Federal Circuit Issues Another Rule 36 Patent Eligibility Loss to a Patent Owner

By Gene Quinn & Steve Brachmann
November 20, 2018

On Tuesday, November 13th, the Court of Appeals for the Federal Circuit issued another in a growing number of Rule 36 judgments. This particular Rule 36 patent eligibility loss for the patent owner came in Digital Media Technologies, Inc. v. Netflix, Inc., et al., and affirmed the district court’s finding that patent claims asserted by Digital Media against Netflix, Amazon and Hulu were invalid under 35 U.S.C. § 101 because they were directed to an abstract idea.

The Federal Circuit panel of Circuit Judges Alan Lourie, Timothy Dyk and Todd Hughes decided to issue the Rule 36 judgment without opinion despite counsel for Digital Media contending at oral arguments that the district court did not properly administer the Alice/Mayo test when reaching a determination that the asserted patents were patent ineligible, and despite the district court admitting the pure subjective nature of determining whether a claim is directed to an abstract idea. 

The patent-at-issue in this case is U.S. Patent No. 8964764, titled Multimedia Network System with Content Importation, Content Exportation, and Integrated Content Management. It claims a multimedia system that addressed various needs in the field of managing digital information in a way that makes it easy to download audio/video content from the Internet while providing reliable and flexible content protection and incorporates the use of digital video recorders (DVRs) for multiple users within a premise or vehicle.

In July 2017, U.S. District Judge Mark Walker of the Northern District of Florida granted a motion filed by Netflix to dismiss the case for failure to state a claim on the grounds that claims of the ‘764 patent were directed at a patent-ineligible abstract idea. Judge Walker reached this decision by more or less applying the two-step test for patentability set out by the U.S. Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank International. Essentially, Judge Walker seemed to have muddled steps 2A and 2B together, not separating the steps in a clearly delineated way.

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At oral arguments on appeal to the Federal Circuit, Stephen Risley, counsel representing Digital Media, argued that the district court failed to properly conduct the Alice/Mayo test by failing to specifically determine the abstract idea at step one, failing to analyze the language of the claim and failing to look at the claimed advance over the prior art. Citing to footnote 8 of Judge Walker’s order granting the motion to dismiss, Risley argued that the district court acknowledged that step one of Alice is an exercise of “I know it when I see it.” 

Risley received pushback from Judge Lourie with respect to the claim that Judge Walker did not determine the abstract idea, which seemed to be a claim that went beyond what the record supported. While it may not have been a traditional traverse of the familiar Alice/Mayo step 2A, Judge Lourie quoted from Walker’s decision where he did define the abstract idea. Nevertheless, this case did raise issues worthy of more than a one word judgment.

No one can actually know what a claim is direct to (Alice/Mayo step 2A), or whether a claim adds significantly more so that it does not merely claim an abstract idea (Alice/Mayo step 2B) without a proper claim interpretation. That is absolutely axiomatic. It is Patent Law 101. But for some reason the Federal Circuit continues on the charade of allowing district courts to interpret the meaning of claims to determine what they are directed to (step 2A) and whether there is significantly more, which is described as the hunt for the inventive concept (step 2B) without conducting a claim proper claim interpretation that considers the language of the patent claim, the specification and the entire prosecution history. In this case the prosecution history was in the record and not consulted. Why?

The Federal Circuit is allowing district courts and patent examiners to glean the scope and coverage of claims from a quick review of the surface. The Alice/Mayo step 2A and 2B determination as it exists now without a proper claim interpretation is antithetical to the entirety of patent law on this subject. It was raised by Risley in oral arguments, but with a Rule 36 wave of the pen the Federal Circuit once again sweeps this under the rug and ignores this blatant error to continue.

District Judge Walker was absolutely correct about one thing. Step 2A of the Alice/Mayo test, where one determines whether the claimed invention is directed to an abstract idea, is akin to the Supreme Court’s test for obscenity, which is famously articulated as “I know it when I see it.”

Earlier this year in a forceful separate opinion that both concurred in part and dissented-in-part, Judge Plager explained the fundamental flaws with the Supreme Court’s patent eligibility test. Plager wrote:

“Abstract ideas,” like the term “obscenity,” may provide a cultural consensus in a given instance regarding whether a past event qualifies, but it fails to provide the kind of specificity and clarity that makes it useful for future prediction of outcome. And from the viewpoint of decisional law, the `abstract ideas’ idea falls short in the sense of providing a trial judge with confidence that the judgment will be understood by the judges who come after, since only the judges who have the final say in the matter can say with finality that they know it when they see it.

