For the past 15 years, the US patent classification system has fallen on hard times as more searchers move toward non-structured “Google style” searching. Now, however, a global cooperative led by the EPO and USPTO are moving forward with a the Cooperative Patent Classification (CPC) that offers some promise both for better classification and for more cross-border standardization.
In turn, Google has released a new version of its patent search capabilities — by indexing both its patent documents and its non-patent “Google Scholar” documents according to CPC standards.
For Google, this is not just about their core business of improving search. Indeed, Google is a major player in the U.S. patent system, both as a patent owner and as a defendant in patent infringement lawsuits. In a blog post, Google’s Allen Lo (Deputy GC for patents) and Ian Wetherbee (Google Patents developer) rightly argue that better search leads to better patents. It will be interesting to see whether the improved Google Search makes an impact.
In this decision, the Court of Appeals for the Tenth Circuit (10th Cir.) has held that it has jurisdiction over an appeal of a would-be patent case because the complaint was amended prior to final judgment to drop the patent claim.
Federal Circuit jurisdiction over patent appeals is an exception to the usual rule that district court decisions are appealed to the respective regional circuit court of appeal. Under pre-AIA statute, the Federal Circuit takes jurisdiction over appeals of final decisions in “any civil action arising under any Act of Congress relating to patents.” 28 U.S.C. 1338; 28 U.S.C. 1295. So called “arising-under” jurisdiction is a term of art in civil procedure and follows the “well-pled complaint rule” by requiring the patent law question appear on the face of the plaintiff’s complaint as outlined in the Supreme Court’s 2002 decision on point. Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 534 U.S. 826 (2002).
The question here though was – what happens when the patent claim appears in original complaint but not the amended complaint. The 10th Circuit panel decided that the amendment robbed the Federal Circuit of Jurisdiction:
Section 1295(a)(1) might seem to deprive this court of jurisdiction because a claim for patent infringement was included in Predator’s original complaint. . . . But at the time of Cogswell’s notice of appeal, the most recent complaint was Predator’s fourth amended complaint, . . . which did not contain a patent-infringement claim. And it is that complaint which governs our jurisdiction.
In a parallel situation, the Federal Circuit also held that it lacked lacked jurisdiction over an appeal where the patent claim had been voluntarily dismissed without prejudice prior to final judgment. Gronholz v. Sears, Roebuck & Co., 836 F.2d 515 (Fed. Cir. 1987). In Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826 (2002), Justice Stevens wrote a concurring opinion also arguing for the same result – that “if the only patent count in a multicount complaint was voluntarily dismissed in advance of trial, it would seem . . . clear that the appeal should be taken to the appropriate regional court of appeals rather than to the Federal Circuit.”
However, the majority opinion in Holmes Group leaves the question open — expressly indicating that “this case does not call upon us to decide whether the Federal Circuit’s jurisdiction is fixed with reference to the complaint as initially filed or whether an actual or constructive amendment to the complaint raising a patent-law claim can provide the foundation for the Federal Circuit’s jurisdiction.” (note 1).
An odd element of this result is that the appellate jurisdiction of a multi-claim case will be malleable up until final judgment.
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AIA Changes to Jurisdiction: The AIA amended the jurisdiction statutes to (1) ensure district court’s have jurisdiction over all cases involving “any claim for relief” arising under the US patent laws; and (2) provide the appellate court with jurisdiction when cases either “arise under” the patent law or where a party “has asserted a compulsory counterclaim arising under” the patent law. These changes were seen as overruling the prior rule from Holmes Group that the existence of a patent law counterclaim in the answer-pleading (rather than claim in the complaint).
These changes don’t appear to directly impact the outcome except that the language “has asserted” could suggest that jurisdiction is created if the patent counterclaim is ever asserted (even if later dropped). And, that difference in language seems to me to suggest that Congress was thinking about the scope of the original complaint defining appellate jurisdiction – though quite implicitly.
In any event, the policy goal behind all of this is to maintain a single appellate court for deciding patent issues, and the outcome decided by the 10th Circuit here very much continues that goal.
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Predator v. Gamo began when Predator filed its patent infringement lawsuit against Gamo, asserting infringement of U.S. Patent No. 6,526,893 (covering a lead air-rifle pellet with polymeric tip) along allegations of trade dress and copyright infringement. Fairly soon thereafter, a glaring problem emerged with the patent claim. One of the listed co-inventors (Lee Phillips) came forward claiming that he retained partial ownership of the patent rights. At that point, the patentee voluntarily dismissed the patent claim in order to to fight a state-court battle over patent ownership, which then became more complicated when Gamo purchased Phillips purported interest and intervened in the state court action.
With the state-court case going south (including a failed motion to recuse that judge), the patentee returned to Federal Court with a motion to supplement and amend its complaint — by both reviving its original infringement complaint and adding a challenge to Gamo’s claimed ownership rights. However, the district court refused to permit the changes and also awarded $10,000 in sanctions against Predator’s attorney John Cogswell for improperly gaming the system, the district court awarded $10,000 in sanctions. Cogswell then appealed that ruling to the 10th Circuit Court of Appeals.
After determining that it had jurisdiction (as discussed above), the court then reversed the lower court’s sanctions order — finding that Predator had properly justified its delay in seeking to add the claims and thus were not sanctionable.
Ironically, if, on remand the district court reconsiders and allows the complaint to be amended again to add the patent claim then suddenly apparent appellate jurisdiction would shift again to the Federal Circuit.
Acting in bi-partisan fashion, leadership in the House of Representatives has reportedly removed Rep. Goodlatte’s Innovation Act (H.R. 9) from House Floor consideration for this summer – indicating that the bill is not yet ready for a consensus vote. (Summer session typically runs through the end of July with a break for the month of August).
Some amount of opposition had been building within Congress, including a joint press conference yesterday that included U.S. Representatives John Conyers (D-Mich.), Thomas Massie (R-Ky.), Bill Foster (D-Ill.), and Scott Peters (D-Calif.) as well as Senators Chris Coons (D-Del.) and David Vitter. In their press release, the group wrote that “H.R. 9 is strongly opposed by inventors, small businesses, venture capitalists, startup communities, and manufacturing, technology, and life sciences companies.”
A compromise bill has some chance this fall and we can expect more aggressive PR campaigns showing the woes of patent trolls as well as the benefits of patent-driven innovation.
Ex Parte Appeals: PTO Deputy Director Russ Slifer writes on the new expedited appeal program. Slifer writes that the “current average pendency of an ex parte appeal at the PTAB is approximately 30 months” while the goal for the expedited program is 6-months.
