Is there a Light at the End of the Alice Tunnel?

By Meredith Addy
February 18, 2018

The Federal Circuit explains in Berkheimer and Aatrix that the Federal Rules of Civil Procedure apply to patent eligibility.

Is there a Light at the End of the Alice Tunnel?Maybe I’m being too optimistic. But in a pair of decisions issued within a week of each other, Berkheimer v. HP and Aatrix Software v. Green Shades, the Federal Circuit just vacated two patent ineligibility determinations.1

More surprising is how the Court accomplish this feat. The Court demonstrated that the Federal Rules of Civil Procedure do apply to patent eligibility, after all! This comes as more than a relief. It’s vitally important. To wit:

  1. There may actually be underlying factual issues when resolving patent eligibility;
  2. Whether a claim element is well understood, routine and conventional “is a question of fact” (hey, finally!); and,
  3. In a Rule 12 analysis, factual allegations made by the non-moving party must be taken as true.

And if you think these declarations are too good to be true, take a look at the decisions, both drafted by Judge Moore. Both are in the software field.

The patented invention in Berkheimer relates to “digitally processing and archiving files in a digital asset management system.” Slip op. 2. After claim construction, the district court granted summary judgment of ineligibility for some claims and indefiniteness for others.

In conducting its Alice analysis, the Court held that the claims failed the first step in the two-step test because transformation from source code to object code alone does not demonstrate non-abstractness without additional evidence that the transformation itself improves computer functionality, which the Court held was not present. Slip op. 11. The Court noted that the claims here are similar to claims held abstract in prior cases and cited the usual string of cases.

Fairly run of the mill Alice analysis, but wait, it gets better. Under the second Alice step, the Court held that whether a claim element is well-understood, routine, and conventional is a question of fact, reviewed for substantial evidence! Sigh! I’ve been waiting for the Federal Circuit to hold this since Alice. The Court then reminds us of its precedent that “[t]he § 101 inquiry ‘may contain underlying factual issues.’” It’s nice to now know for sure where they are.

The Court continued that “not every § 101 determination contains genuine disputes over the underlying facts.” Slip op. 13. And the Court reinforced its prior precedent by stating that “[n]othing in this decision should be viewed as casting doubt on the propriety of” prior cases. Id.

Got it, thanks.

The stage now set, the Court held that the district court erred in granting summary judgment of ineligibility with respect to some of Berkheimer’s claims. According to the Court, the specification explains that the claimed improvements increase efficiency and computer functionality over the prior art systems. And the “specification describes an inventive feature that stores parsed data in a purportedly unconventional manner.” For the claims that require those allegedly inventive features, summary judgment of ineligibility was vacated.

Wow, I couldn’t believe it. And then, just yesterday, it happened again!

In Aatrix Software v. Green Shades, the Court vacated a Rule 12 dismissal for lack of patent eligibility. The two patents at issue in Aatrix are directed to designing, creating, and importing data into a viewable form on a computer so the user can manipulate it. Slip op. 2. In typical fashion, after Aatrix sued Green Shades, Green Shade moved to dismiss on the pleadings as not patent-eligible, and the district court granted the motion.

In analyzing the dismissal, the Court noted that Rule 12 dismissal is only applicable “when there are no [non-movant] factual allegations taken as true.” If there are claim construction disputes, the Court continues, the district court must adopt the “non-moving party’s constructions” or resolve the dispute to the extent needed to conduct the § 101 analysis. Based on these premises, district court erred when it denied leave to amend without claim construction and in the face of factual allegations which were spelled out in the proposed second amended complaint.” Slip op 6. The Court remanded to allow Aatrix to file its second amended complaint.

I am thrilled to see this recognition by the Court, though my initial frisson of excitement is dulled by history: I feel compelled to go back through the Court’s prior myriad affirmances of pleadings dismissals where it has ignored the very same factual allegations and requests for claim construction. Two of my clients are in that sordid history. And other patentees come to mind.

Hopefully, however, this is the beginning of a recognition of the underlying facts and the procedure required for proper Rule 12 dismissal, and not just a blip in the Alice carnage.

One cautionary note: Judge Reyna concurred-in-part and dissented-in-part in Aatrix. The crux of his position is that § 101 is a legal question and that the majority opinion “attempts to shoehorn a significant factual component into the Alice § 101 analysis.” While I disagree with Judge Reyna’s position, I do agree with him that Aatrix, and Bernheimer depart from the Court’s post-Alice precedent.

It’s a worthwhile departure. I’m happy to see it.

