Kinney & Lange, P.A., Author at Kinney & Lange

B&B HARDWARE: TTAB PROCEEDINGS CAN CREATE ISSUE PRECLUSION

Posted on May 1, 2015 by Kinney & Lange, P.A.

■ Andrew W. Werner

On March 24, 2015 the U.S. Supreme Court decided in B&B Hardware, Inc. v. Hargis Industries, Inc., 575 U.S. ___ (2015); holding that when trademark usages adjudicated by the Trademark Trial and Appeal Board (“TTAB”) are materially the same as those before a district court, issue preclusion should apply so long as the other ordinary elements of issue preclusion are met.

B&B Hardware stems from a 1996 trademark registration by Hargis Industries, Inc. (“Hargis”) for the SEALTITE mark for “self-piercing and self-drilling metal screws for use in the manufacture of metal and post-frame buildings.” B&B Hardware, Inc. (“B&B”) filed an opposition at the TTAB in response to Hargis’s registration of SEALTITE, due to B&B’s 1993 registration of the mark SEALTIGHT for “threaded or unthreaded metal fasteners and other related hardwar[e]; namely, self-sealing nuts, bolts, screws, rivets and washers, all having a captive o-ring, for use in the aerospace industry.” In its opposition, B&B argued that the SEALTITE mark could not be registered

The TTAB determined there was a likelihood of confusion between the SEALTITE mark and the SEALTIGHT mark

because it is confusingly similar to B&B’s SEALTIGHT mark given both companies have an online presence, the largest distributor of fasteners sells both companies’ products, and consumers sometimes call the wrong company to place orders. Hargis contended that Hargis and B&B sell different products, for different uses, to different types of consumers, through different channels of trade. The TTAB determined that the SEALTITE mark could not be registered because it so resembled the SEALTIGHT mark as to be likely to cause confusion, after concluding that the most critical factors in a likelihood of confusion analysis were the similarities of the marks and the similarity of the goods.

In a concurrent suit for trademark infringement, B&B argued to the District Court that Hargis could not contest likelihood of confusion following the TTAB’s decision because of the preclusive effect of the TTAB decision. The District Court disagreed with B&B, reasoning that the TTAB is not an Article III court. The jury returned a verdict for Hargis, finding no likelihood of confusion. Upon appeal to the Eighth Circuit, the District Court’s decision was affirmed for three reasons: first, because the TTAB uses different factors than the Eighth Circuit to evaluate likelihood of confusion; second, because the TTAB placed too much emphasis on the appearance and sound of the two marks; and third, because Hargis bore the burden of persuasion before the TTAB, while B&B bore it before the District Court.

The three issues before the U.S. Supreme Court were:

(1) whether an agency decision can ever ground issue preclusion;
(2) whether there is an “evident” reason why Congress would not want TTAB decisions to receive preclusive effect, even in those cases in which the ordinary elements of issue preclusion are met; and
(3) whether there is a categorical reason why registration decisions can never meet the ordinary elements of issue preclusion.

Agency Decisions & Issue Preclusion
Relying on Astoria Federal Savings & Loan Association v. Solimino, 501 U. S. 104 (1991) and United States v. Utah Construction & Mining Co., 384 U. S. 394, 422 (1966), the Court reasoned that where a single issue is before a court and an administrative agency, preclusion often applies. Proclaiming the common law principle of issue preclusion as “well established”, the Court stated “in those situations in which Congress has authorized agencies to resolve disputes, ‘courts may take it as given that Congress has legislated with the expectation that the principle [of issue preclusion] will apply except when a statutory purpose to the contrary is evident.’” The Court then relied on previous holdings where courts have not hesitated to apply res judicata in situations “[w]hen an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate[.]”

Agency decisions can ground issue preclusion for future Article III determinations when the parties have had an adequate opportunity to litigate

In so reasoning, the Court determined that an agency decision, such as from the TTAB, can ground issue preclusion for future Article III determinations.

