To be successful, patent practitioners must show the PTO, courts, and Congress the importance of our clients’ innovations and explain why the type of technology should not dictate whether there is enforceability.
In June 2014, the U.S. Supreme Court issued the now much-maligned Alice decision, which ostensibly provided guidance on patent eligibility under 35 U.S.C. § 101. The decision was obtuse and capable of many different interpretations.
Four years later, the patent landscape demonstrates that Alice has become a train wreck for innovation. This article looks at the damage wrought by litigants and trial courts in applying flawed interpretations of Alice, and the U.S. Court of Appeals for the Federal Circuit’s abdication, at least until recently, of its responsibility to interpret Alice.
Court in the Crosshairs
It was no surprise that the U.S. Supreme Court granted certiorari in Alice. By 2013, the Federal Circuit clearly had been struggling to provide guidance on what types of inventions should be patent-eligible. Upon grant of en banc review in Alice, the Federal Circuit specifically asked the parties and amici curiae, “What test should the court adopt to determine whether a computer-implemented invention is a patent-ineligible abstract idea?” However, its en banc decision completely failed to establish such a test — much less provide unified guidance. Instead, the Court issued a per curiam opinion accompanied by six other opinions. Certiorari was close to inevitable.
The rest, of course, we know too well. The Supreme Court determined that patent claims drawn to a computer-implemented scheme for mitigating financial “settlement risk” were not patent-eligible under Section 101. But it was not the High Court’s judgment of “not patent-eligible” that so disrupted the innovating community. It was the subsequent warped interpretations of Court’s opaque analysis.
Armed with Alice, infringement defendants successfully convinced district courts to use the Alice decision’s alleged “teachings,” found in loose language, to suffocate patent infringement cases before they even got started—by invalidating patents on the pleadings. Such pleadings invalidations became rampant despite long-standing procedural rules and patent doctrines that taught against them, not the least of which was the presumption of patent validity.
Patent cases are notoriously complicated and difficult to resolve. Sadly, Alice’s novel allure of an early dismissal enticed the district courts time and again to ignore established practices. Alice allowed judges to blithely bypass unpacking specific statutory sections, avoid application of patent precedent to complicated technologies, and ignore interpretation of patent claim terms.
The Resulting Carnage
Unfortunately, the Federal Circuit failed to rein in this rout of Machiavellian creativity, which it could have done by relying on well-settled procedural process and patent doctrines. Once a district court succeeded in invalidating an entire patent without considering the claims or the underlying technology, the Federal Circuit refused to correct the wrong for the hundreds of litigants appealing those lower court dismissals. In most cases, the Court declined to craft any sort of explanatory opinion, relying instead on its ability to issue a one-word decision – “Affirmed.”
After four years, over 90% of cases appealed to the Federal Circuit on patent ineligibility grounds have been affirmed. Ninety percent. As of the end of August 2018, the Federal Circuit has reversed or vacated only 9.,
Upstream of the Federal Circuit, since Alice, over 810 district court decisions have addressed patent eligibility. Of those 810, around 480 decisions, or about 60% percent, found claims unpatentable under Section 101. Of those 480 invalidations, 355 of them, or about 74% resulted from a Motion under Federal Rule of Civil Procedure 12(b)(6) or 12(c). Think about these numbers: in a scant four years, 355 district court decisions have invalidated patents just on a pleading, without looking into what PHOSITA would think, much less conducting a claim construction.
How does this happen when a patent is presumed valid? And, when factual issues under Rule 12 are supposed to be resolved in favor of the patentee? I cannot imagine what Judge Giles Rich would be thinking now, as his thorough and nuanced approach to establishing clear patent precedent has been thrown aside by recent jurisprudence.
And let’s take one closer look. Of those more than 480 district court patent invalidations under Section 101, there have been only 122 appellate decisions. Only about 25 percent of the district court invalidations continued to appellate decision before the expert Federal Circuit.
In other words, simply by filing a patent infringement complaint, over half the time, the patentee not only lost the litigation, but also lost its patent right, and 75% of those losses were not appealed. If those numbers don’t confirm the benefits of efficient infringement, I’m not sure what does.
Of that lucky 25% that had the resources to request Federal Circuit review, fewer than one-half of them, or 57 of the 122 appeals of district court invalidations, received opinions from the Federal Circuit.The rest received the dreaded “Rule 36 Affirmance,” which provides no guidance to the litigants or to others trying to navigate these dangerous waters.
Even today, the Federal Circuit’s post-Alice decisions tell us that no financial patent is safe from Section 101. And, if you can believe it, no Federal Circuit decision has defined what “abstract” means, even though courts have invalidated several hundred patents as being “abstract.”
It is also clear that Alice has affected how software and financial applications are handled at the Patent Office, which has issued three Guidances trying to unravel Alice.Even so, it remains difficult to know how to draft an application that will militate against a Section 101 rejection. In the Patent Office’s technology group 705 for example, the rejection rate remains above 90%.
