Free Post: Patent Exceptionalism and Procedural Silence: A New Challenge to Federal Circuit Practice

By Dennis Crouch

A compelling new petition for certiorari submitted by Island Intellectual Property LLC challenges both the Federal Circuit’s frequent use of one-word Rule 36 affirmances and what petitioner sees as an improper Federal-Circuit patent-specific exception to summary judgment standards. I like this case as an important vehicle for addressing transparency issues that have been plaguing patent appeals for years.

• Read the Petition: Island IP Petition

Island’s U.S. Patent 7,509,286 claims methods for providing flexible interest allocation for insurance products using deposit sweep systems. The district court granted summary judgment of invalidity under § 101 based upon its similarity to the financial invention in Alice Corp., despite the patentee presenting over 1,400 pages of evidence raising multiple factual disputes. The Federal Circuit then affirmed without opinion under Local Rule 36.

At summary judgment, Island submitted substantial evidence that key claim elements were not “well-understood, routine, [and] conventional” at the time of invention. This included an inventor declaration explaining how the claimed interest allocation procedures resolved technical challenges that American Express had been unable to solve, and also expert testimony presenting evidence that the claimed database structure and use of aggregated accounts for enhanced insurance products was unconventional. Even the defendant’s expert admitted never seeing the claimed solution implemented prior to the patent filing.

The petition argues that the district court violated the fundamental axiom that on summary judgment, “[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.” Tolan v. Cotton, 572 U.S. 650 (2014). Instead of viewing the evidence in Island’s favor as FRCP 56 requires, the district court dismissed the evidence as “unavailing” without explanation.

This treatment exemplifies a concerning trend in patent cases where courts seem to apply a different summary judgment for patent eligibility issues than they do for the rest of civil litigation questions. The petition cites numerous examples where courts have substituted their own credibility determinations for the jury’s role as factfinder, particularly in § 101 eligibility cases. This arguably violates both FRCP 56 and the Seventh Amendment right to a jury trial.  To be clear, this is a tricky issue because the ‘intrinsic’ evidence is treated as a question of law, that – even when in dispute – could be resolved on summary judgment. Here, however, the patentee presented disputed extrinsic evidence.  A second tricky element on deciding the Summary Judgment issue is whether the factual determinations regarding eligibility are protected by the Seventh Amendment right to a jury trial.  If not, then a summary judgment could potentially be treated as a bench trial on the issue.

Perhaps even more troubling in this case is the Federal Circuit’s use of its Local Rule 36 to summarily affirm the district court without explanation. Unlike most other circuits, which either do not permit or rarely use one-word affirmances, the Federal Circuit employs Rule 36 in roughly one-third of its patent appeals. This practice makes it impossible for parties or reviewing court to understand the basis for the court’s decisions.

The lack of explanation is particularly problematic here because the Federal Circuit left unclear whether it affirmed based on the disputed Alice/Mayo analysis, some alternative ground argued by the appellee, or a different rationale entirely. This opacity frustrates both the parties’ ability to seek further review and the Supreme Court’s supervisory function.  That explanatory transparency is important to ensure the patent system operates fairly and predictably.

Although a number of recent petitions to the Supreme Court have highlighted growing concerns about the Federal Circuit’s Rule 36 practice, Island argues that its approach is unique in the way that it connects the particular procedural irregularities to the broader problem of patent exceptionalism in summary judgment practice.

Despites dozens of briefs and a number of popular and academic articles focusing on the R.36 issue, thus far the Federal Circuit has refused to openly discuss the issue or address those arguments.  If the Court does not intervene here, we can expect these practices to become even more entrenched. District courts will continue to act as factfinders in patent cases while the Federal Circuit masks the reasoning behind its decisions. This would represent a significant departure from the transparent, uniformly-applied procedural framework that has long been a hallmark of federal civil litigation.