“Evident” Congressional Reason for TTAB Non-Preclusion
The Court pointed out that trademark registration is not a prerequisite to an infringement action but is rather a separate proceeding to decide separate rights. In the instance of where exhausting an administrative process is a prerequisite to a suit in court, giving preclusive effect to the agency’s determination in that very administrative process could render the judicial suit “strictly pro forma” and thus issue preclusion could not be grounded. This however was not the instance in this case. Additionally, the Court relied upon

“We conclude that nothing in the Lanham Act bars the application of issue preclusion in such cases. The Lanham Act’s text certainly does not forbid issue preclusion. Nor does the Act’s structure.”

ordinary preclusion law (citing Restatement (Second) of Judgments §28, Comment a and Illustration 1) to assert that if a party to a court proceeding does not challenge an adverse decision, that decision can have preclusive effect in other cases, even if it would have been reviewed de novo. The Court concluded that neither the Lanham Act’s test nor its structure rebuts the “presumption” in favor of giving preclusive effect to TTAB decisions where the ordinary elements of issue preclusion are met.

Categorical Preclusion of Registration Decisions
The Court asserted that it does not matter that the statutory provisions and the factors used to assess likelihood of confusion are different as between trademark registration and trademark infringement. The Court determined the Eighth Circuit had erred in holding that issue preclusion could not apply due to the TTAB relying too heavily on “appearance and sound.” The fact that the TTAB may have erred in placing too much emphasis on certain factors in this instance does not necessarily prevent preclusion in all instances.

Next, the Court reasoned that although the TTAB and the district courts often use different procedures, procedural differences by themselves do not defeat issue preclusion. Instead of focusing on whether procedural differences exist, the Court focused on whether the procedures

Procedural differences themselves do not defeat issue preclusion

used in the first proceeding were fundamentally poor, cursory, or unfair. The Court determined there was no categorical reason to doubt the quality, extensiveness, or fairness of the TTAB’s procedures in part because they are exactly the same as in federal court, given the TTAB has adopted almost all of Federal Rule of Civil Procedure 26. Additionally, the Court asserted the ordinary law of issue preclusion already accounts for those “rare” cases where a “compelling showing of unfairness” can be made. The Court then closed by stating that “Congress’ creation of this elaborate [trademark] registration scheme, with so many important rights attached and backed up by plenary review, confirms that registration decisions can be weighty enough to ground issue preclusion.”

Trends
With the holding in this case, it is interesting to compare the Court’s trademark usage centric analysis with Fresenius USA v. Baxter Int’l, No. 2012-1334 (Fed. Cir. July 2, 2013), which considered a similar issue with respect to patent invalidity in reexamination proceedings. In Fresenius, the Federal Circuit ruled that a USPTO decision of invalidity in reexamination prevails over a prior, Federal Circuit affirmed, jury decision of validity and infringement of the same claims in view of the same prior art. With the preclusive effect of TTAB decisions, the IP community has generally received yet another indication of incentivizing the use of administrative procedures to determine who wins and who loses.

Kinney & Lange Named as a Top Patent Firm

Posted on March 1, 2015 by Kinney & Lange, P.A.

Kinney & Lange was named as a top patent firm in 2015 by Intellectual Property Today. The rankings were based on the number of US utility applications issued in 2014 where the law firm was listed as the legal representative on the issued patent.

K&L Associates Support Mid-Minnesota Legal Aid

Posted on February 5, 2015 by Kinney & Lange, P.A.

Kinney & Lange is proud to announce over 90% participation in the Mid-Minnesota Legal Aid “One Hour of Sharing Associates’ Campaign for The Fund for Legal Aid.” The campaign encourages members of the legal community to make a donation equal to one billable hour. Mid-Minnesota Legal Aid is an organization that provides free legal services to people with low income and seniors in our twenty-county service area and people with disabilities statewide.

Kinney & Lange Announces New Shareholder

Posted on January 1, 2015 by Kinney & Lange, P.A.

Kinney & Lange congratulates Matt DeRuyter on becoming a new shareholder. Matt has been an associate with Kinney & Lange since 2007.