Enhanced Patent Quality: Valencia Martin Wallace is the PTO’s Deputy Commissioner for Patent Quality and is spearheading the Office’s Enhanced Patent Quality Initiative. Wallace reports that the PTO received more than 1,100 comments and suggestions with regard to the initiative. More to come on that front.
Patent Public Advisory Committee (PPAC): The Department of Commerce and USPTO are seeking nominations to fill vacancies on the PTO’s official advisory board known as PPAC. (Fed. Reg. Notice). Nominations can be sent to PPACnominations@uspto.gov. For some reason, the USPTO continues to reject my nomination – Dennis.
In this follow-up to Versata v. SAP (Versata I), the Federal Circuit holds that a district court has no jurisdiction over a direct challenge the PTO’s decision to institute a covered business method (CBM) review. This particular appeal stems from a laterally-filed E.D. Virginia lawsuit filed by Versata against the USPTO immediately after the USPTO’s decision to institute the CBM review. In the case, the patentee asked the court to set aside the PTAB’s decision to institute. The district court dismissed that case for lack of subject matter jurisdiction and failure to state a claim based upon the AIA’s express statement that the decision on whether to institute is not appealable and because of the detailed scheme for review provided by the statute.
In affirming the district court’s judgment against the case, the Federal Circuit failed to address a core statutory question – in particular, the statute indicates that the decision is “nonappealable,” but says nothing expressly about the collateral civil action filed by the patentee here.
Offering a tone of assurance, the Federal Circuit suggests that the lack of appellate review of the interlocutory institution decision is largely remedied by the broad review of a PTAB decision on the merits of a review proceeding.
[I]n Versata I we highlighted the fundamental importance of judicial review of agency action, both as a matter of historic case law as well as of statutory law. The importance of judicial review was recognized by the district court when it noted that an adequate remedy lay in appeal to the Federal Circuit, an appeal expressly provided in the AIA at the final written decision stage. We have thus acknowledged the balance Congress struck between its desire for a prompt and efficient review process at the USPTO, on the one hand, and, on the other, the necessary recognition of the traditional role of judicial review of agency action. In Versata I we found that balance carefully crafted, and consistent with the roles the Constitution assigns to the Judicial and Executive Branches.
This appeal was handled by the same panel that heard Versata I, and again Judge Plager wrote the majority opinion that was joined by Judge Newman. Judge Huges concurred in the results without opinion — apparently disagreeing with the majority’s statements regarding the importance of judicial review.
Although it received a somewhat favorable claim construction ruling and won a summary judgment challenge, the patentee (SFA) dropped its case against Newegg and issued a covenant not to sue the erstwhile defendant based upon what SFA termed “business reasons.” Rather than simply walking away, Newegg demanded attorney fees to compensate for its costs defending against what it termed a “frivolous and abusive lawsuit.”
On appeal here, the Federal Circuit has affirmed the lower court’s denial of fees under Section 285 of the Patent Act. That provision states that a district court “may award reasonable attorney fees to the prevailing party” in “exceptional cases.” In its 2014 Octane Fitness decision, the Supreme Court interpreted an “exceptional case” to be one that:
stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.
Exceptionality appears to be implicitly linked to reasonableness — at least insofar that a showing that your actions were “reasonable” will avoid an exceptional case award. In practice, the determination of an exceptional case is done on a case-by-case basis, “considering the totality of the circumstances.” Id. In its parallel 2014 Highmark decision, the Supreme Court also held that the district court’s determination regarding exceptional case awards should be given deference on appeal.
Not Reviewing a Double Mistake: As I mentioned, the district court’s claim construction and summary judgment denials both favored the patentee. In arguing that SFA’s case lacked substantive merit, Newegg provided the following logical chain of reasoning: (a) if the district court had not erred in its claim construction, (b) it would have held the claims invalid as indefinite (c) therefore showing that SFA’s case lacked substantive merit. On appeal, the Federal Circuit refused to follow the bait and instead found that a fee-award petition does not open the door to re-litigating all underlying substantive issues decided by the district court. Rather, according to the court, the review of a fee-award petition should focus only on “whether the district court abused its discretion when it found that the party’s litigating position was not so meritless as to ‘stand out’ from the norm and, thus, be exceptional.” Likewise, the Court wrote that district court need not revisit its prior decisions when judging a fee award motion.
Nuisance Fee Litigation Not Necessarily Unreasonable: Following the holding of Eon-Net v. Flagstar, 653 F.3d 1314 (Fed. Cir. 2011), Newegg argued that SFA’s practice was abusive “by exploiting the high cost to defend complex litigation to extract a nuisance value settlement.” (quoting Eon-Net). On appeal, however, the appellate panel found that the district court had not abused its discretion in failing to find unreasonable conduct.
We agree with Newegg … that a pattern of litigation abuses characterized by the repeated filing of patent infringement actions for the sole purpose of forcing settlements, with no intention of testing the merits of one’s claims, is relevant to a district court’s exceptional case determination under § 285. And, we agree with Newegg, moreover, that to the extent the district court’s opinion in this case can be read to discount the motivations behind a patentee’s litigation history, the district court was wrong. The problem with Newegg’s request that we reverse the district court’s exceptional case determination on these grounds, however, is its failure to make a record supporting its characterization of SFA’s improper motivations.
In particular, SFA was able to point to some larger settlements and other cases that it had not (yet) settled.
Here, the Federal Circuit repeated its prior holdings that a repeated pattern of filing lawsuits and then settling for only a “nuisance” amount (<10% of expected litigation costs) provides evidence of exceptionality. The problem was simply that the defendant did not prove-up that pattern in this case. Apparently it is acceptable and reasonable to have some nuisance-settlement cases as long as the patentee is willing to push its case to the merits in other cases.
Totality of Circumstances: Although the appellate court walked-through the two factors of (1) low-merit case and (2) litigation misconduct, it also recognized that the test is a totality-of-the-circumstances test. However, the unstated conclusion from the case is that the case cannot be exceptional unless at least one of the factors shows unreasonable behavior.
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One problem with the current patent system is that valid but low-value patents are fairly worthless, and this decision only exacerbates that problem. Take the example of a valid patent covering an improvement that incrementally adds only $500,000 in value to a product’s entire market. And, assume that market is split among five competitors. The sequential settlements of $100,000 are all “nuisance level,” but they are also all at the correct market level. Now, Despite what you might conclude from the decision’s language, I don’t believe that the court here is trying to say that a patentee would act unreasonble wrong in this situation by filing and settling these cases. However, the language is loose enough to support a defendant who mounts such a case. (And, I recognize that my hypothetical is not exactly parallel to the facts at issue in the SFA case.)