Interval Licensing LLC v. AOL, Inc.(July 20, 2018). He would also go on to compare the Supreme Court’s Alice/Mayo test to the Emperor with no clothes. “This emperor clearly has no clothes; we need not wait for our children to tell us this,” Plager wrote. “The legitimate expectations of the innovation community, as well as basic notions of fairness and due process, compel us to address this § 101 conundrum.”

Once again, with this issue properly raised it was dodged by the panel through the use of Rule 36.

There can be no doubt that the Supreme Court has treated the term abstract idea much as they have the term obscenity. Such a level of subjectivity leads to a test that cannot be reproduced, is wholly unpredictable, and achieves nothing but chaos. This is how the Judges on the Federal Circuit can manage to find themselves split on the issue of whether claims drawn to computer implemented innovations are patent eligible. And as long as important questions continue to be dodged by panels using Rule 36 the chaos will be prolonged.

It is up to the Federal Circuit to step in and deal with the law of patent eligibility. The Supreme Court, like Congress, paints with a broad brush. When Congress legislates agencies must issue regulations on the order of 10 to 30 pages for every page of statute. When the Supreme Court dips its toe into an area and decides four cases on patent eligibility, one dealing with a mental process, and one dealing with claims that everyone in the industry agrees would have fallen under 102 and/or 103, applying those broad statements without refined nuance is the very definition of being a bureaucratic lemming.

Using Rule 36 in an area of the law as unstable, chaotic and unpredictable as patent eligibility is irresponsible. Whether the decision would be the same or not, the parties and the public have a right to have the Federal Circuit make sense “this § 101 conundrum.” After all, bringing stability to patent law is the only reason why the Federal Circuit was created. Why have a Federal Circuit if they can’t or won’t do the only job for which the Court was created?

 

Image Source: Deposit Photos.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Gene Quinn

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

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 13 Comments comments. Join the discussion.

  1. asdsad November 20, 2018 7:09 pm

    Claims at issue?

  2. Paul Morinville November 20, 2018 10:49 pm

    The difference between the porn test and the abstract idea test is a billion dollars in market and millions in investment.

  3. Gene Quinn November 20, 2018 11:32 pm

    asdsad-

    Not to put too fine a point on it, but what difference does it make what the claims actually say? The claims could be bad, they could be good. It doesn’t change the fact that a claim interpretation is improper because the prosecution history and specification are not considered.

    The claims cold be good and the claims could be bad, and it doesn’t change the fact that the Federal Circuit issued another one word loss to a patent owner without analysis. It also doesn’t change the fact that the district court in a moment of honest admitted what we all know and Judge Plager ranted about earlier this year — that the test is a laughably unrepeatable “I know it when I see it.”

    It is up to the last decision maker to know it when they see it, and in this case without any explanation to the rest of us mere peons who don’t deserve explanation.

    101 is chaotic, and it is flat irresponsible for the Federal Circuit to issue any Rule 36 decisions in an area of law and undeveloped and chaotic as 101.

    So what are the claims at issue? Who cares? The Federal Circuit doesn’t? So why should I?

  4. Paul Cole November 21, 2018 3:11 am

    Any attorney or judge who fails to have regard to the proper scope of the claimed subject matter on the “all elements” rule which is black letter law is unfit to practice and would fail any properly conducted patent agents examination at the USPTO. The creation of a “straw man” and then holding that the straw man does not qualify is clearly and manifestly inappropriate and unjust.

    And as I have often commented, the four eligible categories and the judicial exceptions if presented on a Venn diagram are non-intersecting sets. Any judge or attorney who considers only the judicial exceptions without first considering compliance with the positive categories of 35 USC 101 would merit a failing grade in any law school in any university where the Common Law is taught. Unfortunately a high proportion of my US colleagues would fail this test since there are almost no opinions which I have read where positive 101 compliance with one of the eligible categories has been seriously argued.

    If subject matter falling as a matter of substance rather than mere presentation within one of the eligible categories is objected to as ineligible, that raises issues of impermissible judicial amendment of statute and separation of powers as the late Justice Scalia wrote in his book on statutory interpretation.