FTC REACHES SETTLEMENT WITH MPHJ

Posted on November 1, 2014 by Kinney & Lange, P.A.

■ Nicholas J. Peterka

On November 6, the Federal Trade Commission and MPHJ Technology Investments LLC agreed to settle FTC charges alleging MPHJ used deceptive practices and phony legal threats. The settlement prevents MPHJ and its law firm, Farney Daniels, P.C., from making deceptive representations when asserting its patent rights, with further deceptive conduct bringing with it a penalty of up to $16,000 per misrepresentation.

The settlement comes on the heels of a September ruling by the U.S. District Court for the Eastern District of Texas to dismiss a suit filed by MPHJ against the FTC. The suit, which was filed in January 2014, was an attempt to stop the FTC’s investigation into MPHJ for allegedly sending deceptive demand letters to potential infringers.

The FTC is investigating deceptive representations from patent assertion

MPHJ owns at least five patents related to networked computer scanning programs, also known as “scan-to-email” programs, which it acquired in 2012. Since then, MPHJ has sent at least 16,000 demand letters to potential infringers, mostly small businesses, threatening litigation if the potential infringers did not sign license agreements and pay licensing fees. This caused several state attorneys general to investigate and file actions against MPHJ under their consumer protection laws, alleging that statements made by MPHJ in the demand letters were false.

The FTC, the agency tasked with investigating and policing unfair or deceptive acts or practices affecting interstate commerce, began its own investigation into MPHJ last year. The FTC alleged that the demand letters sent by MPHJ stated that MPHJ would take imminent patent infringement litigation against any potential infringer when MPHJ did not intend to take action and did not take such action. Further, the FTC alleged that MPHJ falsely represented that substantial numbers of businesses have responded to MPHJ’s demand letters by purchasing licenses when, at the time of at least some of the representations, MPHJ had not sold any licenses to potential infringers. As part of this investigation, the FTC sent MPHJ a draft complaint it intended to file if a settlement between the FTC and MPHJ was not reached, but the FTC had not initiated any legal action at the time MPHJ filed suit.

In its suit, MPHJ asserted that the FTC investigation was in violation of MPHJ’s First Amendment rights. The suit alleged that the FTC unlawfully interfered with MPHJ’s lawful, proper, and constitutionally protected efforts to identify and seek redress for infringement of its patents. MPHJ asserted that the FTC violated MPHJ’s First Amendment right to petition the government for redress under the Noerr-Pennington doctrine and its First Amendment right to free speech. In dismissing the case, District Judge Walter Smith found that MPHJ’s suit lacked subject matter jurisdiction and was an attempt by MPHJ to derail the not-yet-completed FTC administrative process.

This settlement is the first time the FTC has taken action under its consumer protection authority against an alleged “patent troll”.

TURTLES MAKE SIRIUS WAVES

Posted on November 1, 2014 by Kinney & Lange, P.A.

■ Wendy M. Bratten

In a September decision out of the U.S. District Court for the Central District of California in Los Angeles, music group The Turtles triumphed over Sirius XM Radio, Inc., the largest radio broadcaster in America. Flo & Eddie, Inc., owned by founding members of The Turtles, filed a class action suit against Sirius alleging $100 million dollars in unpaid royalties for performance of pre-1972 recordings, including The Turtles’ chart-topping song “Happy Together.” At issue in the case was whether ownership of pre-1972 sound recordings includes the exclusive right to publicly perform the recording. The court granted Flo & Eddie’s motion for summary judgment, ruling that Sirius infringed the band members’ copyrights under California law and creating “a legal earthquake in the music industry,” according to The Hollywood Reporter.

While the decision raised more questions than it provided answers, on October 15, Sirius was dealt an even bigger blow in a similar California case brought by the Recording Industry Association of America (RIAA), which controls recordings by such iconic artists as The Beatles, The Rolling Stones, and Bob Dylan, among others. Together, the two cases are generating a lot of buzz about a sea change on the horizon that could lead to a major overhaul in the way music is licensed and support for proposed legislation establishing performance royalties for recordings made before 1972.

