Categorical Rules and Why the Investpic Holding Should Worry Everyone

In Part 1 of this Article entitled There’s No Light at the End of the Tunnel – Not Even Close, I asserted that there are at least four problems caused by the Federal Circuit that led to the ongoing judicial carnage that patent professionals and inventors are subjected to under Alice/Mayo.  I maintain that nothing will get better until all four of the above-mentioned issues are corrected.

Obviously, the first problem is/was the lack of an objective evidentiary standard for the better part of a decade.  However, despite the recent Berkheimer, Aatrix and Exergen holdings, I don’t believe the issue is fully resolved in light of the recent SAP America v. Investpic decision as is discussed below.

The second problem, which is related to the first problem, is the (still ongoing) legally-erroneous idea of importing “facts” by comparing the fact-based holdings of cases, which came in vogue due to erroneous dicta in Enfish.  To wit, the Enfish court asserted “both this court and the Supreme Court have found it sufficient to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases” (citing Alice Corp.).  This assertion is a mischaracterization of Alice Corp., which never held that the intermediated settlement claims at issue in Alice Corp. were abstract because of the risk hedging claims in Bilskiwere abstract.  Instead, the Supreme Court stated “that there is no meaningful distinc­tion between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here” because “[b]oth are squarely within the realm of ‘abstract ideas’ as we have used that term.”  That is: the claims in Bilski and Alice Corp. were comparable only because the underlying business methods were undoubtedly long-prevalent in the business community.  To hold otherwise is to ignore the vast bulk of both the Bilski and Alice Corp. decisions.

The Federal Circuit’s misreading of Alice Corp. is naught by an improper application of collateral estoppel.  Why should my clients be held to a fact-based holding developed in another case they had nothing to do with?  In what other area of law is a fact-based holding of one case applied to a second case assuming the cases involve different parties?

The third problem (ongoing) is the abrogation of the preemption, which is the only doctrine recognized by the Supreme Court.  This is clear to any attorney who has ever asked the Federal Circuit or PTAB “where’s the preemption” only to hear Ariosa v. Sequenom (penned by Judge Reyna) cited back stating: hey we’ve done our deeming under the Mayo framework, now shut up because preemption is fully addressed and made moot.  Call me provincial, but it is my position that whenever reality and legal theory conflict, legal theory should be modified.

The fourth problem (ongoing) is related to all of the above issues, and consists of the various categorical rules (or “categorical exceptions”) developed by the Federal Circuit having nothing to do with preemption.  The categorical rules set forth in the Alstom and Investpic cases are perfect examples.  What exactly is preempted in these cases?  The Federal Circuit does not address the preemption issue in these cases, and if asked this question, the Federal Circuit would be sure to cite Ariosa.

By creating categorical rules, the Federal Circuit blessed the idea of ignoring substantive claim limitations, thus violating the you-must-consider-the-claims-as-a-whole-ordered-combination rule set forth by the Supreme Court.  Yes, we must consider each and every claim limitation as an ordered combination, but not really, except sometimes, because categorical rule.  However, the Supreme Court has a long history of shooting down the Federal Circuit’s constant stream of categorical rules.  “A categorical rule denying patent protection for ‘inventions in areas not contemplated by Congress . . . would frustrate the purposes of the patent law.’” Bilski, slip op. at pp. 8-9 (citing Chakrabarty).

The application of categorical rules under § 101 also gives the preemption doctrine a pass.  It does not matter is there are an infinite variety of alternate solutions, because Ariosa.

Returning to the Investpic case, Federal Circuit (slip op. at p. 9) cites the Supreme Court’s Parker v. Flook and Gottschalk v. Benson cases for the idea that “analyzing information . . . by mathematical algorithms, without more” must be abstract.  However, this is a mischaracterization of Flook, and denial as to how recent Supreme Court cases modified Benson.

For the non-EE, non-signal processing crowd, the Flook claims should not have been held patent ineligible because computer processing was involved.  To the contrary, Diamond v. Diehr undeniably overturned the holding of Flook.  However, I still believe that the Flook claims should have been held patent-ineligible because they preempted an adaptive signal processing technique known as “steepest descent” in the relevant industry.  The steepest descent algorithm, being first published in 1909 by Dutch physicist Peter Debye, was undoubtedly abstract in 1978.  See also, Alice Corp., slip op. at p. 12.