    There is a drafting point for all of us who deal with life sciences or software inventions. We must ensure that the claims that we draft can be seen to fall affirmatively within one of the statutory classes on the basis of the relevant case law which is clearly set out in the MPEP. These categories and their requirements are no secret. The specification should disclose an unexpected new function or result which is the inventor’s own discovery or creation, which involves the hand of man and which can be related to one of the eligible categories. If we are careful in that, hopefully all this controversy will eventually fade away as it should.

    It seems as if Stephen Risley had good arguments here, and a Part 36 decision was inappropriate. But, again, it would be good to have a sight of the briefs.

  5. Paul Cole November 21, 2018 3:20 am

    I should have mentioned that if you look at the patent specification in issue here, there seems to be quite a lot of new function disclosed on the face of the patent specification.

  6. concerned November 21, 2018 9:32 am

    Mr. Cole:

    There is a drafting point for all of us who deal with life sciences or software inventions. We must ensure that the claims that we draft can be seen to fall affirmatively within one of the statutory classes on the basis of the relevant case law which is clearly set out in the MPEP. These categories and their requirements are no secret. The specification should disclose an unexpected new function or result which is the inventor’s own discovery or creation, which involves the hand of man and which can be related to one of the eligible categories. If we are careful in that, hopefully all this controversy will eventually fade away as it should.
    ===
    I would also hope that all this controversy would naturally faded, but I doubt it. It sure seems to me that there is a hidden agenda to kill software patents and Alice was the perfect case for SCOTUS to accept. Add words to the law, do not define said words- mission accomplished. My examiner has only approved 2 out of 114 applications the past 12 months.

    Both my attorney and also the author who reached out for my patent story noted that my claims were narrowed for clarification to ensure that the process is not abstract. It did not matter as the application was rejected, so was the truckload of evidence.

    Also agree the MPEP is no secret, neither are the official Bahr memos that supported my application. These were also dismissed by the examiner.

    The main problem I see from patent attorneys across the nation is they try to rationalize what is occurring in patent prosecution and jurisprudence. A person simply cannot rationale or find the secret key, it does not address the real or hidden agenda.

    This patent situation has so many parallels to the sub prime mortgage scam. Nobody seriously thought that people without financial means qualified for mortgage loans. Like patents, the mortgage scam was perpetuated by illogical arguments as to why these financially unworthy people qualified to keep the profit spigot wide open. The weigh of the fraud collapsed upon itself and involuntarily forced the stopping of the scam.

    So these Rule 36s and all the other non-sense will continue until the weight of this non-sense collapses upon itself and forces an involuntary stoppage (i.e. it is screwing the entire country and also screwing those who are abusing the current process.) Then, like the sub prime mortgage scam, everyone will be running around pointing the finger and saying “we did not do that, we did not say that.” No one will be penalized and the country will move on to the next money making scam at other people’s expense.

  7. Anon November 21, 2018 10:22 am

    Mr. Cole,

    …and every time you state “And as I have often commented, the four eligible categories and the judicial exceptions if presented on a Venn diagram are non-intersecting sets” I have to wonder which cases are you reading?

    You are simply not in accord with what our Supreme Court has done.

  8. BP November 21, 2018 12:29 pm

    The oral argument in this case is a mess. The Fed Cir focuses on the 144 advantages listed in the specification, why? Because the Fed Cir wanted to know what was the “advantage” as well as what was “new”.

    Then this:
    P: “Your honor . . . the evidence of record in a Rule 12 context . . .”
    Fed Cir: “Are we at step 2 now?”
    P: “No, we are not”
    Fed Cir: “I don’t understand why you are arguing evidentiary matters to me at step 1”. (which was stated in a very “stern” manner)

    101 reminds me of Kafka:
    “They’re talking about things of which they don’t have the slightest understanding, anyway. It’s only because of their stupidity that they’re able to be so sure of themselves.”
    ? Franz Kafka, The Trial

    Footnote 11 from the lower court opinion:

    JerichoSys. Corp. v. Axiomatics, Inc., No. 3:14-CV-2281-K, 2015 WL 2165931, at *5 (N.D. Tex. May 7, 2015) (“Even if the system is faster and more efficient than what was done in the past, that fact does not make this not an abstract idea. The idea behind the process remains that [sic] same. Also, it is not the invention that makes the system fast and efficient, it is the use of computers systems to implement the abstract idea that make the system fast and efficient.”), aff’d, 642
    F. App’x 979 (Fed. Cir. 2016).