When Congress passed the Federal Copyright Act in 1976, it expressly stated that song recordings fixed before February 15, 1972, were unaffected. As a result of this carve-out from preemption by federal law, public performance of songs recorded before 1972 is not protected by federal copyright law, and the only element of a pre-1972 sound recording offered federal protection was the underlying composition. This loophole in federal copyright protection created a patchwork of state common law doctrines designed to prevent creation of pirated copies of recordings.

In its case against Sirius, Flo & Eddy argued that California’s Civil Code provides for “exclusive ownership” to the author of sound recordings fixed prior to February 15, 1972, and that ownership right includes the exclusive right to public performance. While Sirius argued this statutory interpretation was too broad and in opposition with legislative intent because public performance is not expressly mentioned in the Civil Code, the court found that a plain reading of the text supports that sound recording ownership is inclusive of all ownership rights that can attach to intellectual property, including the right of public performance. The court agreed in RIAA’s case against Sirius, further emphasizing the legislature specifically adopted only one exception to the exclusive ownership of recordings, namely the recording of “cover” songs, and no such exception was adopted for public performance.

Sirius stated it would be happy to pay older artists, but that the change in the law should be coming from the legislature and not from the bench. The satellite radio giant may just get its wish if the RESPECT Act (H.R.4772) is passed. The bill introduced earlier this year would require digital radio services to pay royalties to classic artists, and has generated widespread support from recording legends through the Project 72 movement. With the pending bill, imminent appeals from Sirius in both recent California cases, and multiple cases pending against Pandora Internet Radio, it could be some time before the recording industry and digital radio are happy together.

Thomson-Reuters just released the 2014-2015 editions of Kinney & Lange’s Intellectual Property Law for Business Lawyers and Intellectual Property Laws and Regulations books.

PATENT ELIGIBILITY UNDER ALICE

Posted on November 1, 2014 by Kinney & Lange, P.A.

■ Thea E. Reilkoff

On June 19, 2014, the Supreme Court issued a unanimous decision in Alice Corporation v. CLS Bank International, No. 13-2988 (U.S., June 19, 2014), holding all claims in patents for a computer-implemented scheme for mitigating settlement risk invalid as drawn to an abstract idea, ineligible for patent protection under 35 U.S.C. §101. The Court revisited prior case law to reaffirm that a generic computer and generic instructions are insufficient to transform an abstract idea into a patent eligible invention, but declined to further define the contours of what constitutes an abstract idea. Notably, the Court solidified its previous guidance for analyzing claims for subject matter eligibility. According to the Court, the two-part framework set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc. 556 U.S. ____, 132 S. Ct. 1289 (2012) for analyzing claims directed to patent ineligible laws of nature and natural phenomena is to be applied to all judicial exceptions, including abstract ideas, and all categories of claims (e.g., product and process). Under this framework, the Court first determines if the claims are directed to a patent-ineligible concept and, if so, then determines if the additional elements transform the patent-ineligible concept into a patent-eligible application—a step the Court describes as a search for an “inventive concept.” How this guidance will be practically implemented by the United States Patent and Trademark Office (USPTO), as particularly applied to business methods and software, is yet to be seen, but a closer look at the Alice opinion, the Preliminary Examination Instructions issued by the USPTO and related public comments may shed some light on what to expect.

35 U.S.C. §101 sets forth the subject matter eligible for patent protection: “[w]hoever 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.” But the Court has long held that §101 “contains an important and implicit exception: Laws of nature, natural phenomena, and abstract ideas are not patentable.” These are the “basic tools of scientific and technological work” and “building blocks of human ingenuity,” and granting a monopoly over such, says the Court, may “tend to impede innovation more than it would tend to promote it.” At the same time, the Court recognizes that “[a]t some level, ‘all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.’” Thus the struggle has ensued to distinguish those inventions that claim the basic tools and building blocks of human ingenuity from those that “integrate the building blocks into something more.”