______________

[1] Steven E. Berkheimer v. HP Inc., 2017-1437 (Fed. Cir. Feb. 8, 2018); Aatrix Software, Inc., v. Green Shades Software, Inc., 2017-1452 (Fed. Cir. Feb. 14, 2018).

The Author

Meredith Addy

Meredith Addy is an experienced intellectual property litigator, business strategist and consultant. Addy has handled more than 30 cases before trial courts and argued more than 40 appeals to the Federal Circuit. She has held leadership positions at several AmLaw100 firms and is a recipient of many awards and honors. Addy is partner at litigation boutique Tabet DiVito & Rothstein in Chicago, and she also consults to executive teams on the most efficient strategies for realizing their IP goals. Addy has testified before Congress to address issues relating to the Federal Circuit and the state of patent law.  She has been a member of the Federal Circuit’s Advisory Council and a member of the board of directors of the Federal Circuit Bar Association.  Addy is also a founder of the Richard Linn American Inn of Court, which is directed to intellectual property, and served as its first president. Addy has also been recognized as one of the Most Influential Women in IP Law by Law360.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 32 Comments comments.

  1. angry dude February 18, 2018 11:41 am

    blah-blah-blah..
    so many words
    you lawyers like to talk and write a lot

    “anything under the sun that is made by man” -that’s all it should be. period.

    Better tell us what they are going to do with EBay ?
    nothing i guess
    then to the morgue

  2. Anon February 18, 2018 12:03 pm

    so many words
    you lawyers like to talk and write a lot

    Feel free to NOT spend any time here whatsoever, angry dude.

    That way, your typical mantra that serves the purpose of the Efficient Infringer lobby so well will not be missed by those of us who still care enough about innovation in the US to be fighting the good fight.

  3. Anon February 18, 2018 12:13 pm

    Meredith,

    It’s nice to see these two decisions put a dagger into the heart of the PTAB attempt to rewrite it’s own history when it comes to the factual predicate of the 101 decision (see Ex parte Johnson attempting to rewrite In re Poisson).

    The far bigger shoe to drop though are those actions outside of the Article III forum – and especially those actions coming under the rubric of examination in the first instance (where the duty of presentation of the factual predicates of the 101 decision are going to be MORE important – critically, in any sense of properly making a prima facie case that an invention does not pass 35 USC 101 due to some (most often previously merely hand waved) sense of “generic” or “conventional.”

  4. Gene Quinn February 18, 2018 1:36 pm

    angry dude-

    We could fill an encyclopedia with what you don’t understand on this topic.

    If patent eligibility has underlying factual issues (which the CAFC finally acknowledged) and complaints are drafted properly, it will be impossible for a defendant to win a motion to dismiss. That alone will mean defendants will be more inclined to settle. Add on top the fact that it will also affect summary judgment thanks to Berkheimer and that means these cases are going to get to trial. Again, that will only increase the amount defendants are willing to pay to settle.

    Yes, eBay remains very important, but eBay was decided in 2006 and cases still settled and the value of patents was still at all-time highs thereafter. Granted, defendants will not be paying NTP type money without the fear of injunction, but these two decisions will rise the tide and all boats will benefit.

    -Gene

  5. Edward Heller February 18, 2018 1:37 pm

    Whether the claimed invention improves underlying but otherwise eligible subject matter is or at least should be the issue that has to be resolved. In many cases, if not most cases, this is a factual question that should not be resolved without a trial.

    The only cases that should be resolved on the pleadings or on summary judgment are cases where there is no attempt whatsoever to improve underlying, but eligible technology. Such is the case with most business methods where the use of generic computers is just perfunctory.

    Were Versata decided today, Versata would have prevailed. Clearly the invention in Versata was not directed to an improvement in the business method, but to an improvement in a data processing system.

  6. Anon February 18, 2018 2:16 pm

    Mr. Heller,

    Please desist from your nonsense of the “but otherwise eligible subject matter” which is nothing more than your canard of “Point of Novelty” for subject matter eligibility.

    Further here, you ploy a canard against business methods which has NO support in law.

    Your (plainly speaking) crap may fly elsewhere, but you do not get to simply say such unfounded crap here. You will be held to properly apply the law, including NOT making the process subject matter category into some handmaiden subset of the hard goods categories.

    Your post here only obscures the larger and more important point that is the topic of the discussion. Tilt at your Windmill Chases on that other forum please.