One solution to this problem is to have more focus on potential damage awards early-on in a case in order to form realistic limits that, in turn, should tend to limit reasonable litigation expenditures.
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Mark Lemley argued the case before the Federal Circuit for Newegg, although he was apparently not on the original appellant brief. John Edmonds appeared on behalf of SFA.
Judge O’Malley penned the opinion that was joined by Judges Clevenger and Hughes.
Over on the main page, Dennis has done a good job laying out the court’s “analysis” in Versata v. SAP of whether section 101 is a defense to invalidity. The court recognized that, by the text of the statute, it is not.
But, it reasoned that because, today, section 101 challenges are a cottage industry, that that interpretation must be wrong. It cites to dicta from old Supreme Court cases. And, it says basically, “well, people are doing it so it must be right.”
Um, wrong: See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says. Courts can get something wrong for a long time; a judge’s Constitutionally required job is not to continue the nonsense; it is to stop it.
The fact is that no court has ever actually analyzed whether 101 is a defense, particularly after 1952, when (I believe) Congress meant to get rid of this “inventive concept” and other nonsense that courts had, previously, read into the word “invention” in what was then 101. Congress put all of those odd requirements into the objective section 103. But… the point is: no court has analyzed the text — about whether “eligibility” is a defense to any infringement suit (and obviously not in CBM proceedings), and when this court did, it recognized the text did not support Section 101 as an invalidity defense.
That should have been the end of the inquiry, absent (a) an absurd result; (b) ambiguity; or (c) some other narrow exception to ignoring the plain text. But the panel went further, and suggested that some sort of history precluded giving the statutory text its plain meaning. (I wrote a book on statutory interpretation; I won’t bore you with the details.)
Let’s go past the text and look for some strong reason to ignore its plain meaning. What is this evidence?
Courts sometimes use the purpose of a statute to interpret it. Likewise, they look at legislative history to discern meaning or to find purpose. What if there was some huge committee report droning on about 101 and so on? We should likely take that into account.
But it’s not there.
The legislative history shows that the purpose CBM was adopted to address shortcomings with the PTO’s ability in the late 1990’s to find prior art, and that was Congress’s intent. The House report makes clear that the purpose was to deal with the perception that in the late 1990’s, the PTO had not found the best prior art to apply under sections 102 and 103:
A number of patent observers believe the issuance of poor business-method patents during the late 1990’s through the early 2000’s led to the patent ‘‘troll’’ lawsuits that compelled the Committee to launch the patent reform project 6 years ago. At the time, the USPTO lacked a sufficient number of examiners with expertise in the relevant art area. Compounding this problem, there was a dearth of available prior art to assist examiners as they reviewed business method applications. Critics also note that most countries do not grant patents for business methods.
The Act responds to the problem by creating a transitional program 1 year after enactment of the bill to implement a provisional post-grant proceeding for review of the validity of any business method patent. In contrast to the era of the late 1990’s-early 2000’s, examiners will review the best prior art available….
H. Rep. 112-98, at p. 54 (June 1, 2011) (emphases added). Thus, the committee report shows that the purpose of the amendments adding CBM is consistent with the statute’s plain text: to allow people to bring CBM to show that the invention was not new or would have been obvious in light of “the best prior art available.” The report emphasized the lack of “a sufficient number of examiners with expertise in the relevant art area.”
Conversely, nothing in the House report mentions the failure to recognize “abstract ideas” or the failure to properly apply Section 101. Further, it is absurd to suggest that in the late 1990s lack of access to prior art or lack of sufficient examiners with familiarity with prior art had any impact on the ability to determine what is a “law of nature,” or “abstract idea,” or the like. Indeed, courts are doing this now on 12(b)(6) motions based on their own “evidence”(?) of what is known, etc.
So, so far: purpose and history, based on the “good” legislative history (committee reports and such usually get more weight than other stuff), 101 is not a defense.
What about random statements of legislators? Once you get into random statements, the legislative history of the AIA on this transitional program is, like almost all legislative histories in this granular level, murky. I have reviewed the remarks made on the Floor of the Senate, and there is no doubt that a few members of Congress mentioned business method patents. A fair reading is that at least some members of Congress thought the source of the problem to be addressed was with “abstract” patents, while others believed the failure to consider the most pertinent prior art was the source of the problem.
I have also considered other aspects of the legislative history that this panel didn’t cite. For example, then-Director Kappos observed: “a key House Committee Report states that ‘the post-grant review proceeding permits a challenge on any ground related to invalidity under section 282.’ H.R. Rep. No.112-98, at 47 (2011).” Yet, it is undeniable – and the Versata court held — that the text of the adopted statute points to only two subsections of Section 282, and so this sentence from that report flatly contradicts the enacted statute. (It accurately reflects the text at the time Kappos spoke; but Congress didn’t adopt it.) A sentence in a committee report that directly contradicts the enacted language does not control. As with most bills, the legislative history of the AIA contains many statements that are not the law, and a few that contradict the enacted statute.
Others have pointed to this statement from a senator from Arizona, Senator Kyl: “section 101 invention issues” were among those “that can be raised in post-grant review.” 157 Cong. Rec. S1375 (daily ed. Mar. 8, 2011). Relying on this statement for the proposition that eligible subject matter is covered by the text is doubly problematic. Foremost, “section 101 invention issues” is not in the enacted text, as the Versata court correctly held. Further, the Supreme Court has long and repeatedly rejected relying upon one legislator’s statement as having been enacted into federal law. Doing so jeopardizes the Constitutional requirements of enactment and presentment. This is especially true where, as here, that statement contradicts the plain text as well as other more weighty evidence of legislative intent. Those sources – which, if entitled to any weight — are entitled to more weight than one Senator’s floor statement – contradict Senator Kyl’s subjective interpretation of the statute. Again, however, I believe none of this matters here.
So, at best, there is some slight indication that a few members of Congress thought that “abstract” patents (whatever that might mean”) is the problem.
But it is long-settled there has to be some reason, much stronger than a few random statements, to ignore the plain text of an enacted statute. What controls is the language Congress enacted, not our speculation about the intent of a handful of elected representatives.
Let’s go further.
Sometimes courts interpret statutes in light of existing case law, and that’s what the Versata court relied upon. Well, what about case law, and the notion this court adopted that there’s some sort of “long-standing” understanding that 101 is a defense. This is weird: despite the plain language, and despite Congress knowing that 101 should be a defense, it did not list it. Think about judicial activism for a moment.
And let’s be real here.