The patents at issue in Alice claimed a method for exchanging financial obligations between two parties, a computer-based system for carrying out the method, and a computer-readable medium containing program code to enable a computer to perform the method. The concept, as articulated by the court, is intermediated settlement—a process that involves a third party (computer) to mitigate the risk that only one party will satisfy their financial obligation in an agreed-upon exchange with another party. In other words, Alice Corp. claimed a computer-based escrow arrangement. Respondents CLS Bank International et al., who facilitate currency transactions across a global network, filed suit seeking declaratory judgment that the claims were invalid, unenforceable, or not infringed. Alice Corporation filed a counterclaim alleging infringement. The District Court held all claims ineligible for patent protection under §101 as directed to an abstract idea. A divided en banc Federal Circuit affirmed, but failed to agree on the appropriate test to adopt and whether nuances existed depending on whether the invention claims a method, system, or article.

Alice analogized to Bilski regarding “fundamental economic practices”

In a unanimous decision, the Supreme Court affirmed, applying the two-part framework of Mayo to all claims. The difficulty lies primarily in the first part of the analysis, although both parts present challenges. In the past, the Court has provided sparse and at times broad guidance on what constitutes a patent-ineligible concept, and in particular, an abstract idea. The court has rejected as patentable “an idea of itself” and “a principle, in the abstract” or a “fundamental truth,” including mathematical formulas, that “exis[t] in principle apart from any human action.”

In Bilski v. Kappos, 561 U.S. 593 (2010), the Court expanded this category to include “a fundamental economic practice long prevalent in our system of commerce,” holding the concept of risk hedging unpatentable. In Alice, the Court distinguished such longstanding commercial practice from a fundamental truth that has always existed. The former is “a method of organizing human activity,” not a principle that exists apart from human action. This was the extent of the Court’s guidance, however. Satisfied in finding that “there is no meaningful distinction” between the concept of intermediary settlement at issue in Alice and risk hedging at issue in Bilski, but to the chagrin of many observers, the Court found no need to “labor to delimit the precise contours of the “abstract ideas” category in this case.” Thus, the category remains limited to those few examples that have been tested.

In analyzing the second step, the Court found that the computer components of the method, individually and as a combination, were insufficient to transform the ineligible concept into a patent-eligible invention. Applying past precedent, the Court stated, “each step does no more than require a generic computer to perform generic computer functions” (“‘well-understood, routine, conventional activit[ies]’ previously known in industry”) The Court added that the method claims “do not . . . purport to improve the functioning of the computer itself . . . [n]or do they effect an improvement in any other technology or technical field.” The Court made the same argument for the system and computer-readable medium claims, concluding that absent such limitations, the addition of a generic computer with generic instructions is insufficient to satisfy the second step of the Mayo framework.

Less than a week after the decision, the USPTO issued its Preliminary Examination Instructions in view of Alice. Following the Court’s guidance, the USPTO established that the two-part framework of Mayo—originally applied only to claims involving laws of nature and natural phenomena—should be extended to abstract ideas and both process and product claims. This, the instructions note, is a change from, and supersedes, prior USPTO guidance, including that applied after Bilski, which states that a claim may be patenable if it is limited to a particular practical application (how it is applied in the real world) and not merely the result achieved, and provides separate detailed guidance and factors to be considered for analyzing products and methods claims (MPEP 2106(II)(A) and (B), respectively).

Unlike past USPTO guidance, the two-part analysis set forth in the preliminary instructions provides little more than the examples of abstract ideas and limitations referenced in Alice. Part 1 of the analysis states that claims including abstract ideas such as “[f]undamental economic practices,” “[c]ertain methods of organizing human activities,” “an idea of itself,” and “[m]athematical relationships/formulas,” should be examined under Part 2. Part 2 instructs examiners to determine whether any element, or combination thereof, is sufficient “to ensure that the claim amounts to significantly more than the abstract idea itself.” In providing examples of what may qualify, Part 2 references improvements to the functioning of the computer itself or to another technology or technical field and other “[m]eaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.” Part 2 further notes that simply adding the words “apply it” or mere instructions to apply an abstract idea on a computer, or requiring no more than a generic computer to perform well-known generic functions are insufficient to qualify as adding “significantly more.”

