Factual Allegations Underlying Eligibility

by Dennis Crouch

Once a patent issues, it is presumed valid. “A patent shall be presumed valid.” 35 U.S.C. 282(a). In patent litigation, this has traditionally meant that a complaint for infringement need not re-establish the patent’s validity. Rather, validity challenges arise as affirmative defenses as part of the answer.

That traditional approach is no longer followed by the courts in the Post-Alice patent eligibility era.  Courts now regularly dismiss patent cases upon finding that the patentee failed to state a claim because the patent is invalid under Section 101.  In response to that potential, patentees are have begun preemptively bulking-up their complaints with factual allegations to support the patent’s validity.

A new petition for writ of certiorari in Whitserve LLC v. Donuts Inc. (2020) highlights this issue.  Back in 2018, Whitserve sued Donuts for infringing the claims of its two patents covering a method for managing due-date reminders for clients of professional-services.  U.S. Patent Nos. 5,895,468 and 6,182,078.  On a R. 12(b)(6) motion, the district court dismissed the complaint – finding that the patent was invalid as a matter of law and that – therefore – the complaint failed to state a legally cognizable claim for relief. On appeal, the Federal Circuit affirmed – explaining again that “patent eligibility can be determined at the Rule 12(b)(6) stage if there are no plausible factual allegations to impede such a resolution.” (Quoting Aatrix).  The suggestion here is that plaintiffs really do need to be making their validity case within the pleadings.

Now, the case is up before the Supreme Court on Whitserve’s recently filed petition. Question presented:

If a patentee makes factual assertions that its claimed invention is directed to patent eligible subject matter under 35 U.S.C. § 101, including assertions that the claimed invention does not consist of well understood, routine, or  conventional activity and that the claimed invention is supported by evidence of commercial success, is a district court permitted to overlook the patentee’s assertions, find that the claimed invention is directed to patent ineligible subject matter, and dismiss the patentee’s complaint under Rule 12(b)(6) given the requirements of Rule 12(b)(6) analyses and the statutory presumption of § 282(a)?

[Petition].

When I read the question presented, I instantly wanted to make some amendments — in particular, I wanted to focus not on bar “factual assertions that” but rather on “non-conclusory factual assertions showing that patent is plausibly eligible.”  My transformation focuses on the plausibility standard from Iqbal and Twombly.  In those cases, the Supreme Court raised the standard for “showing that the pleader is entitled to relief” under R.8(a).  On my second time through, however, I began to really question this approach.

We are talking here about a pleading that attempts to preempt a potential affirmative defense — normally the plaintiff does not even need to plead a response to an affirmative defense.

[E]ven after the defendant has pleaded an affirmative defense, the federal rules impose on the plaintiff no obligation to file a responsive pleading.

Fernandez v. Clean House LLC, 883 F.3d 1296 (10th Cir. 2018).  And, when a Reply to an affirmative defense is ordered, it is sufficient to simply deny the allegations of the defense rather than explain or offer competing factual allegations.  In that situation, the non-conclusory / plausibility standard of Iqbal does not apply.

All this leads me to say that – for 12(b)(6) purposes, even conclusory factual allegations regarding eligibility may be sufficient to overcome a motion to dismiss. Of course, at that point, the court can jump quickly to a R.56 Summary Judgment question — allowing special early discovery on the eligibility issue to see whether there is any evidence to support the allegations.

* Note, the image above comes from a design patent owned by Krispy Kreme parent company HDN Development.

36 thoughts on “Factual Allegations Underlying Eligibility

  1. 8

    DC: “All this leads me to say that – for 12(b)(6) purposes, even conclusory factual allegations regarding eligibility may be sufficient to overcome a motion to dismiss.”

    This makes a lot of sense. The problem is… what factual allegations are sufficient to foreclose a conclusion of ineligibility? While dicta from Berkheimer appears to suggest that unconventional claim elements are sufficient… mostly no one really believes this to be the case even in theory, and it certainly isn’t true in practice.

    There are certainly factual allegations in some cases that are sufficient to foreclose a conclusion of ineligibility, but these have to be identified on a case by case basis, and generally involve an allegation that a patent claims a technological improvement. In many cases, it doesn’t matter whether a court must take as true the allegation that an invention improves the technology of delivering x services over the Internet, because the court may just conclude that legally this is still insufficient to establish eligibility even if taken as true.

    More generally, eligibility is an issue of law, so simply asserting eligibility is insufficient and irrelevant, and although this issue of law may have underlying factual issues, there is frequently substantive disagreement on what factual allegations are sufficient to foreclose a conclusion of ineligibility, as there is substantial uncertainty regarding what is sufficient to establish eligibility.