First, post-1952 it was not until Myriad that there was a challenge in the Supreme Court to an issued patent based on 101. All the others were fights with the PTO. No one in Myriad litigated whether 101 was a defense in terms of section 282. It’s not, as even this panel recognized.
So, saying there’s some long-standing line of cases from the Supreme Court is simply wrong: there’s now two cases, one just decided (Alice). Further, we all know that 101 defenses were about as rare as a blue zebra until a few years ago.
But maybe there is some long-standing interpretation, even in dicta?
Wrong. If you read the authority relied upon by the court, they don’t support the this “history” at all — instead they undermine it.
Foremost, the Supreme Court case relied upon is Graham v. John Deere Co., 383 U.S. 1 (1966). That famous case about Section 103 had nothing to do with whether “eligible subject matter” was a condition for patentability, and did not decide that issue. Instead, in dicta analyzing the “condition for patentability” in Section 103, the court noted:
The Act sets out the conditions of patentability in three sections. An analysis of the structure of these three sections indicates that patentability is dependent upon three explicit conditions: novelty and utility as articulated and defined in § 101 and § 102, and nonobviousness, the new statutory formulation, as set out in § 103. The first two sections, which trace closely the 1874 codification, express the ‘new and useful’ tests which have always existed in the statutory scheme and, for our purposes here, need no clarification. The pivotal section around which the present controversy centers is § 103 . . . .
383 U.S. at 12-13.
That statement actually undermines the argument that “eligible subject matter” is a condition for patentability.
Here’s why:
Graham explains that the Patent Act of 1793 had only two conditions for patentability: utility and novelty (both of which were once in the same statute, a precursor to sections 101 and 102). Id. at 10 (“Although the Patent Act was amended, revised or codified some 50 times between 1790 and 1950, Congress steered clear of a statutory set of requirements other than the bare novelty and utility tests reformulated in Jefferson’s draft of the 1793 Patent Act”). The Graham Court recognized that in 1952 Congress had added a third condition, non-obviousness. See id. at 14 (“Patentability is to depend, in addition to novelty and utility, upon the ‘non-obvious’ nature of the ‘subject matter sought to be patented’ to a person having ordinary skill in the art.’”) (quoting Section 103).
So… the Graham case suggests — if anything, as it is dicta — that “eligible subject matter” is not a condition for patentability. If Graham stated that utility, novelty, and non-obviousness were the three conditions for patentability, then the Court’s statement that there are “three conditions” means “eligible subject matter” is not one: if “eligible subject matter” were also a condition for patentability, then there would be four, not three, conditions.
The panel also cites dicta in a footnote in Aristrocrat Techs., Austl. PTY LTd. v. Int’l Game Tech., 543 F.3d 657, 661 (Fed. Cir. 2008). Although the merits of a Section 101 issue was decided in Dealertrack, the patentee did not contend that Section 101 was not a statutory defense, and the court did not decide that issue. Further, dicta in that case traces directly back to the dicta from Graham. So, there is no long line of cases that, somehow, Congress knew about and intended to adopt.
Worse, there is loose language in other cases saying exactly the opposite, that only 102 and 103 are conditions of patentability (i.e., are consistent with the plain text.). For example, the Federal Circuit has stated: “The two sections of part II that Congress has denominated ‘conditions of patentability’ are § 102 . . . and § 103 . . . .” Myspace, Inc. v. GraphOn Corp., 672 F.3d 1250, 1260-61 (Fed. Cir. 2012). The Supreme Court made essentially the same observation in Diamond v. Diehr, 450 U.S. 175, 190-91 (1981).
So… in fact there is no case law supporting this history, and instead the “case history” is, at best, split and unclear.
The important fact to me is that none of these casesparse the statutory text, or examine the purpose and legislative history of the AIA discussed here. Ignoring the actual text in favor of what courts have said a statute says is obviously incorrect. In that regard, the Supreme Court has overridden judicial interpretations of statutes that failed to adhere to the text, and has done so even after decades of having lower courts adhere to those incorrect constructions. See Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177 & 191 (1994) (overruling six decades of case law implying a cause of action), superseded on other grounds by 15 U.S.C. § 78(t)(e). Whatever a court says a statute says, the Constitution makes paramount what the enacted text actually says.
To sum up, absent some good reason to ignore the plain text, in my opinion random statements from one or two legislators and dicta in cases does not control. Dicta in cases that do not analyze the statutory text do not control. A committee report that flatly contradicts the enacted text does not control. And one Senator’s opinion is not enacted statutory text.
I understand why the panel did what it did. But the Constitution is more important than judicial politics.
Finally, let’s be real again: if you look at what Congress did in 1952, it was to get rid of this subjective nonsense. I strongly believe that then Chief-Judge Rader’s opinion, and “additional views” in CLS Bank v. Alice (which, textually, this panel confirmed in holding 101 is not even a listed defense) need to be raised and litigated. Statutes should matter.
(You can find the original version of this, with citations and footnotes at:
This an important decision stemming from the first Covered Business Method (CBM) Review Proceeding, the Federal Circuit has affirmed the PTAB properly cancelled the challenged claims for lacking patent eligible subject matter. However, in petit Marbury v. Madison style, the court also exerted its power of review over the PTABs decisions, including whether the challenged patent is a “covered business method patent.” Judge Plager drafted the majority opinion that was joined by Judge Newman. In a concurring opinion, Judge Hughes wrote that “[t]he majority’s interpretation of § 324(e) to permit review of whether Versata’s patent is a ‘covered business method patent’ directly conflicts with our precedential decision in In re Cuozzo Speed Technologies, LLC, (Fed. Cir. July 8, 2015).” The cited statute indicates that “the determination by the Director whether to institute a post-grant review [or CBM review] under this section shall be final and nonappealable.” Judge Hughes argued that the question of whether a patent fits within the CBM definition is answered at the petition stage and thus not reviewable on appeal.
In its decision, the court also directly ruled that CBM review proceeding (and thus future post-grant review proceedings) can include Section 101 challenges. The statute provides that CBM/PGR proceedings can be used to challenge patent claims “on any ground that could be raised under paragraph (2) or (3) of section 282(b) (relating to invalidity of the patent or any claim).” 35 U.S.C. 321(b). Section 282(b), in turn, reads as follows:
(b)(2) Invalidity of the patent or any claim … on any ground specified in part II as a condition for patentability.
(b)(3) Invalidity of the patent or any claim … for failure to comply with— (A) any requirement of section 112 [except best mode] or (B) any requirement of section 251.
In our 2012 essays, Professor Hricik and I explained an argument why subject matter eligibility does not fit within these invalidity grounds of Section 282.
