0% error rate. Overall, taking into account reversals and vacated decisions, more than 80% of the time for the district court—and 95.5% of the time for the PTAB—the judge’s Mayo/Alice analysis was error free.

This type of granular examination of appellate outcomes has been largely absent from earlier empirical studies, so it’s difficult to put the § 101 error rate in historical context. Still, the low rate of errors in district court and PTO § 101 decisions appears to be remarkably low for an area of law identified to be in crises.  Indeed, it appears to be another strong indicator that district courts and the PTO understand how to apply the law, overall.

Federal Circuit Judges Rarely Disagree Regarding § 101 Outcomes

Athena Diagnostics v. Mayo, 927 F.3d 1333 (Fed. Cir. 2019) and American Axle v. Neapco, 966 F.3d 1347 (Fed. Cir. 2020) are § 101 decisions frequently cited as exemplars of what some—including several judges on the Federal Circuit—have argued to be a complete breakdown among the Federal Circuit on how to apply § 101 law. Surprisingly, despite the attention § 101 has received, there have been almost no empirical studies to examine this question on a deeper level.

Yet, in what may be the most surprising finding from our study, in all but a few cases, Federal Circuit judges have shown remarkable agreement (93.5%) in deciding § 101 issues over the past decade. In fact, under this measure of predictability, § 101 proved to be more predictable than the other areas of patent law.  In the 368 § 101 cases decided by the Federal Circuit from 2012 to 2022, there were just 24 dissenting opinions relating to § 101. As shown below, the number of cases in which there was a dissenting opinion on § 101 has remained consistently low and peaked in 2019-2020:

Figure 2

Putting the § 101 dissent rates over the past decade in historical and subject matter context further indicates that § 101 law has not been the subject of more disagreement than other areas of patent law.

Figure 3

The summary tables above show that the dissent rate in Federal Circuit decisions involving § 101 over the period 2012-2022 is identical to the rate among all other Federal Circuit decisions, and was lower than in non-101 patent decisions. And while the rate of dissents in § 101 opinions is somewhat higher than in all other opinions that don’t involve § 101, it’s still lower than the dissent rate in non-101 patent opinions generally and nearly identical for patent opinions arising from the district courts—likely because a substantial number of § 101 appeals are summarily affirmed. With that in mind, it’s remarkable that the dissent rate for § 101 decisions (including Rule 36 affirmances) arising from the district courts is actually lower than the court’s dissent rate in appeals from the district courts that don’t involve § 101.

***

More details on the methodology and analysis—as well as additional findings on the types of appeals, procedural posture of decisions, breakdowns by exception type, and invalidity outcomes—can be found in the working draft paper on SSRN: http://ssrn.com/abstract=4380434. In addition to our core findings on predictability, we also provide updated data on § 101 issues studied by previous scholars. Comments are welcome, and can be communicated by email to Jason Rantanen.

[1] Interval Licensing LLC v. AOL, Inc., 896 F.3d 1335, 1348 (Fed. Cir. 2018) (Plager, J., concurring-in-part and dissenting-in-part).

[2] Realtime Data LLC v. Reduxio Sys., Inc., 831 F. App’x 492, 493 (Fed. Cir. 2020) (emphasis added).

[3] Am. Axle & Mfg., Inc. v. Neapco Holdings LLC, 977 F.3d 1379, 1382 (Fed. Cir. 2020) (Moore, J., concurring).

[4] Patent Eligibility Restoration Act of 2023, S. 2140, 118th Cong. § 2(3) (2023) https://www.congress.gov/118/bills/s2140/BILLS-118s2140is.pdf.

I wanted to consider some recent PTAB jurisprudence on patent eligibility under 35 U.S.C. § 101. The following post reviews four recent eligibility cases. In all four cases the PTAB found the claims lacked eligibility. Two of the cases affirmed examiner rejections while the other two added eligibility as a new grounds for rejection after finding that the examiner erred in their 102/103 rejections. All four cases here involve communications technology where the patent applicant was seeking to claim the functional operational steps without describing any new “technology.”  I have a second post coming with recent device 101 cases from the PTAB.

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