Federal Circuit Reiterates It Will Not Be Bound by USPTO Eligibility Guidance

By Eileen McDermott
February 8, 2021

“We note that [the USPTO] guidance ‘is not, itself, the law of patent eligibility, does not carry the force of law, and is not binding on our patent eligibility analysis.’… And to the extent the guidance ‘contradicts or does not fully accord with our caselaw, it is our caselaw, and the Supreme Court precedent it is based upon, that must control.’” – CAFC opinion

https://depositphotos.com/182092430/stock-photo-patent-law-gavel-word-patent.htmlEarlier today, in cxLoyalty, Inc. v. Maritz Holdings, Inc., the U.S. Court of Appeals for the Federal Circuit (CAFC) affirmed-in-part, reversed-in-part and dismissed-in-part a decision of the U.S. Patent and Trademark Office’s (USPTO’s) Patent Trial and Appeal Board (PTAB) in which the CAFC doubled down on its past contention that the USPTO’s Subject Matter Eligibility Guidance is not binding on the court’s analysis. The panel included Chief Judge Prost and Judges Lourie and Hughes. The opinion was authored by Prost.

cxLoyalty petitioned for covered business method review (CBM) of claims 1–15 of Maritz Holdings, Inc.’s U.S. Patent No. 7,134,087 and the PTAB instituted, finding those claims patent ineligible. However, the Board found Maritz’s proposed substitute claims 16-23 patent eligible. cxLoyalty appealed and Maritz cross-appealed to the Federal Circuit.

The CAFC initially dismissed Maritz’s cross-appeal that cxLoyalty had failed to satisfy its burden of establishing that the patent was eligible for CBM review, citing SIPCO, LLC v. Emerson Elec. Co., 980 F.3d 865, 867 (Fed. Cir.2020), which was decided after the close of briefing but before oral arguments in the case. In SIPCO, the court explained that “[t]he Supreme Court’s decision in Thryv [v. Click to Call]. . . makes clear that the threshold determination” that a “patent qualifies for CBM review is a decision that is non-appealable under 35 U.S.C.” [hyperlink added by IPWatchdog]

The CAFC then turned to the eligibility arguments. Maritz’s ‘087 patent eliminates the need for human intervention in redeeming customer loyalty awards. Claim 1 provides:

  1. A computerized system for use by a participant of a program which awards points to the participant, wherein the awarded points are maintained in a point account for the participant, said system for permitting the participant to transact a purchase using the awarded points with a vendor system which transacts purchases in currency, said system comprising a processor including instructions for defining:

an application programming interface (API) for interfacing with the vendor system;
a program account hidden from the participant connected to the program for use in currency transactions;
a graphical user interface (GUI) for providing an interface between the participant and the API and for communicating with the program;
wherein said GUI includes instructions for receiving participant-related information from the participant and providing the received participant-related information to the API;
wherein said GUI includes instructions for receiving information regarding the program account hidden from the participant and for providing the received program account information to the API;
wherein said API is adapted to receive the participant-related information and the program account information from the GUI and adapted to provide the received participant-related information and the received program account information to the vendor system;
wherein said API is adapted to receive vendor-related information from the vendor system and adapted to provide the received vendor-related in-formation to the GUI; and
wherein said GUI includes [i]nstructions for receiving vendor-related information from the API and for providing the received vendor-related information to the participant;
such that from the perspective of the participant, the participant uses the GUI to conduct a purchase transaction with the vendor system based in whole or in part on the points in the participant’s point account; and
such that from the perspective of the vendor system, the vendor system conducts the purchase transaction with the participant as a currency transaction based on the program’s program account hidden from the participant whereby the participant is not aware that the purchase transaction with the vendor system is being transacted using program account.

The proposed substitute claim 16 “adds in relevant part that the GUI includes instructions for converting the vendor-related information from the format of the vendor system into a format of the GUI and proposed substitute claim 22 “adds in relevant part that the GUI communicates with multiple APIs having corresponding vendor systems, allowing participants to use the GUI to make points-based purchases directly from multiple third-party vendor systems.”