Our argument was that the only way patent eligibility fits into Section 282 is under pat (b)(2) since “part II” of the Patent Act does include Section 101. However, not all sections of Part II (Sections 100 to 212) are conditions for patentability, and, in fact, only sections 102 and 103 are so-labelled. The court agreed with our agument, but found it to be overwhelmed by history:
Versata is correct that a strict adherence to the section titles can support an argument that § 101 is not listed as a “condition of patentability,” but rather has the heading of “inventions patentable.” However, as noted by the USPTO, both our opinions and the Supreme Court’s opinions over the years have established that § 101 challenges constitute validity and patentability challenges. . . .
It would require a hyper-technical adherence to form rather than an understanding of substance to arrive at a conclusion that § 101 is not a ground available to test patents under either the PGR or § 18 processes. Section 101 validity challenges today are a major industry, and they appear in case after case in our court and in Supreme Court cases, not to mention now in final written decisions in reviews under the AIA. The numerous cases in our court and in the Supreme Court need no citation. . .
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As Judge Hughes writes, a major portion of the ruling here is in tension with Couzzo because it allows the Federal Circuit to review whether the grant of the review was proper. However, because the PTO won its case, it seemingly has no right to appeal that particular issue. As such, the majority opinion regarding reviewability could also be seen as simply dicta since, if they had decided that the CBM issue was not reviewable then the case would have also been affirmed.
In an important trademark ruling, E.D. Virginia Judge Gerald Bruce Lee has affirmed the Trademark Trial & Appeal Board’s (TTABs) cancellation of the trademark registrations associated with the Washington Redskins professional football team. The ruling interprets Section 2(a) of the Lanham Act which permits the USPTO to refuse registration of a mark that “consists of or comprises immoral, deceptive, or scandalous matter.” The decision is a win for the challengers on summary judgment, but Pro Football has vowed to appeal.
Meanwhile, the Federal Circuit is already posed to hear another disparaging-mark case en banc. In re Tam involves an Asian-American band attempting to register the self-deprecating mark “Chinks” “Slants” [DC update: Oh my, I’m not used to using these pejoratives and used the wrong one here]
The Federal Circuit simultaneously released two decisions in this appeal of the first inter partes review proceeding before the Patent Trial and Appeal Board (PTAB). The first decision is a revised panel opinion holding:
that the court lacks “jurisdiction to review the PTO’s decision to institute IPR;”
that the PTO acted within its statutory rulemaking authority in determining that patent claims subject to an IPR should be given their “broadest reasonable interpretation” and thus that the PTAB’s broad claim construction and subsequent obviousness determination were proper; and
that the Board properly denied Cuozzo’s motion to narrow its claims in order to avoid the prior art.
Judge Dyk wrote the majority opinion joined by Judge Clevenger; and Judge Newman dissented on almost all points. [I have not fully reviewed the revised opinion, but the holding does not appear to differ significantly from the original that I discussed here. DC]
In the second decision, the en banc court rejected Cuozzo’s petition for en banc rehearing on the Broadest-Reasonable-Interpretation (BRI) standard for administrative review claim construction. The vote was at the slimmest of margins: Six-to-Five with Chief Judge Prost, and Judges Newman, Moore, O’Malley, and Reyna voting for en banc review and Judges Lourie, Dyk, Wallach, Taranto, Chen, and Hughes voting no. Oddly, four of the six judges voting “no” to the en banc review request still felt the need to write an opinion explaining the law.
The BRI supporters write:
Congress conveyed rulemaking authority to the PTO to prescribe regulations, inter alia, “establishing and governing inter partes review,” 35 U.S.C. § 316(a)(4), and the PTO has adopted the broadest reasonable interpretation standard for IPR proceedings, 37 C.F.R. § 42.100(b). In the absence of evidence of congressional intent to abrogate the [historically grounded] broadest reasonable interpretation standard, we should not act to adopt a different standard based on our own notions of appropriate public policy. If the standard is to be changed, that is a matter for Congress. There are pending bills which would do just that.
Dissenting from the en banc denial, Chief Judge Prost (joined by four colleagues) writes:
In adjudicatory proceedings, claims [must be] given their actual meaning, not their broadest reasonable interpretation.
Challenging the grant-of-authority argument, the minority suggests that the rulemaking authority was procedural authority, not substantive authority — and that the standard for claim construction is extremely substantive. “In our view, these subsections are consistent with Congress’s previous grants of authority to prescribe procedural regulations.”
This decision is obviously important since many of the obviousness arguments in the pending IPRs depend upon the PTO broadly construing the claim scope. The immediate take-home is the message that Patentees had better win their case at the PTAB rather than looking to the Federal Circuit for reversal. In the background, the judicial split and administrative-law aspects of the decision suggest that it is ripe for Supreme Court review.
The Federal Circuit will very soon return to its full-strength of 12 circuit court judges. The Senate has confirmed Kara Stoll’s nomination as the next Circuit Judge for the Court of Appeals for the Federal Circuit with a 95-0 vote. Ms. Stoll will likely be sworn-in within the next few days. Congratulations!
Stoll has a serious patent-law resume, holding a BSEE from Michigan State and a JD from Georgetown earned while working as a patent examiner. After law school she clerked at the Federal Circuit and then joined the Finnegan Henderson firm where she has worked since 1998. Of late, her practice has primarily focused on patent litigation.
Counting Ms. Stoll, the Court boasts seven Judges appointed by President Obama (a majority). It will be interesting to watch Stoll’s jurisprudence develop. Her background has many parallels to Judge Chen, although her PTO experience was at the very beginning of her career while he joined the PTO as a fairly senior leader.
On appeal, the Federal Circuit has affirmed that Intellectual Ventures’ asserted patent claims are invalid for lacking eligible subject matter. Intellectual Ventures v. Capital One (Fed. Cir. 2015) (Patent Nos. 8,083,137, 7,603,382, and 7,260,587).
The basic idea behind the patent ‘137 patent is to help users budget and then stick to their budget. Incredibly important task that many of us find quite challenging. The court identified Claim 5 as representative. That claim includes two steps: (1) storing a user profile with a set of categories – each with a pre-set budget limit; an (2) transmitting a summary of transactions for a category along with the pre-set budget limit. Claim text:
5. A method comprising:
storing, in a database, a [user] profile … containing one or more user-selected categories to track transactions associated with said user identity, wherein individual user-selected categories include a user pre-set limit; and
causing communication, over a communication medium and to a receiving device, of transaction summary data in the database for at least one of the one or more user-selected categories, said transaction summary data containing said at least one user-selected category’s user pre-set limit.