  7. Judge Rich's Ghost February 18, 2018 2:48 pm

    This article provides a good explanation of what is wrong with 12(b)(6) dismissals based on Alice. Perhaps the court is listening to former Chief Judge Paul Michel

    http://www.iam-media.com/Magazine/Issue/80/Features/The-uncertain-state-of-patent-law-10-years-into-the-Roberts-court

  8. The Time Is Now To Act February 18, 2018 3:36 pm

    Here, we have decisions that signal a key opportunity for Director Iancu to make key examination policy updates re 101 early in his tenure.

    As Anon points out, as important as these decisions are to litigation, it also needs to be used as fuel to end the ‘conclusory statement’ regime of Examiners re 101 rejections.

  9. B February 18, 2018 7:44 pm

    Reyna’s dissent in Aatrix is irreconcilable with his holding in McRO. Similarly, the holding in Berkheimer (which Taranto signed onto) is irreconcilable with Enfish and Electric Power Group (which Taranto wrote)..

    I find it comforting that some of these black-robed, law-school graduates FINALLY came around to the idea that a factual inquiry, such as whether something is well-understood, routine and conventional in the relevant arts, requires evidence rather than some ipse dixit proclamation based on an idea that said judges are omniscient.

    However, don’t hold your breath. The stupidity of the CAFC runs deep when it comes to 101. I brought this very same issue to the CAFC en banc a year and a half ago and was shot down. Heck, Reyna, Taranto and Hughes thought I was insane to even make the assertion during oral argument.

  10. angry dude February 18, 2018 7:52 pm

    “…black-robed, law-school graduates…”

    they are ignorant, pretentious and very possibly deeply corrupt a$$holes

    “the fate of all mankind I see is in the hands of fools”

    how comforting is that ?

  11. B February 18, 2018 7:59 pm

    To anon

    “It’s nice to see these two decisions put a dagger into the heart of the PTAB attempt to rewrite it’s own history when it comes to the factual predicate of the 101 decision (see Ex parte Johnson attempting to rewrite In re Poisson).”

    You’ve been reading Nina Medlock decisions, haven’t you? FWIW, usually the PTAB just denies Poisson is precedential. For Medlock, however, the problem is that Medlock herself declared the 101 rejection in Poisson was improper b/c the Examiner provided no evidence. Medlock is beyond pathetic.

  12. B February 18, 2018 8:01 pm

    “they are ignorant, pretentious and very possibly deeply corrupt a$$holes”

    Don’t sugar-coat it, Angry Dude, don’t sugar-coat it!

  13. bp February 19, 2018 2:11 am

    “Is there a Light at the End of the Alice Tunnel?” Excellent post. I had just mis-typed “ipwatchdog” as “ipwatchgod”, certainly a sign – let there be light!

  14. Anon February 19, 2018 7:27 am

    B,

    Thank you but no, I am not familiar with the Nina Medlock decisions.

    It appears that your own personal interaction with this type of situation has left a bad taste in your mouth. My condolences. But if your bad experiences can be used to reveal a runaway “court” that needs to be reined in, then your story may be worth the tears in the run up to the Oil States case.

    As to the CAFC, you indicate that you made this argument to an en banc panel. I do not recall an en banc CAFC case that considered this issue. I do not like to ask questions that involve people outing themselves, but if you could share more details (without outing yourself), I’d appreciate it.

  15. Curious February 19, 2018 7:51 am

    Whether the claimed invention improves underlying but otherwise eligible subject matter is or at least should be the issue that has to be resolved.
    I was never aware of an “improves” requirement for patents. Isn’t it utility and novelty? (with obviousness being a variation on novelty)

  16. Night Writer February 19, 2018 9:23 am

    Ned: Whether the claimed invention improves underlying but otherwise eligible subject matter is or at least should be the issue that has to be resolved.

    Never ends with Ned the Bensonite.

  17. Ternary February 19, 2018 10:05 am

    “Clearly the invention in Versata was not directed to an improvement in the business method, but to an improvement in a data processing system.”

    A business method implemented on a computer constitutes a data processing system. If the claimed data processing system is configured to execute steps in an order that was previously unknown, it is a novel data processing system and perhaps even a non-obvious one. See Curious @15.

  18. Night Writer February 19, 2018 10:16 am

    @17 Ternary

    I agree. The whole anti-patent judicial activism against “business methods” relies on not treating the system as a whole.

    The movement against business methods actually illustrates the idiocy of the anti-patent movement as there is probably no greater area of innovation then business with computers. Justice Ginsburg’s remarks about how patents aren’t for human behavior is idiocy of the highest order and illustrates that justices that were trained in the iron age need to retire.