CAFC: Our Case Law Controls

At the start of its discussion on the merits of the case, the court included the following footnote:

Throughout its Final Written Decision, the Board repeatedly referred to the United States Patent and Trademark Office’s 2019 Revised Patent Subject Matter Eligibility Guidance, 84 Fed. Reg. 50 (Jan. 7, 2019). We note that this guidance “is not, itself, the law of patent eligibility, does not carry the force of law, and is not binding on our patent eligibility analysis.” In re Rudy, 956 F.3d 1379, 1382 (Fed. Cir. 2020). And to the extent the guidance “contradicts or does not fully accord with our caselaw, it is our caselaw, and the Supreme Court precedent it is based upon, that must control.” Id. at 1383.

While the PTAB agreed with Maritz’s argument that the added limitation of substitute claim 16 that explains the GUI “is able to convert vendor-related information into information formatted for the GUI, which GUI-formatted information may then be provided to the claimed participants” makes the claim eligible, the court disagreed:

Maritz argues that the added limitation constitutes a technological solution to a technological problem. How-ever, Maritz does not contend that the claimed invention improves the use of computers as a tool by reciting a new way for computers to conduct format conversion. Nor do the claims provide any guidance as to how this purported function is achieved. Thus, claim 16 does not claim a patent-eligible technological solution to a technological problem.

Maritz also cited expert testimony that it said bolstered its argument that substitute claim 16 cites “unconventional subject matter”. But the CAFC said that “[a]lthough this expert testimony invokes the words ‘well-understood, routine, or conventional,’ the type of unconventionality described by Maritz’s expert does not spare the claims…. At most, the testimony describes the claimed subject matter as not conventional only in the sense that the subject matter as a whole was novel….But, as explained previously, our cases are clear that a patent claim is not eligible under § 101 merely because it recites novel subject matter.”

The court addressed Maritz’s attempt to analogize its substitute claims to CardioNet, LLC v. InfoBionic, Inc., in which the claims at issue were found to be eligible, distinguishing the two cases on the basis that, while the claims in CardioNet did not “merely computerize pre-existing techniques for diagnosing atrial fibrillation and atrial flutter,” in the present case “the record demonstrates that the claims are directed to the application of longstanding commercial practices using well-understood, routine, and conventional activities.”

The court also distinguished the claims from those at issue in DDR Holdings, LLC v. Hotels.com, L.P., explaining that “[t]he claims in DDR Holdings did not relate to a longstanding commercial practice but rather to a business challenge particular to the internet, and the claims did not merely employ conventional techniques to apply an abstract idea but rather involved the use of a computer network operating outside its normal and expected manner.”

Ultimately, the court affirmed the PTAB’s finding that claims 1-15 were patent ineligible, reversed the finding that the proposed substitute claims were eligible and dismissed the CBM eligibility challenge.

Image Source: Deposit Photos
Author: md3d
Image ID: 182092430 

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

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 as of the time of publication and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 26 Comments comments. Join the discussion.

  1. AAA JJ February 8, 2021 1:17 pm

    Much like the PTAB, the Fed. Cir. will ignore the guidelines when convenient for them in justifying the decision they want to make anyway, and will cite the guidelines when they “support” the decision they were going to make anyway.

  2. Pro Say February 8, 2021 2:07 pm

    . . . and yet another ends-justifies-the-means decision by “our” “esteemed” CAFC.

    While Congress twiddles their fingers, American innovation takes yet another painful hit.

  3. Curious February 8, 2021 2:10 pm

    This should put to rest the position put forth a couple weeks ago that the Federal Circuit might adopt the USPTO’s guidelines. It isn’t surprising that Prost was on this panel. She is probably the “Chief” patent killer of our era.

    My understanding is that her term as Chief Judge will end on May 31, 2021 (i.e., seven years from when she was first appointed). If my understanding of how the rules are set up, this would mean Kathleen O’Malley would be next in line.

    This got me wondering as to when certain judges might decide to take Senior Status in the near term. The prior administration didn’t nominate anybody to the Federal Circuit. Here is a list of current active judges (from oldest to youngest, with ages in parenthesis):

    Newman (93)
    Lourie (86)
    Dyk (83)
    Wallach (71)
    Prost (69)
    Reyna (68)
    O’Malley (64)
    Taranto (63)
    Hughes (54)
    Moore (52)
    Chen (52)
    Stoll (52)

  4. Model 101 February 8, 2021 4:40 pm

    Crazy!