While these statistics are relatively easy to determine, the upstream shift in how or whether innovation will be developed and protected is more difficult to quantify and much more far-reaching.
Glimmers of Hope?
This year, the Federal Circuit appears finally to have awakened from its slumber. In two recent opinions, Aatrix v. Green Shades and Berkheimer v. HP, the Federal Circuit embraced long-established procedural rules and patent doctrines. Recognizing first that there may be underlying factual determinations in patent eligibility, especially when a patent is presumed valid, and also, that a motion to dismiss on the pleadings fails if the non-movant raises factual discrepancies.
These two recent cases along with various building blocks provided by the few other Federal Circuit decisions, provide a tinge of silver around the edges of the dark cloud cast by Alice, providing hope that once again, we can develop sensible, cogent precedent for district courts and the PTO to follow on Section 101.
This is no fairy tale. Rebuilding the innovation landscape and providing the proper scope of protection for software and financial innovations will take time and focused efforts by those who can effect such change.
There is movement in Congress to amend Section 101. Several legislative proposals attempt to avoid the innovation mire, but they are complicated and face resistance – not least due to the relative unfamiliarity to many in Congress of the complexities of patent law and the harm that has resulted from Alice. It’s worth noting that in our current, volatile climate on the Hill, amendments to patent -eligibility may not be the most pressing matters on the minds of our members of Congress.
While Congress grinds away, however, the Federal Circuit should be able to continue to clarify precedent under the current statute. Section 101 did not hinder innovation until courts tried to give it teeth that don’t fit its jaws. With Berkheimer and Aatrix, maybe we begin to move into a more stable environment.
Section 101 requires simply that: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” Judge Rich aptly interpreted the Patent Statute as having a gatekeeping function, with Section 101 the first of several doors that must be opened. The Supreme Court has repeatedly issued similarly broad teachings on eligibility, as covering “anything under the sun that is made by man.” Nothing has changed in the wording of the statute since the 1980s, only the warped, astigmatic, anti-innovation lens we are bringing to it.
Certainly, technology has evolved: coding and applications of algorithms, development of genetic modifications, and diagnostic treatments. But these technological developments are no different in their newness from from earlier developments that Section 101 handled, such as “practical applications for mathematical formula.”
The trial courts interpreting Alice have forgotten, what Judge Rich once stated masterfully: an analysis performed solely under Section 101 cannot alone impart patentability. Rather, “If the invention … falls into any one of the named categories [in Section 101], [the inventor] is allowed to pass through [the door of Section 101] to the second door, which is § 102; ‘novelty and loss of right to patent’ is the sign on it.” Of course, the inventor also must pass through a third door: “obviousness and loss of patent right” is the sign on that third one.
Determining patentability by invoking a series of doors, of which patent eligibility is merely the first, reflects a progression in logical order. By ignoring these three separate doors, courts post-Alice have forgotten the separate, sequential requirements of the patent statute found in Sections 101, 102, and 103, opting instead to conflate all of those requirements into an overburdened Section 101 alone. Thus, it has caused confusion not only in the law but also for the innovators in our economy. Confusion stalls innovation, because complexity and costs increase for inventors, while incentives correspondingly decrease.
What To Do?
With Congress otherwise preoccupied, fighting to amend the patent statute post-AIA may not be the fastest way to stabilize the innovation economy. Instead, we need to return to a traditional analysis of what is patentable under all the sections of the statute. Rather than foisting all analysis on an overburdened Section 101, we need to return to application of tried and true procedural rules and presumptions, and continue to build useful precedent.
The Federal Circuit has started to do so, it appears, in Aatrix and Berkheimer: call it steps A and B. And going forward, practitioners must assist the Federal Circuit in filling out this alphabet, by continuing to provide the Federal Circuit, the district courts, and the PTO with the type of analyses these institutions need to rebuild the doctrine.
Consider these means to helping achieve that:
- Speak Up. Many patent practitioners remain silent, adhering to the dogma that we are merely advocates for our clients. And, in truth, many of our largest companies are happy with the innovation carnage. Technology giants can, and do, efficiently infringe. However, voicing your opinion on the damage being done from mistaken interpretations of Alicewill help right the course. Educating the Courts, the PTO, and Congress about the damage that has occurred and what the correct interpretation of Section 101 should be is a valuable first step in overcoming the sweeping movement towards promoting efficient infringement.
- Keep Preparing and Filing Applications. Well-drafted patent applications – thoughtful and deliberate, still should prevail at the USPTO, survive challenges, and provide the building blocks for further clarifying Section 101 doctrine. The current confusion should not prevent organizations from filing patent applications on their valuable innovations. Maybe one job of the advocate is to explain to our clients the benefits of continuing to protect innovation. The law is changing at such a rapid pace that we cannot know during prosecution what will pass muster during subsequent challenge. If we don’t file, we can only fail. We do know that options, in the form of claim variations, provide more future certainty. File applications that anticipate tomorrow’s law by delivering a breadth of claims that range from the border of eligibility to something most examiners will agree today passes muster.