In reading this claim in the context of Alice Corp., the Federal Circuit first found it directed to the abstract idea of “tracking financial transactions to determine whether they exceed a pre-set spending limit (i.e., budgeting).” In Alice Corp. step two, the court found no inventive concept: “it is clear that the claims contain no inventive concept. . . . Instructing one to ‘apply’ an abstract idea and reciting no more than generic computer elements performing generic computer tasks does not make an abstract idea patent eligible.”
The court similarly agreed that the claims of the ‘382 patent are also ineligible. Claim 1 provides:
A system for providing web pages accessed from a web site in a manner which presents the web pages tailored to an individual user, comprising:
an interactive interface configured to provide dynamic web site navigation data to the user, the interactive interface comprising:
a display depicting portions of the web site visited by the user as a function of the web site navigation data; and
a display depicting portions of the web site visited by the user as a function of the user’s personal characteristics.
Thus, the claim relates generally to a system for customizing information based upon information known about a user and also web-site navigation data (such a the time-of-day a site is being visited). With Alice Corp. step 1, the court agreed that the aforementioned gist is in fact an abstract idea because such information tailoring is “a fundamental . . . practice long prevalent in our system . . . .” Quoting Alice Corp. Regarding Alice Corp step 2, the court found no inventive concept. Intellectual ventures had argued that its approach provided a dynamic and real-time application of the concepts — however, the court rejected that argument on its facts — finding that “the claims are not so limited.”
Of special concern for the patentees here is the claimed “interactive interface” configured to implement the method. Intellectual Ventures argued that device provided an inventive application of the broader idea. The Federal Circuit disagreed – finding that “nowhere does Intellectual Ventures assert that it invented an interactive interface …. Rather, the interactive interface limitation is a generic computer element.”
Intellectual Ventures third patent included claims with more substance, including a process of sorting, scanning, and organizing images obtained from hard copy prints. However, those asserted claims were found not-infringed.
Respect for property rights has always been a core American principle. That respect generally means that a government grant of a property rights cannot be cancelled or annulled outside of judicial action. In a set of 19th Century cases, that principle was repeatedly upheld, including in the patent law context (both patents for land and patents for inventions).
See, e.g.:
McCormick Harvesting Mach. v. Aultman, 169 U.S. 606 (1898) (“[W]hen a patent [issues], it has passed beyond the control and jurisdiction of [the patent] office, and is not subject to be revoked or cancelled by the President, or any other officer of the Government. It has become the property of the patentee, and as such is entitled to the same legal protection as other property.)
Iron Silver Mining v. Campbell, 135 U.S. 286 (1890) (“[Patent validity] is always and ultimately a question of judicial cognizance.”)
US v. Stone, 69 U.S. 525 (1864).
In his 4th Circuit appeal, Carl Cooper now argues that inter partes review proceedings under the AIA violate these principles and are therefore unconstitutional. (Cooper v. Lee) In addition, Cooper argues that IPRs violate patentees Seventh Amendment right to a jury trial on questions of patent invalidity.
Cooper v. Lee began as a lawsuit after Cooper’s patents were challenged in a set of inter partes review proceedings. Rather than awaiting the outcome of the IPR, Cooper quickly filed a civil action in district court arguing that the regime is unconstitutional. However, the district court dismissed the case – finding that it lacked jurisdiction. In particular, the district court held that the AIA provides for particular appellate review and that Cooper must first exhaust the administrative process before raising an external constitutional challenge.
As it did at the lower court, the USPTO largely avoids the merits but instead argues that the appellate court has no jurisdiction over the case – both for the reasons given by the district court and because the case should have been heard by the Federal Circuit rather than the 4th Circuit. [PTO Brief in Cooper v. Lee]. Meanwhile, in May 2015, the USPTO PTAB issued a final order cancelling the challenged patent claims and setting-up a direct Federal Circuit appeal to be filed this month. See IPR2014-00156 (May 14, 2015); IPR2014-00157 (May 14, 2015); IPR2014-00158 (May 8, 2015).
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Incredibly important and difficult Constitutional issues here.
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Briefing appears now complete in the parallel case of MCM v. HP that I previously discussed:
The Patent and Lanham (TM) acts each include a mechanism for filing a civil action when the USPTO refuses to grant/register the applied-for rights. See 35 U.S.C. 145 and 15 U.S.C. 1071(b) respectively.
Both provisions include cost-shifting that forces the applicant to pay the PTO’s expenses of the proceedings, win-or-lose.
Patent Cases: “All the expenses of the proceedings shall be paid by the applicant.”
Trademark Cases: “unless the court finds the expenses to be unreasonable, all the expenses of the proceeding shall be paid by the party bringing the case, whether the final decision is in favor of such party or not.”
The 4th Circuit case of Shammas v. Focarino involves a civil action to force the PTO to register the mark “PROBIOTIC.” The district court sided with the PTO that the mark was not registrable (it is generic) and then awarded attorney fees to the USPTO under the statute quoted above. On appeal, the 4th Circuit has affirmed – finding that the “all the expenses” provision of the statute includes attorney fees.
[I]n ordinary parlance, “expenses” is sufficiently broad to include attorneys fees and paralegals fees. Moreover, in this statute, Congress modified the term “expenses” with the term “all,” clearly indicating that the common meaning of the term “expenses” should not be limited. (internal citations omitted)
The appellate panel rejected the notion that “expenses” should be read as parallel to “taxable costs” that do not include attorney fees — suggesting that Congress wold have used the costs term it it meant costs. In reaching this decision, the court looked back to the statutory language origin found in the 1836 patent act and noted that – even there – the statute distinguished between expenses and costs.
The court also rejected the notion we would need a clearer statement from Congress in order to overcome the presumption against attorney fee shifting in American courts (the “American rule”). Here, the panel came to the odd conclusion that the American-rule presumption here does not apply because that presumption is about whether the loser pay’s the winner’s fees. This situation is different (according to the court) because one side always pays win-or-lose.
Thus, a statute that mandates the payment of attorneys fees without regard to a party’s success is not a fee-shifting statute that operates against the backdrop of the American Rule.
This appears to me an odd conclusion whose conclusion does not logically flow from the premise.
For litigators, the outcome is unsightly because of the rarity of such strict fee-shifting mechanisms within our court systems. For patent and trademark prosecutors, the statute appears more akin to a fee-for-service, which is entirely common within the system. One major difference between other PTO fees is uncertainty since the litigation costs will not be known until the litigation complete.
Whatever its justification, the outcome here obviously adversely impacts patent and trademark applicants considering the filing of a civil action to pursue their claims. (Within the PTO, direct appeal to the Federal Circuit under Section 144 does not directly result in a fee award).