  2. 7

    SCOTUS will not take a 101 case. Congress has a DUTY to exercise its constitutional authority to set patent policy, not to let the judiciary usurp that authority by conjuring so-called undefinable “judicial exceptions” to statute.

    Tillis and the IP subcommittee know there is a problem with 101 and the courts. They know how to fix it and why. But they won’t, specifically because the Efficient Infringer Lobby has gotten to them, plain and simple. Congress is run by Apple, Amazon, Google, Microsoft, Facebook, and others. A huge, corrupt pay-to-play scam.

    Why bother holding the June 2019 hearings, then do nothing about the problem? How much more civil, well-articulated, objective evidence is there than testimony from Judge Michel? Or Judge Plager, in the Interval Licensing dissent, telling Congress the law is broken, that “there is no need, and indeed no place in today’s patent law, for this abstract (and indefinable) doctrine.”

    Doing nothing to fix 101 is the purposeful ceding of the responsibility of Congress. Why not amend 35 USC to say only “A patent is valid in the sole discretion of the court” since that is where Congress has left it? It is wrong, of course, but Congress won’t fix it. Judge Plager told Congress, literally, “The Emperor Has No Clothes.” The law is not even able to be articulated, much less predictably applied.

    Congress’ failure to act cannot be blamed on “stakeholders” for a failure to compromise. It is a thinly disguised euphemism for the Efficient Infringer Lobby being their puppetmaster. Time to cut the strings. The “stalled” lawmaking process has nothing to do with innovators looking to protect their property, but rather with the fictitious back-room negotiating table where only Congress and the Efficient Infringer Lobby sit. End the charade. Name names, and tell us explicitly who is holding up 101 reform. Bad law = bad results.

    Only Congress can fix the 101 problem. End your fake excuses, Congress, and do that which is right. Until then, we’ll get more 12(b)(6) motions, ignoring the presumption of validity altogether and shifting the burden to the patent owner to plead and prove validity. At the very least, leave to file an amended complaint should be freely granted.

    1. 7.1

      “Gooses, geeses
      I want my geese to lay gold eggs for easter
      At least a hundred a day
      And by the way…”

      Asserting that Congress is totally beholden to the “Efficient Infringer Lobby” is silly. If it was, Congress would enshrine Alice into law and then go after functional claiming. Instead, both sides plainly have their claws in Congress, and Congress is writhing between the two. Currently, the status quo does not favor patentees, and they’re demanding Congress to fix it as if they possess Congress’ full loyalties which they do not. That denial of reality is not adult behavior. It is childish, embarrassing, and certqinly contributes to the lack of changes.

      1. 7.1.1

        If it was, Congress would enshrine Alice into law and then go after functional claiming. Instead, both sides plainly have their claws in Congress, and Congress is writhing between the two.

        This observation is logically unassailable. Here’s hoping that readers take this point to heart.

        1. 7.1.1.1

          Alice cannot be enshrined in law by Congress because the test cannot be articulated. That’s the problem. And it would be ex post facto.
          Your quarrel is with Judge Michel and Judge Plager.
          The Emperor Has No Clothes.

          1. 7.1.1.1.1

            Alice cannot be enshrined in law by Congress because the test cannot be articulated.

            I do not disagree that it would be hard to write down a rule that actually results in set of outcomes that have arrived since 2014, but this rather misses the point in issue. If Congress really were captured by the “efficient infringer lobby,” then they would codify a subject matter eligibility test more to (e.g.) Google’s liking. If, for example, they were to codify the CAFC’s Bilski test, that would save Google a lot of trouble. Similarly, as Ben notes, Google would avoid a lot of litigation with a modest change to §112(f).

            The fact that no such codifications have happened shows that Congress is not captured by one side or the other of this dispute. Rather, the lack of action that one observes on Title 35 reflects the fact that Congress is actually caught between powerful lobbies on both sides. Forward progress past this logjam will require compromises from both sides.

            1. 7.1.1.1.1.1

              but this rather misses the point in issue.

              Translation: that’s not a part of Greg’s narrative.

              Plain fact: that is the important point at hand.

              Each of the three branches of the government have had high level people point blank state that the re-written (and not merely interpreted) law of eligibility is in a current state of intractable contradiction (in my words, the Supreme Court has crafted a Gordian Knot).

              There are several Constitutional infirmities in play. Void for Vagueness, Separation of Powers, Advisory Opinions (noting the Court’s anchoring of their view on a mere “May” happen), and to the point here (that Greg seeks to obfuscate and diminish), to the extent that ‘a winner’ may be arbitrarily selected post hoc, with BOTH presence and level of validity entirely ignored, one can reach the lament of Post Facto ‘application’ of law.