  19. A Rational Person February 19, 2018 1:11 pm

    Night@18

    Justice Ginsburg doesn’t even understand iron age technology. For example, what is the mechanical “polygraph” but a machine for duplicating human behavior, i.e. hand writing:

    https://en.wikipedia.org/wiki/Polygraph_(duplicating_device)

    But, I guess Justice Ginsburg is arrogant enough to think she’s smarter than Thomas Jefferson who called the polygraph “the finest invention of the present age”.

  20. B February 19, 2018 2:44 pm

    To anon,

    “Thank you but no, I am not familiar with the Nina Medlock decisions”

    Well you just cited two of them (Johnson and Poisson) whether you knew it or not.

    “As to the CAFC, you indicate that you made this argument to an en banc panel”

    Clarity – I made the argument in a petition for an en banc rehearing. I even pointed out the necessity for substantial evidence in the APA. The petition was refused by a majority of CAFC judges. I had at least one CAFC judge supporting my position, just not half.

    In 2016 more than 50% of CAFC judges believed that substantial evidence wasn’t necessary to determine whether an ordered combination of limitations were well-known, routine and conventional.

    I strongly believe that an en banc hearing / rehearing on the issue is inevitable. I will actively support any party in the CAFC and SCOTUS who will advocate for an evidentiary standard because I’m tired of watching honest businessmen and inventors getting screwed over by confused judges living in a “Collosus, the Forbin Project” worldview.

  21. Anon February 19, 2018 3:06 pm

    Thanks B, I appreciate the additions.

    I would note one item though for you: a denial of cert is NOT the same as if the court decided the matter against your position.

    All that it is, is a denial to hear the matter.

    It is not appropriate to declare “more than 50% of CAFC judges believed that substantial evidence wasn’t necessary to determine whether an ordered combination of limitations were well-known, routine and conventional.” as that could only come from a granted cert and decision on the matter.

  22. B February 19, 2018 3:32 pm

    “I would note one item though for you: a denial of cert is NOT the same as if the court decided the matter against your position.”

    Oh, I’m quite aware of this, thank you – but respectfully you are wrong about my declaration. The internal rules at the CAFC are VERY SPECIFIC about timing. Based on timing I had at least one judge agree with my position and demand an en banc panel vote, but it takes 1/2 the judges to agree to an en banc rehearing, which I did not get.

    http://www.cafc.uscourts.gov/sites/default/files/rules-of-practice/IOPs/IOPsMaster1b.pdf

  23. Anon February 19, 2018 3:43 pm

    My apologies if I misunderstood your declaration. I thought that you were rendering some “official” pronouncement of the CAFC.

  24. B February 19, 2018 4:00 pm

    to anon,

    “My apologies if I misunderstood your declaration. I thought that you were rendering some “official” pronouncement of the CAFC.”

    No problem – I could have made a more clear statement. That said, it took 3.5 years for a few CAFC judges to discern that a judge’s gut feelings aren’t reality. The CAFC is solidly behind the need for substantial evidence in 102 and 103 rejections, and the CAFC (as with the SCOTUS) recognized that there will be factual overlap with Alice-based 101 rejections and 102/103 rejections. Heck – I heard Judge Hughes make such a remark even as he denied the need for evidence to my own client. Why it took so long for these same judges to make the leap that evidence is necessary to make factual determinations in post-Alice 101 rejections is beyond my comprehension. Reyna’s Aatrix dissent shocks me especially. It’s as if he never read his own opinion in McRo v. Bandai.

    That said, the Berkheimer and Aatrix decisions have vastly clarified the divisions within the CAFC on the issue of evidence and 101.

  25. JCD February 19, 2018 4:13 pm

    B,

    FYI, I am currently appealing whether a Board’s factual finding that “the claim elements amount to no more than the recitation of … ‘functions that are well-understood, routine, and conventional activities[,] previously known to the pertinent industry’” should be set aside under the APA as unsupported by substantial evidence, and whether the Board’s affirmance of the Examiner’s 35 U.S.C. §101 rejection should be set aside because it was based on such factual finding that was not supported by substantial evidence.

    The climate has changed a bit since Villena was decided, and I am hopeful that I can get a more positive outcome. I read all of the briefs in Villena, but haven’t yet listened to the oral argument (I plan to do so soon). I also am fortunate not to have a §103 rejection to deal with as well, which potentially opens up some interesting arguments.