Turning to Benson, the Supreme Court’s rejection was based on the idea that converting binary-coded decimal numerals into pure binary code was not a “process” under § 101.  Bilski, slip op. at p. 13.  However, 35 U.S.C. 100(b) broadly defines the term “process” as meaning a “process, art, or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.”  The plain meaning of the word “process” is defined as “a particular method or system of doing something, producing something, or accomplishing a specific goal.” Webster’s Third New International Dictionary 1808 (1986).  Bilski’s rejection of the machine-or-transformation test further puts into serious question the validity of Benson.  “[T]he machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.”  Bilski, slip op. at p. 9.  Data compression?  Manipulation of digital signals?  Clearly, the Supreme Court presently considers some mathematical algorithms patent eligible, and clearly courts ‘should not read into the patent laws limitations and conditions which the legislature has not expressed.’”  Bilski, slip op. at p. 2.

Despite the evolution of the Supreme Court’s view of processes under § 101, I believe there is an argument that the Benson case is correctly decided under the Alice/Mayo test as the Benson claims appear to preempt the abstract idea of converting BCD numbers to binary form.

For those patent professionals and inventors who are not yet convinced that the exceptions to § 101 under Alice/Mayo are not presently swallowing the rule, I invite you to read the district court decision of American Axle v. Neapco.  As a spoiler, I’ll tell you that the district court judge addressed the inevitable pesky preemption issue by citing Ariosa.  While the Federal Circuit has yet to decide the case, which involves an apparently novel and non-obvious way to dampen engine vibrations, I am not hopeful given the Federal Circuit’s love for Ariosa, and the fact that internal combustion engines are ubiquitous and really, really old things.

I also recommend that you doubting patent professionals review the last twenty PTAB decisions as of July 15, 2018.  Of the twenty decisions, seventeen were affirmed and three were reversed.  Of the three reversed decisions, one was reversed because the examiner failed to address all the claim limitations; the other two were reversed for lack of evidence citing Berkheimer.  Apparently, none of the APJs of the remaining seventeen cases actually read and/or understood the Berkheimer memo recently distributed throughout the USPTO, or any relevant case law on the issue of evidence and patent eligibility.

Some of the seventeen PTAB affirmations predictably bypass the Berkheimer evidentiary requirement by citing the above-mentioned dicta of Enfish.  See Ex Parte Rathburn, Appeal No. 2016-007034.  Preemption in Ex Parte Rathburn is also predictably addressed by a citation of Ariosa.

Many of the affirmations are absolutely bizarre.  Not bizarre in the amusing and “that’s really interesting” sense, but bizarre in the teeth-grinding and highly frustrating sense.  For example, in Ex Parte Metzger, Appeal No. 2017-003967, the examiner asserted in a February 9, 2016, final Office Action that the functions of the claims at issue “are well-understood, routine and conventional activities previously known to the pertinent industry” even though the examiner could not produce the evidence to sustain a § 102 or § 103 rejection.  In response to the final Office Action, the Appellant’s attorney vigorously argued on appeal that there was no evidence to support the Examiner’s factual conclusions.  Yes, I know, § 101 is not § 102 or § 103, but the evidentiary requirement to establish that a man-made thing is “well-understood, routine and conventional” is undoubtedly greater than the evidentiary requirement for anticipation or obviousness.  See, e.g., Exergen, slip op. at pp. 10-11.

In the Metzger decision dated July 3, 2018, the PTAB panel acknowledged that an abstract idea must involve “more than [the] performance of ‘well-understood, routine, [and] conventional activities previously known to the industry,’” and further acknowledged that “[w]hether something is well-understood, routine, and conventional to a skilled artisan at the time of the patent is a factual determination.”  Oddly enough, however, the same PTAB panel addressed the evidence issue (slip op. at p. 5) by stating “[e]vidence may be helpful in certain situations where, for instance, facts are in dispute. However, it is not always necessary. It is not necessary in this case.”

It’s as if the Metzger panel is wholly unaware of the nexus between evidence and findings of fact.

Oh, yes, to no one’s surprise, Ariosa is predictably cited to address preemption.

Despite my criticisms, Ex Parte Metzger isn’t the worst of these recent PTAB decisions.   I’ve personally seen this problematic pattern from the PTAB in my own practice, and doubtlessly many of you patent practitioners and inventors have seen this same (or similar) sequence of events play out to your dismay.

Also despite my criticisms, I do not blame patent examiners for the ongoing carnage.  Patent examiners (with notable exceptions who know who they are) generally attempt to follow the law.  Further, examiners are encumbered with poor training on § 101, which in large part is due to the cacophony on § 101 decisions issued from the Federal Circuit.

While I am more critical of APJs given their law degrees and duties, I fully acknowledge that the PTAB is similarly encumbered by the mass of conflicting and misleading decisions issued by the Federal Circuit.  Why should APJs pay attention to the evidentiary requirement of § 706 of the Administrative Procedure Act given the past refusal of the Federal Circuit to address it?  (I’ll address this later)

That said, it’s still a long way until we’re out of the darkness.