            2. 7.1.1.1.1.2

              The notion of “required compromise” is utterly asinine.

              One simply does NOT wheel in giant gift horses within the city walls.

    2. 7.2

      Tillis and the IP subcommittee know there is a problem with 101 and the courts. They know how to fix it and why.

      Indeed, Senators Tillis & Coons do know how to fix §101. They wrote up specific legislative text that they believed could get enough votes to pass. That text was not perfect, but it was a good step toward real §101 reform.

      And then the committee had to withdraw their proposed text because it drew too much criticism from the putatively pro-reform community. Some of the folks who want §101 reform considered that the §112(f) reform (i.e., the sweetener necessary to attract enough votes from skeptics of §101 reform to pass the legislation) was unacceptable.

      Fair enough, of course. It is entirely fair that one should prefer the §101 status quo over §112(f) reform. If, however, one considers the §101 status quo to be intolerable—as I do—then one needs to articulate what sort of compromises one would be willing to support to get §101 reform across the line.

      For my part, I thought that the §112(f) reform was a good trade for §101 reform. For those unwilling, however, to stomach the proposed §112(f) changes, what sort of compromise could you support to get §101 reform across the finish line?

      1. 7.2.1

        Here’s a workable compromise:

        Fix 101 first and without attaching giant gifts horses.

        Once that is done and complete, then move onto discussion of other issues that merit resolution.

    3. 7.3

      Big +1 Anonymous.

      When one compromises with the Devil (Big Tech) . . . only the Devil wins.

      Only the Devil.

      The desperately needed operative word is restoration . . . not compromise.

      1. 7.3.1

        The desperately needed operative word is restoration . . . not compromise.

        What is path to passage that you envision for restoration without compromise?

        1) Gripe on blogs frequented by patent professionals.
        2) ???
        3) SUCCESS!

        1. 7.3.1.1

          Recognize the reason why and combat the capture of Congress by the large and entrenched Efficient Infringers.

          Or is there some reason why you would not want that to happen? Maybe because of the infiltration of Big Pharma that may next logically be teed up?

  3. 6

    Not that I am advocating this position, but there is only one way to reconcile the presumption of validity and the ability to dismiss a patent suit for failure to state a claim based on eligibility. Eligibility must be a issue of whether a patent exists and not whether a patent is valid. A patent is presumed valid, so a patent directed to ineligible subject matter cannot be a patent at all. This is consistent with using eligibility as a defense despite § 101 not being “specified in part II as a condition for patentability”. § 282. Apparently, pleading eligible subject matter is part of Plaintiff’s burden to plead the right to relief for patent infringement.

    For a patentee, this doesn’t make much of a difference except that dismissal for failure to state a claim does not technically invalidate the claims. To the extent that one could plead different facts consistent with res judicata, it might be possible to reach a different outcome. (I would never try this).

    1. 6.1

      Eligibility must be a issue of whether a patent exists and not whether a patent is valid.

      In other words, abrogate the actual words of Congress by Supreme Court edict.

      What could go wrong with that?

  4. 5

    Is it true that you only get one shot at an SJ? If so, wouldn’t any prudent lawyer wait until discovery & experts etc. were complete before burning the SJ card?

    Don’t think the SJ and 12(b)6 are substitutable?

    In any case, Alice is immoral. Law that acts in the eye of the beholder cannot be right. It’s in the eye of the beholder because no rational actors can consistently explain the difference between the concepts of well understood, routine, or conventional activity and the concept of obviousness.

    Alice is a nice compact test for obviousness in computer inventions- where there is a real question if the art at hand is a really a computer art, or an advance in the art of the thing computerized.

    The problem remains the eligibility of new and useful information in inventions. The solution can only, eventually, be some version of what I am proposing. It’s the use of such information that must inform the eligibility.

    The utility of information for non-human actors is not the same as utility of information for human actors, and I have yet to hear a good reason why that difference should not be the basis of eligibility for information inventions.

    1. 5.1

      Of all things to pick Marty, picking “because no rational actors can consistently explain the difference between the concepts of well understood, routine, or conventional activity and the concept of obviousness” is probably NOT the one that you should have picked, as there are easy and very clear legal differences between these two things.

      You are likely confusing yourself between common vernacular and terms of art understood in their legal context.

      This is rather typical of you, and my age old admonition concerning understanding Sun Tzu come immediately to mind.