  26. B February 19, 2018 4:29 pm

    ” I read all of the briefs in Villena, but haven’t yet listened to the oral argument (I plan to do so soon).”

    Don’t bother with oral – I couldn’t get a word in edgewise, and to be frank I was overwhelmed with too many issues and made the mistake of trying to get the CAFC to take notice of the corruption at the PTAB. You should listen to Berkheimer and Electric Power Group.

    I have Aatrix on the list of “to hear.” The winning attorney is a good guy btw.

    BTW, have you read Villena, Ver. 2.0 (Appeal 2017-2069)? Much more focused, and I made nearly all the same arguments in Berkheimer.

    Also, could you provide your own appeal number? I’d love to read other writings on the issue.

  27. B February 19, 2018 4:40 pm

    To JCD,

    BTW, in Villena 2.0 all that is left is a 101 rejection. I beat the 102/103 rejections, and so the recognition in Berkheimer that its harder to get evidence on “well-understood, routine and conventional” than anticipation (slip op at p. 14) is a god-send.

    Hell, I had the 102/103 rejections beat in Villena 1.0 for lack of substantial evidence, an APJ flat-out lying to me during oral argument, idiotic claim construction and other issues. 3600 and the APJs who decide 3600 appeals are pathetic.

  28. Anon February 19, 2018 5:32 pm

    Great discussion guys – another reason why this blog is ranked #1.

  29. B February 19, 2018 6:15 pm

    “Patent eligibility under § 101 is a question of law that
    may contain underlying issues of fact. See Berkheimer v.
    HP Inc., No. 2017-1437, 2018 WL 774096, at *5 (Fed. Cir.
    Feb. 8, 2018)

    . . .
    But the specification also more pointedly indicates that
    the recited components of the claimed RFID system were
    conventional. Id. at col. 3 ll. 4–5, 10–12. Indeed, the
    specification states that a conventional “simple RFID
    system may be composed of three components: a scanner,
    a transponder, and a computer.” Id. at col. 3 ll. 10–12.
    These are the same conventional components recited in
    the representative claims.
    . . .
    The representative claims simply do not require a
    particular configuration or arrangement of RFID system
    components. Nor do the representative claims require
    multiple antenna coverage areas.”
    ———————————————————
    Here’s the take-a-way. The specification can still be used as evidence against you, and the claims must embody some detail more than what is acknowledged as known.

    http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/17-1494.Opinion.2-15-2018.1.PDF

  30. Mark Nowotarski March 23, 2018 11:23 am

    Berkheimer is bearing fruit at the PTAB. In In re Bhogal (SN 12178896), the Board reversed an examiner’s 101 rejection citing Berkheimer. “The examiner has not set forth with sufficient specificity or provided any findings that the specifically claimed manner of rendering order prioritization technique is well understood, routine or conventional”. The invention was a way for users to bid on who gets to see an object first in a virtual universe. The highest bidder gets the object rendered first. Lower bidders get the same object rendered for them at correspondingly slower rates.

  31. B March 23, 2018 1:28 pm

    “Berkheimer is bearing fruit at the PTAB.”

    Yes and no. Apparently, the PTAB is still propping up AU 3689: https://e-foia.uspto.gov/Foia/RetrievePdf?system=BPAI&flNm=fd2017000142-03-20-2018-1

    Other panels mention Berkheimer, but don’t apply it
    https://e-foia.uspto.gov/Foia/RetrievePdf?system=BPAI&flNm=fd2016008663-03-20-2018-1

    Still other APJs remain blissfully ignorant
    https://e-foia.uspto.gov/Foia/RetrievePdf?system=BPAI&flNm=fd2017006308-03-20-2018-1

    In short, the PTAB has, at best, made a marginal amount of progress, and will continue to ignore whatever law they see fit because there is no downside to making bad rejections.

  32. B March 23, 2018 2:07 pm

    This PTAB Panel is beyond help: “Furthermore, PNC Bank does not stand for the proposition that Examiners must provide evidentiary support in every ease before a conclusion can be made that a claim is directed to an abstract idea. Indeed, there is no such requirement.” These jokers even mentioned Berkheimer stating: “Thus, evidence may be helpful where, for instance, facts are in dispute, but evidence is not always necessary. Appellants have not persuaded us that evidence is necessary in this case.”

    However, FACTS ARE IN DISPUTE. The Appellant constantly harps on the Examiner’s rejection as “conclusory” See page 8.

    Morons!

    https://e-foia.uspto.gov/Foia/RetrievePdf?system=BPAI&flNm=fd2016006875-02-26-2018-1

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