  5. The Ghost of Judge Rich February 8, 2021 4:59 pm

    Judge Moore will be the next chief judge.

  6. ipguy February 8, 2021 5:59 pm

    The problem is that there are many ways that the USPTO/PTAB abuse their authority on a daily basis that rarely ever get before the Federal Circuit to be slapped down.

  7. Curious February 8, 2021 7:38 pm

    “And to the extent the guidance ‘contradicts or does not fully accord with our caselaw, it is our caselaw, and the Supreme Court precedent it is based upon, that must control.”
    If the agency tasked to examine patents, the USPTO, cannot determine what is (or isn’t) patent eligible under 35 USC 101, how can patent applicants?

    The FACT that the USPTO itself does not understand how to apply 35 USC 101 — 6 years after Alice — is clear evidence that the Courts have made a complete and total mess out of a statute that was NEVER intended to be a condition for patentability.

  8. Anon February 8, 2021 7:54 pm

    The bigger problem — and so noted by leaders of all three branches — is that the current 101 jurisprudence is a Gordian Knot of irreconcilable contradictions (the CAFC does not — and in truth, cannot — follow their own case law).

  9. AAA JJ February 9, 2021 8:28 am

    “The problem is that there are many ways that the USPTO/PTAB abuse their authority on a daily basis that rarely ever get before the Federal Circuit to be slapped down.”

    The Fed. Cir. had the opportunity to slap down PTO shenanigans in the Hyatt case about re-opening in response to an appeal from the examiner. And their response was, “Meh. We don’t care. The PTO is free to jerk applicants around as much as they want.”

  10. BP February 9, 2021 12:22 pm

    @9 AAA JJ – agreed.

    In the US, patent law is “the ball”, the powerful and corrupt merely want “the ball”, and by holding onto “the ball”, the game can’t be played. Too bad for the peons that seek patent rights.

    A beautifully corrupt system of egotistic narcissists. They’ve elevated themselves well above the inventors/innovators the laws were meant to benefit. And, they do so with little understand of science or engineering, for surely, those realities would get in the way of their myth building. The justices/judges/agency are not that far from the delusions of QAnon.

  11. ipguy February 9, 2021 12:26 pm

    @7
    “The FACT that the USPTO itself does not understand how to apply 35 USC 101”

    The FACT is that the USPTO still does not understand how to apply 35 USC 103, much less 35 USC 101.

  12. ipguy February 9, 2021 12:31 pm

    @9

    “The PTO is free to jerk applicants around as much as they want.”

    And they do.

    Don’t get me wrong. There are some good Examiners (and I don’t just mean the ones that allow my cases), but there is little, if any, accountability required of Examiners who repeatedly “get it wrong.” SPEs want 100%+ production. Examiners want counts for their bi-weeks and bonuses. Reversals that come back from the PTAB (and only when they are far beyond saving by the PTAB and even the PTAB can’t come up with their own rejections) are ignored for any “teachable moment.”

  13. BP February 9, 2021 2:40 pm

    @12 Indeed, like the movie Brazil, where process overtakes substance 😉 We need Harry Tuttle!

    27 bis 6:

    “The numbering of form 27B/6, without which no work can be done by repairmen of the Department of Public Works, is an allusion to George Orwell’s flat at 27B Canonbury Square, London (up six half-flights of stairs), where he lived while writing parts of Nineteen Eighty-Four.”

  14. AAA JJ February 10, 2021 9:02 am

    “… but there is little, if any, accountability required of Examiners who repeatedly ‘get it wrong.'”

    True. What’s worse though is that not only is there no accountability for such behavior, there is usually bonuses, awards, and promotions.

  15. David Stein February 10, 2021 9:09 am

    “Maritz also cited expert testimony that it said bolstered its argument that substitute claim 16 cites ‘unconventional subject matter.’ But the CAFC said that ‘[a]lthough this expert testimony invokes the words ‘well-understood, routine, or conventional,’ the type of unconventionality described by Maritz’s expert does not spare the claims…. At most, the testimony describes the claimed subject matter as not conventional only in the sense that the subject matter as a whole was novel….But, as explained previously, our cases are clear that a patent claim is not eligible under § 101 merely because it recites novel subject matter.’”