  5. 4

    Re: “Courts now regularly dismiss patent cases upon finding that the patentee failed to state a claim because the patent is invalid under Section 101.”
    Certainly there are quite a few, but how “regular” is “regularly”? That is, what is the actual percentage of all new patent suits now being dismissed as soon as they start solely on 101 in response to an FRCP 12(b)(6) motion without any subsequent fact-finding proceeding? [The kind of fact needed to try to convince Congress to overrule the Sup. Ct. The Sup. Ct. is not going to overrule itself with cert petitions on unappealing patents held to be “doing well known business practices with well known computers” ]

  6. 3

    This should be of patent attorney interest – from the petition:
    “In support of its allegations of infringement and validity, WhitServe’s complaint addressed the over twenty licenses it has
    granted to the Asserted Patents since 2006 to Donuts’ competitors in the fields of intellectual property management and domain registration..”
    [Does that include your docketing system?]

    1. 3.1

      I would want to know more about those licenses before deciding how much weight to give them. Are they $5,000 payments to make potential litigation go away or are the license fees more than the cost of litigation? Although all facts are presumed true, the relevance of those facts (and their significance) may be at issue.

      1. 3.1.1

        Although all facts are presumed true, the relevance of those facts (and their significance) may be at issue.

        That is a question for the jury to determine.

      2. 3.1.2

        Indeed, ask almost any normal law firm or corporation attorney which choice they would make between getting rid of a seriously threatened or actual patent lawsuit for only $5000 [less than 10 hours of a single litigation attorney’s billings]: paying the $5000 or engaging in litigation or even an IPR for 30 to 1000 times more money? [Even if the patent seemed clearly invalid.]

      3. 3.1.3

        Efficient Infringement meets Efficient Enforcement.

        Why is one vilified while the other seems to escape notice?

  7. 2

    Seems to me that the key point is that if there is a presumption of validity and a 12(b)(6) is filed contending that the claims are invalid under 101 that the P should get a chance to present evidence that this is not the case and that a response to the 12(b)(6) motion is not enough to respond to the contention. If all facts go the way of the P, then there is really no way that a 12(b)(6) for ineligibility should ever succeed.

    1. 2.1

      Seems like what happen is the dc’s just ignore the P’s arguments and fabricate their own set of facts. That is the key problem.

      1. 2.1.1

        Agreed (with both #2 & #2.1).

      2. 2.1.2

        The patent has no presumption of validity anymore and secondarily, a plaintiff is not entitled to have their factual allegations in their complaint taken as true. What’s left at this point?

        1. 2.1.2.1

          They are supposed to have the factual allegations taken as true for the purposes of deciding the 12(b)(6) motion and the factual assertions made in the response to the 12(b)(6) motion.

          1. 2.1.2.1.1

            I agree, but it doesn’t seem like that’s true anymore. So, what’s left for a patentee who wants to enforce? Why even obtain a patent in the current environment? I suppose you can obtain them and then hold on to them hoping things are going to change…

      3. 2.1.3

        I have not read the case in any detail. Are you suggesting that the D. Ct. in this case fabricated facts? What factual findings did they fabricate?

    2. 2.2

      Agreed. Like Dennis, I immediately wanted to amend the Question Presented. With respect to counsel, I wonder if both the QP and the Petition itself bury the lede.

      Would it have been better to be more direct and forceful to begin with something like “At merely the initial pleading stage, is a District Court allowed to ignore (alt., make factual finding regarding a challenge to) the presumption of validity established in Sect. 282(a)?”

      I’d be concerned that any detailed discussion of the technology involved gives the Court the option to think “wrong reason, right result” and dismiss the Petition — even presuming the current Court would actually read and/or understand the discussion.

      1. 2.2.1

        The challenge is: What factual finding is needed to hold a claim ineligible? What factual finding did the court improperly make?

        There is frequently substantive disagreement on what factual allegations are sufficient to foreclose a conclusion of ineligibility, as there is substantial uncertainty regarding what is sufficient to establish eligibility.

    3. 2.3

      The problem is… what factual allegations are sufficient to foreclose a conclusion of ineligibility?

      I’m not sure that it would be helpful to allow a P to present evidence, as it seems better for a P that the court must simply “take all of the factual allegations in the complaint as true.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

      Generally, it doesn’t matter whether a court must take as true any particular factual allegation, because the court may just conclude that legally this is still insufficient to establish eligibility even if taken as true.

      Until there is more certainty regarding how to establish eligibility/ineligibility, it is difficult to establish that certain factual allegations are sufficient to foreclose a conclusion of ineligibility. Absent this, a court can simply conclude that a claim is ineligible even if all of a P’s factual allegations (aside from legal conclusions couched as factual allegations) are taken as true.

  8. 1

    The presumption of validity is not only important for its presence, but also for its degree.

    Just ask i4i (or Ron Katznelson).

    1. 1.1

      The i4i decision was about sustaining the requirement of “clear and convincing evidence” for invalidity evidence in litigation.

      1. 1.1.1

        Thanks Paul – the analogy being made concerns clear and convincing as a level.

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