  9. HierarchyOfPontificationBuckets November 21, 2018 1:01 pm

    “The Supreme Court, like Congress, paints with a broad brush.”

    “any new and useful process, machine, manufacture, or composition of matter” … How much broader could Congress be? These superlegislators have botched an area of law involving billions in American investment. And they will continue to enable lower courts to hide their abominations of jurisprudence with insults to a foundation of American justice — the notion that decisions of substance are to be explained so that they can be tested for soundness, criticized, learned from, reconciled, etc. Rule 36 decisions affirming ineligibility decisions are the pinnacle of raw judicial power that would be met with outrage in any high-visibility are of law.

  10. Ternary November 21, 2018 4:20 pm

    There appears to be considerable prejudice against Digital Media by the District Court: “Other than owning and litigating the patent at issue, it is unclear what Plaintiff does.” Owning and asserting a patent appears sufficient to me. It is not an illegal activity. Though the implication of this sentence is that something fishy is going on here. Not a great position to be in for Digital Media. This in contrast to the laudable Netflix which provides over 12,000 titles to subscribers over the Internet, as recited by the Court. No doubt where the sympathies are for this Court.

    Combined with the extremely malleable tool of Alice, Digital Media has and had no chance of winning at at all.

    The District Court explains that is can look from 30,000 feet at the claim and find that it is directed to the abstract idea of “secured content delivery.” From a lower level the District Court says that one can describe the claimed invention directed to the abstract idea of “delivering content secured with licenses and encryption.”

    The Court correctly holds that “the pitfall of this type of analysis is that a reviewing court can essentially find any patent abstract, because it is that same court that chooses how broadly to define the patent.”

    A reasonable court should then, of course, go down to the level as described and intended by the claims (in the context of the specification), which is the technical level. The context of the specification shows that the claims are directed to the processing of signals, which is not an abstract idea.

    But the courts appear to be unable to review claims on a technical level, even though they are aware that they probably should do so. However the Alice hammer is too powerful to knock down patents from parties that are looked upon unfavorably by the Court.

    The USPTO issued continuation US 10,127,363 last week in this case. Correctly, the Examiner found no Alice issue in the claims. (because, really … there are none).

    The patent system is a mess, with non-technical people deciding which part of technology is an abstract idea and Courts don’t even hide their distaste for a party or an invention.

  11. anonymous November 21, 2018 9:38 pm

    At least one magistrate in D. Del. seems to be catching on that a claim construction might affect the Alice analysis. See, Kroy IP Holdings, LLC v. Groupon, Inc. (D. Del., 2018)(denying a motion to dismiss, finding that questions of fact remained as to whether the claims contained features, alone and in combination, that were considered well-understood, routine, and conventional to a skilled artisan in the relevant field at the time of invention, and that unresolved issues of claim construction could potentially bear on the analysis).

  12. Jianqing Wu November 22, 2018 2:49 pm

    Rule 36 is the most powerful device for creating and maintaining this non-performing patent system. Patent case law is full of arbitrary, inconsistent, wrong and absurd decisions. By keeping producing such meaningless decisions, judges will drain last drops of life blood from the patent system. Judges only concern their workloads, but pay no attention to justice. If Rule 36 is not barred by legislature, the court cannot deliver justice. There is no justice for U.S. inventors.

    “I know it when I see it” is how common law judges decided cases. If they have a power to make laws, they certainly can decide cases by personal desires. It is time to purge common law vestiges from the court system.

    Rule 36 and judges’ freedom in making laws is a powerful combination for creating and maintaining such a patent law system. They will slowly ruin the national technological landscape.

    If judges do not want to do their jobs, the court should hire judges who are willing to do what they are expected to do. There is a need to count Rule 36 decisions for each judge.

    Rule 36 allows judges to waste judicial resources. Whenever a Rule 36 decision is handed down, no actual work is done to achieve justice. Total waste!

  13. Eric Berend November 25, 2018 11:13 am

    I made reference to the infamous citation to Justice Potter in the comment to an IPWatchdog.com article, already about two years ago.

    It should have been obvious to anyone concerned possessing so-called ‘legal chops’, the very day after the SCOTUS *Alice* decision.

    NOSE.
    OF.
    WAX.

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