    Now just wait a minute. If a party-opponent argues that your claims are abstract because the subject matter is “conventional,” how is it not valid to refute that argument by showing that the subject matter is novel? (Novelty being actually a higher threshold than non-“conventional,” under Berkheimer?)

    The courts dug this hole for themselves by making “conventionality” part of the 101 determination. Seems that the Federal Circuit now wants to make it an irrefutable determination – all the more troubling since it’s subjective, and since the Federal Circuit is further rejecting the use of expert testimony to establish where the boundary of “conventionality” exists in the technical field. I guess the Federal Circuit is also the authority on the state of the art in all conceivable fields (second only to SCOTUS).

  16. Anon February 10, 2021 12:34 pm

    David,

    THIS panel of the CAFC.

    Let’s not forget that other panels have stated things that flat out contradict this panel.

  17. David Stein February 10, 2021 2:15 pm

    @Anon, the opinion by this panel (Prost, Lourie, and Hughes) expressly cited In re Rudy (Fed. Cir. 2020), in which a different panel (Prost, O’Malley, and Taranto) similarly held that the Guidance is not binding authority on the Federal Circuit.

    In Rudy, the petitioner’s issue was opposite the issue here: the PTAB had found the petitioner’s claims ineligible in view of the Guidance, and the petitioner argued that the PTAB had erred by following “simplistic” rules in the Guidance. The Federal Circuit held that even disregarding the Guidance (being agency rules rather than statutory authority), the petitioner’s claims were patent-ineligible. So, I agree, rather different than here.

    However, the analysis by the panel in Rudy demonstrated similarities with the analysis in cxLoyalty:

    (1) A subjective determination by the panel that the “abstract idea” is “conventional,” and

    (2) A refusal to consider arguments in rebuttal. (The petitioner in Rudy argued that the abstract idea was “integrated into a practical application,” and the panel dismissed it without serious consideration.)

    So it appears that a superset of these panels – Lourie, Hughes, O’Malley, Taranto, and (Chief Judge) Prost – believes that “conventionality” is in the eye of the panel, and is unlikely to consider arguments or evidence to the contrary. I think it’s fair to characterize that group as representative of the collective beliefs of the Federal Circuit.

  18. Anon February 10, 2021 2:28 pm

    Further David (and perhaps more on point), it may be a type of “necessary but not sufficient” hurdle.

    In other words, you can get knocked out (alone) on “not overcoming conventional,” but “conventional” alone does not get you over the hurdle.

    Especially as made recently clear, the CAFC is not respecting the various “off ramps” as set up by the USPTO in the Office’s attempt to avoid the Gordian Knot of case law contradictions.

  19. Anon February 10, 2021 2:33 pm

    Your comment 7 crossed my post at 8 in transit. I agree with your point (2) being a major problem.

    For me though, is the fact that the CAFC is rudderless and a panel (ANY panel) simply gives no heed whatsoever to prior panel rulings that they do not like.

    It’s as if there were no such thing as Stare Decises — ever compounding and growing the Knot.

  20. David Stein February 10, 2021 2:55 pm

    @anon, I agree, but consider where that leaves us.

    Step 1 of *Alice* requires a proper statutory class. Trivially easy to satisfy, and practically never an issue.

    Step 2A, prong 1 of the analysis requires a determination of the abstract idea. The Federal Circuit seems content to support this determination with a conclusory statement of “conventionality” – and it does not seem compelled to consider evidence to the contrary, including expert testimony.

    Step 2A, prong 2 (“integrated into a practical application”) has been deemed solely an agency rule that the Federal Circuit need not even consider! (Although it often does, but only to dismiss such suggestions as implausible, irrelevant, not required by the claim language, etc.)

    Step 2B (“significantly more”) is considered only in a casual and conclusory manner.

    So if you were faced with a serious Federal Circuit 101 dispute over your patent claims, where would you target your technical arguments, when the court doesn’t seem to care? And what kind of supporting evidence would you seem to develop, when the court seems determined not to consider it?

    The 101 framework above really feels like a bunch of words and steps manufactured to prop up a decision that is, at its core, a smell test. Opinions like that one cause the curtain to slip a bit.