- Inoculate Your Applications from Current Section 101 Challenges. Use recent case law as a road map to insulate your applications from being denied under too broad of an application of Section 101. Use the PTO Examination Guidance to understand how the agency reviews eligibility. Clearly disclose the benefits of the invention, the improvements over the prior art, and exactly where the innovation falls in a larger system, etc.
- Prepare Infringement Complaints that Reveal Issues of Fact. Provide claim charts, highlight potential factual disputes, and attach the relevant portions of the file history if needed. Attach an expert declaration to the Complaint that explains how the accused device reads on the claim. Anticipate that Rule 12 motion — and let your complaint be the response. If a defendant has to disagree with your well-stated factual assertions, there is no basis for a Rule 12 dismissal. Of course, this type of detail is not required for notice pleading, but it is required to rebuild the confidence in the stability of Section 101. And, these types of filings, along with the resulting court decisions, also provide tools for further clarifying Section 101 doctrine.
The debacle represented by Alice is reversible over time, but the Congress, a governmental agency, and even the court system itself are not likely to resolve the challenge to innovators without the assistance of the bar and the industry. Drafting fewer but stronger patent applications will be a worthwhile start. The alternative is not acceptable.
Savvy and creative patent lawyering will prevail over time. To be successful, patent practitioners must show the PTO, the courts, and Congress the importance of our clients’ innovations and explain why the type of technology should not dictate whether there is enforceability. Please join me in this fight.
 CLS Bank Int’l v. Alice Corp., 717 F.3d 1269 (Fed. Cir. 2013).
 Federal Circuit Rule 36. Entry of Judgment – Judgment of Affirmance without Opinion.
 In reverse chronological order, the reversals are: Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018); Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018); Visual Memory, LLC v. NVIDIA Corp., 867 F.3d 1253 (Fed. Cir. 2017); Thales Visionix, Inc. v. United States, 850 F.3d 1343 (Fed. Cir. 2017); Amdocs v. Openet, 841 F.3d 1288(Fed. Cir. 2016); McRO, Inc. v. Bandai Namco Games Am. Inc., 837 F.3d 1299 (Fed. Cir. 2016); Rapid Litg. Mgmt. Ltd. v. CellzDirect, Inc., 827 F.3d 1042 (Fed. Cir. 2016) (rev’g district court holding that claims drawing to an ineligible law of nature); Bascom Global Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016); Enfish v. Microsoft, 822 F.3d 1327 (Fed. Cir. 2016). (Note: The author argued successfully for Thales Visionix, Inc., at the time only the sixth such reversal.)
 One of the reversals came out of the Court of Federal Claims, whose statistics otherwise have not been included in these calculations. See Thales Visionix,850 F.3d 1343.
 Docket Navigator Search of District Courts, Rule 12 Motions or Summary Judgment, and Patent Eligibility, since Alice.
 Compared Docket Navigator district court results with the sum of the Federal Circuit opinions on Section 101 and Federal Circuit Rule 36 decisions where Section 101 was at issue since Alice.
 Statistics cover all post-Alice Federal Circuit Section 101 decisions, including Rule 36 affirmances.
 Many the Federal Circuit opinions on Section 101 were non-precedential, following the same flawed logic used by the district court.
 “The Supreme Court has not established a definitive rule to determine what constitutes an ‘abstract idea’ sufficient to satisfy the first step of the Mayo/Alice inquiry. . . .Rather, 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.” Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1334 (Fed. Cir. 2016) (internal citations omitted).
 Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018); Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018).
 See Addy, Behemoth Tech and the Little Innovators, A Fairy Tale That’s All Too True (For Aren’t They All?) — and Patently Allegorical Business De Novo, http://www.businessdenovo.com/?p=248.
 Diamond v. Chakrabarty, 447 U.S. 303 (1980).
 See, e.g., Gottschalk v. Benson, 409 U.S. 63 (1972) (holding that the presence software did not make an otherwise patent-eligible machine or process patent ineligible);Diamond v. Diehr,450 U.S. 175 (1981);see also Thales Visionix, 850 F.3d 1343.
 In re Bergy, 596 F.2d 952 (CCPA 1979).
 Quinn, If patent laws were correctly caibrated to spur innovation the efficient infringer would pay. http://www.ipwatchdog.com/2016/10/16/patent-laws-spur-innovation-efficient-infringers-pay/id=73726/
 See Protect American Innovation: The Campaign for Patent Reform, http://www.protectamericaninnovation.com/, a grass roots organization focusing attention on the damage to the U.S. innovation economy through articles inventor stories.
Image Source: Deposit Photos.