My understanding is that Shammas will be filing a petition for writ of certiorari in the upcoming weeks now that his petition for rehearing was denied. INTA filed a brief in support during the appeal.
As part of a license agreement, Schoeller Arca granted Buckhorn a license to its U.S. Patent No. 5,199,592 in a form termed “co-exclusive” because Schoeller retained a right to practice the invention. The agreement gave Buckhorn the right to control any enforcement of the patent against third parties but included an indemnification provision where Buckhorn would reimburse Schoeller for its potential costs associated with an enforcement if it needed to be joined as a co-plaintiff.
Later Buckhorn sued Orbis for infringing the patent. After a threatened dismissal for a missing necessary party, Schoeller joined Buckhorn as co-plaintiff. It turned out, however, that Schoeller had previously licensed the patent to Orbis and failed to inform Buckhorn! The district court dismissed the case based upon the license and – after some procedural issues – levied attorney fees against Schoeller. These attorney fees resulted from the terms of the original Schoeller-Orbis license agreement that included prevision awarding fees to the prevailing party in any license dispute. The court then held Buckhorn liable to Orbis for the attorney fees based upon its indemnification agreement with Schoeller.
Unlike many other attorney-fee issues in patent litigation, the awards in this case are fully derived from the two agreements between the parties.
On appeal, the Federal Circuit first agreed that Buckhorn cannot be liable for the attorney fees under the RX Agreement (Orbis-Schoeller) applying basic contract privity law. [Buckhorn may well have been seen as successor-in-interest if patent had been sold rather than co-exclusively licensed.] In the second step, the Federal Circuit found that, while Buckhorn may need to indemnify Schoeller, it cannot be held liable to Orbis based upon the PLA agreement to which Orbis was not a party. For this conclusion, the Court did consider New York law – since that was the choice-of-law for the PLA agreement. Under NY law, an incidental beneficiary of a contract does not have a right to enforce the contract. [A true third-party-beneficiary would have such a right, but only when the contract is designed for their benefit, not the case here.]
The Federal Circuit also found that the district court might have the power to award fees based upon its inherent judicial power. However, the district court had not made that judgment.
Outcome: Buckhorn is not liable to Orbis for the attorney fees.
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This case relates somewhat directly to the ongoing legislative debate over attorney fees. The legislative proposals include veil-piercing mechanisms to allow a prevailing defendant to collect attorney fees against investors and others interested in the litigation when the losing-patentee is unable to pay a fee award. The decision here serves as an indication that the Federal Circuit is unwilling to make this type of policy-change from the bench — thus putting more pressure on congress to make the change. At the same time, the opinion here notes that the prevailing defendant did not take advantage of the steps available under federal and state laws to collect from Schoeller — resulting in no-sympathy from the court.
On September 24-25, 2015, the Chisum Patent Academy will hold an advanced patent law seminar in Washington, D.C. The two-day seminar will explore blockbuster SCOTUS and CAFC patent decisions of 2014-2015 and debate responsive strategies. The Academy’s unique round table format is geared for experienced practitioners (litigators and patent prosecutors) and is limited to ten participants. All sessions are led by treatise authors and educators Donald Chisum and Janice Mueller. The seminar will meet at the D.C. office of Kaye Scholer LLP. For more information on seminar content and registration, visit https://chisum-patent-academy.com/upcoming-patent-law-seminars/washington-d-c-patent-law-seminar/ or e-mail info@chisum.com.
Guest post by David Bohrer, Patent Trial Practice, Valorem Law Group.
OIP Technologies v. Amazon.com and IPC v. Active Network are the most recent of a growing number of decisions dismissing software and business method patent lawsuits on the pleadings. In these decisions, the courts are finding that the invention alleged in the complaint is an abstract idea that is not eligible for patent protection.
While early resolution of patent litigation is laudable, motions directed to the pleadings generally may not consider matters outside what is pled in the complaint. Yet this is what courts are doing — they have been coloring outside the lines when deciding whether a patented software or business method is an ineligible abstraction. They are looking beyond the allegations in the complaint to discern “fundamental economic concepts.” Independent of anything pled in the complaint, they are making historical observations about alleged longstanding commercial practices and deciding whether the claimed invention is analogous to such practices.
Coloring outside the lines may not be acceptable. The benefit of providing an early exit from otherwise expensive and burdensome patent litigation may be outweighed by the prejudice to all parties of eroding the rules regarding the matters that may be considered before throwing out a lawsuit. Perhaps there is a better solution. Perhaps pleading motions challenging patent subject matter eligibility should be converted to expedited and limited scope summary judgment motions, thereby allowing the parties to present declarations, testimony and other extrinsic evidence that better address whether a claimed economic practice is an unpatentable idea or a patentable invention.
Alice is being used to obtain early dismissal of lawsuits based on software and business method patents
Courts granting patent ineligible subject matter motions are using the Supreme Court’s 2014 Alice decision as an effective weapon to combat vexatious patent litigation brought by non-practicing entities (NPEs). SeeCuriouser and Curiouser Is Alice the Long Sought Troll Killer _ The Legal Intelligencer. Alice provides relatively easy to satisfy requirements for demonstrating that an asserted software patent is claiming an “abstract idea” and therefore is not eligible for patent protection under section 101 of the patent statute.
Not only have courts found in Alice the tools necessary to dispose of vexatious patent lawsuits asserting software and business method patents, they also are willing to entertain an Alice challenge at the pleadings stage. The procedural posture of a pleading motion is key to using Alice to “kill trolls.” Defendants can challenge the merits of the patent lawsuit at the pleadings stage and before having to incur significant expenses associated with discovery, claim construction, experts and summary judgment. The nuisance value of the lawsuit goes way down. Defendants are less likely to feel they have to pay a distasteful settlement or else bear the much greater expense of defending on the merits.
Recent Federal Circuit decisions continue the trend
On June 11, 2015 and again on June 23, 2015, the Federal Circuit affirmed decisions by the Northern District of California dismissing software patent lawsuits at the pleading stage. In each of these cases, OIP Technologies v. Amazon.com (underlying patent claimed offer-based price optimization) and IPC v. Active Network(retaining information lost in the navigation of online forms) the district courts granted Rule 12(b)(6) motions to dismiss on the grounds that the patents claimed abstract ideas ineligible for patent protection.
In each case, the Federal Circuit approved the resolution of 101 eligibility at the pleading stage with little to no analysis. In IPC, the Federal Circuit’s opinion includes one sentence in which the court states that claim construction (which had not yet occurred) is “not an inviolable concept.” In OIP, the lead opinion does not address how early in litigation alleged ineligibility may be resolved, but in a concurring opinion Judge Mayer supports addressing eligibility at the motion-to-dismiss stage.