  21. Curious February 10, 2021 5:52 pm

    The 101 framework above really feels like a bunch of words and steps manufactured to prop up a decision that is, at its core, a smell test.
    That is a fairly succinct way of describing how 35 USC 101 operates at the Federal Circuit.

  22. B February 10, 2021 10:57 pm

    @ AAAJJ “Much like the PTAB, the Fed. Cir. will ignore the guidelines when convenient for them in justifying the decision they want to make anyway, . . . ”

    and statutes . . .

    and the Constitution . . .

    and the factual record . . .

    and anything else that gets in the way of a capricious decision

    @ curious “If the agency tasked to examine patents, the USPTO, cannot determine what is (or isn’t) patent eligible under 35 USC 101, how can patent applicants?”

    I’m pretty sure you know what is and is not patent eligible under 101. The statutory language is pretty clear. That said, you might as well have an intellectual conversation with a wall when talking to the PTAB.

    @ David Stein “So if you were faced with a serious Federal Circuit 101 dispute over your patent claims, where would you target your technical arguments, when the court doesn’t seem to care? And what kind of supporting evidence would you seem to develop, when the court seems determined not to consider it?”

    Those are great questions, but I can tell you from personal experience that the CAFC will ignore every bit of precedent from the day before and ignore and/or lie about the factual record. Further, every attorney I know who has been confronted with this malfeasance is forced by decorum to dance around the room and pretend it didn’t happen while their clients are robbed of their IP.

    Me, I think the only way to overcome this is to get 1,000 amici to outright mock and shame that CAFC — call them out on their dishonesty and capriciousness. That and if you have Moore and Newman on your panel you have a 50-50 chance of getting some justice.

  23. concerned February 11, 2021 4:44 am

    @ 20 @21 @22

    Exactly, exactly and exactly.

    I even have the examiner admitting my process solved the decades old problem beyond the reach of (one million) working professionals/experts and the PTAB not disputing this fact. So the PTAB switches arguments and comes up with a new grounds for rejection.

    If the applicant solved the problem the working professionals/experts could not solve, that statement should immediately equal here is your approved patent. New and useful still means new and useful everywhere on Earth except the patent realm.

    To B’s point about the attorneys dancing around the room pretending the naked judges have robes on, every once in a while this forum has a contributing author suggest an applicant should kiss the a** of the process by dignifying this or dignifying that. I never could kiss it and I may not get my patent, but I do not risk kissing their a** and still not getting my patent anyway.

  24. Mark Nowotarski February 12, 2021 9:08 am

    I think the first step in the CAFC 101 algorithm is fairly clear. If an invention is primarily directed to achieving a business objective (i.e., CPC code G06Q) then it’s not statutory. In 2020, for example, the CAFC ruled on 23 patents with a CPC code of G06Q. None of them were found to be statutory. Eight of those patents were originally classified into computer technology art units, such as database file management and multicomputer data transfer. Their CPC codes, however, revealed that their technical inventions were primarily directed to achieving business objectives. The Court agreed holding they were primarily directed to either a fundamental economic process, a method of organizing human behavior or the abstract idea of simply processing data.

    This patent was originally classified as an invention in the technical field of operator interfaces. It’s CPC codes, however, revealed that the operator interface invention was primarily directed to achieving a business objective (G06Q 30/02 – marketing). This is how the CAFC ruled.

    Once you accept that the CAFC will hold invalid any patent that is primarily directed to achieving a business objective no matter what the technology is, the challenge then becomes – How do you draft a patent application so that it is primarily directed to its technical invention without sacrificing its business method application?

  25. B February 12, 2021 12:51 pm

    @ Mark N

    Your review is inciteful, and you make points I’ve noticed. I’ve never correlated 101 eligibility with a code however.

    You’d think the CAFC would reverse State Street, but that would involve some actual work and analysis by judges struggling how to explain that a business method isn’t a method..

  26. concerned February 12, 2021 1:41 pm

    @24: “Once you accept that the CAFC will hold invalid any patent that is primarily directed to achieving a business objective no matter what the technology is”

    Exactly where my application stands. Everyone does not dispute it solved a long standing problem, but no patent.

    Using another example, airlines have a business objective to not have their airplanes crash and burn: No patent should someone prevent no more airline crashes?

    Who is going to slap down this insane line of thinking? These judges “think” they are so judicially minded that they are no Earthly good.

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