Failure to recite statutory subject matter is the sort of “basic deficiency,” that can, and should, “be exposed at the point of minimum expenditure of time and money by the parties and the court,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007) (citations and internal quotation marks omitted). Addressing 35 U.S.C. § 101 at the outset not only conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation, it also works to stem the tide of vexatious suits brought by the owners of vague and overbroad business method patents. Accordingly, where, as here, asserted claims are plainly directed to a patent ineligible abstract idea, we have repeatedly sanctioned a district court’s decision to dispose of them on the pleadings. See, e.g., Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343, 1349 (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 717 (Fed. Cir. 2014); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1352 (Fed. Cir. 2014). I commend the district court’s adherence to the Supreme Court’s instruction that patent eligibility is a “threshold” issue, Bilski v. Kappos, 561 U.S. 593, 602 (2010), by resolving it at the first opportunity.
Contrary to the suggestion made by Judge Mayer, the Supreme Court has not addressed whether it is appropriate to address a 101 challenge at the pleading stage. Bilski’s characterization of patent eligibility as a “threshold” issue was made with reference to the 102 and 103 invalidity defenses and did not address the procedural issue. Bilski also cites to extrinsic economic treatises and other evidence of economic practice in support of the decision reviewing the denial of a patent application. Alice did NOT address patent eligibility in the context of a pleadings motion, but instead reviewed a patent eligibility ruling that was made at summary judgment. Alicecites to the same extrinsic economic evidence relied upon in Bilski.
There is not supposed to be any coloring outside the lines on pleadings motions
The well-established general rule is that Rule 12(b)(6) motions to dismiss as well as Rule 12(c) motions for judgment on the pleadings are limited to the well-pled factual allegations made in the complaint. “A court generally cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits or discovery materials).” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012); In re American Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996) (As recognized in OIP and IPC, the Federal Circuit applies regional circuit law in deciding motions to dismiss.).
Yet this is what is happening
Notwithstanding these rules, OIP and IPC each looked beyond the complaint in determining whether the asserted claims are directed to ineligible abstract ideas. In OIP, the asserted price optimization claims were deemed “similar to other ‘fundamental economic concepts’ found to be abstract ideas.” In IPC, the asserted online information retention claims were deemed “well-understood, routine, conventional activities previously known.” In each instance, the court is looking at practices and activities outside of anything alleged in the complaint.
These Federal Circuit cases teach that it is acceptable to consider matters outside of the complaint, as confirmed by Affinity Labs of Texas v. Amazon.com (June 12, 2015 WD Tex.), in which the magistrate judge, applying 101 precedent from OIP and other Federal Circuit decisions, says that it is making “general historical observations that come to mind.” Based on such extrinsic “historical observations,” the court finds that the claimed invention of delivering selectable media content and subsequently playing the selected content on a portable devices is a “long-standing commercial practice and is therefore abstract.”
The Court notes that the first transistor radio, which delivers selectable audio media to a portable device, was developed in the late 1940s and was immensely popular in the succeeding decades. Similarly, the first portable televisions, another form of delivering “selectable” media content to a portable device, were introduced in the 1980s and 1990s. The above examples represent just a few of the many general historical observations that come to mind as evidence of the long-standing commercial practice of delivering selectable media content and subsequently playing the selected content on a portable device.
Reliance on extrinsic evidence of economic practices and concepts found in precedent
OIP and IPC support their abstract idea findings by equating the economic purpose of the asserted patent with the economic concepts successfully challenged in other cases. For example, in OIP, the Federal Circuit says offer-based price optimization (at issue in OIP) is analogous to using advertising as an exchange or currency (deemed an abstract idea in the earlier Federal Circuit decision Ultramercial v. Hulu). Likewise, in IPC, the Federal Circuit said that recent precedent illustrates the boundary between abstraction and patent eligible subject matter. But how is the court in a position to make the connection between the asserted claims and prior precedent on its own observation and independent of expert testimony or other relevant extrinsic evidence? Judge Mayer and many other respected judges might reply that it is acceptable to make this connection because it is “plain” or “obvious.” Yet this seems to invite the application of 20-20 hindsight and of the “I know it when I see it” standard.
Can’t take judicial notice of truth of findings made in other decisions
Furthermore, while a court may take judicial notice of another court’s opinion in ruling on a motion to dismiss, it may do so only as to the existence of the opinion and not for the truth of the facts recited therein. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). It appears that cases such as OIP and IPC are relying on the truth of factual findings made in other decisions regarding whether certain economic concepts are “conventional” or “well-known” – such matters appear outside the scope of what may be judicially noticed in a motion to dismiss.
Possible solution is expedited and limited scope summary judgment motions
A court’s consideration of information outside the four corners of the complaint, assuming it does not fall within exceptions such as judicial notice, converts a motion to dismiss into a summary judgment motion. Lee, 250 F.3d at 688. True enough, this raises the specter of time-consuming discovery and case development (see the criticism of ED Texas Judge Gilstrap’s requirement that the parties demonstrate that there is a good faith basis for such a motion). This said, district courts have the discretion to expedite such motions as well as limit their scope. They could, for example, specifically require the responding party to submit to expedited discovery on the issue whether the asserted patent claims eligible subject matter followed by expedited briefing and submission of evidence on both the question whether the purpose of the asserted claims is a conventional economic concept and therefore an ineligible abstract idea, and if so, whether there is an inventive concept that saves the claim from dismissal. They could stay other case development or discovery during the expedited resolution of the motion. It does not necessarily follow that the court would have to conduct claim construction as part of the process. The parties, as they do now, could brief whether claim construction is necessary, but would also have greater flexibility in terms of their ability to submit proofs in support of their claim construction arguments. Woe unto the party who purports without any reasonable basis to have compelling extrinsic evidence that they are not asserting a conventional economic concept or that their patent is directed to a protected inventive concept– the district courts have ample support in High Octane and its progeny for awarding fees under such circumstances.
If courts are going to color outside the lines, then let the parties do the same thing
Courts are willing to color outside the lines and consider extrinsic evidence upon addressing motions to dismiss challenging alleged ineligible patent subject matter. This contravenes well-established rules and policies regarding pleading challenges and may cause undue prejudice by denying a party the ability to submit extrinsic evidence in support of a well-pled claim. A possible solution is for the court to allow the parties to color outside the lines as well. The court has the discretion to impose time and scope limits on discovery and briefing without opening the door to prolonged, vexatious litigation.