Public comments to the preliminary instructions note an insufficiency in guidance for identifying an abstract concept in Part 1. For instance, the USPTO does not provide definitions for the examples they recite, or even the Court’s own limiting language (e.g., language limiting “fundamental economic practices” to those that are “long prevalent in our system of commerce” or “taught in any introductory finance class”). The USPTO includes “[c]ertain methods of organizing human activities,” but fails to note that the Court used this to describe a longstanding commercial practice, not as a separate and additional example of an abstract idea. Others note with concern the oversimplification of the two-part framework and ask that the USPTO recognize that prior guidance of Bilski remains viable.

The USPTO has released two-part preliminary guidance under Alice

In principle, Alice added very little to the substantive law. It confirmed that fundamental economic practices are unpatentable abstract ideas absent elements that transform them into significantly more; that generic computers, instructions, and functions are insufficient for this purpose; and that improvements to the computer itself, another technology, or technical field may be required. According to the USPTO, Alice “neither creates a per se excluded category of subject matter, such as software or business methods, nor imposes any special requirements for eligibility of software or business methods.” Memo from Andrew H. Hirshfeld, Dep’y Comm. for Patent Examination Policy, USPTO, “Preliminary Examination Instructions in view of the Supreme Court Decisions in Alice Corp. v. CLS Bank Int.,” June 25, 2014. Yet, since Alice, there has been a surge in invalidations under §101. Even though Alice added little to the substantive law, practitioners should expect a change in the patent evaluation process, as well as an emboldened court and USPTO.

Beyond the Looking Glass: Patent-Eligible Subject Matter After Alice and Mayo

Posted on November 1, 2014 by Kinney & Lange, P.A.

By Erik Wright and Austen Zuege

From Intellectual Property Today, Vol. 21, No. 11 (November 2014)

In recent cases such as Alice Corp. v. CLS Bank Int’l, 134 S.Ct. 2347 (2014), the Supreme Court has reiterated that abstract ideas, laws of nature, and natural phenomena cannot be patented. Inventions directed to any of these three categories must include sufficient extra material to form the basis of a patent. The Court has provided some guidance as to what kinds of claim language can satisfy this requirement, but has thus far declined to define the principal categories of patent-ineligible subject matter in a way that can be applied prospectively. Instead, the Court seems satisfied that “they know it when they see it.”

In the absence of prospective rules, the courts are slowly accumulating an ad hoc list of examples of what they consider patent-ineligible subject matter. Most of these examples pertain to computer- and software-implemented technologies, and are decided by analogy to cases relating to those technologies. Troublingly, some judicial opinions have seemed to conflate the issue of patentable subject matter with the separate statutory issues of novelty and non-obviousness.

In the absence of a clear, prospective definition from the Supreme Court, the Federal Circuit has returned to an emphasis on physical or tangible results, characterizing data manipulation techniques as unpatentable abstract ideas. Recent Federal Circuit decisions in BuySAFE, Digitech, Planet Bingo, and I/P Engine have given broad software patent claims harsh treatment, and the Patent Trial and Appeal Board (PTAB) has followed suit. The BuySAFE opinion and a concurrence in I/P Engine do the most to try to make sense of this still unsettled area of patent law. We provide a summary of recent cases, as well as key precedents.

Mayo v. Prometheus

Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S.Ct. 1289 (2014), addressed the patent-eligibility of diagnostic methods and drug therapies for treating gastro-intestinal disorders. Mayo found that these claims were directed primarily toward a law of nature, Id. at 1294-96, and then asked whether other limitations in the claims provided an “‘inventive concept’ sufficient to ensure that the patent in practice amount[ed] to significantly more than a patent upon the natural law itself.” Id. at 1294. The Court asked whether claims were sufficiently limited to avoid preempting further innovation or exploration in the technical field. Id. at 1301. Building upon Flook and Diehr, the Court explained that neither postsolution nor presolution activity (e.g. collecting or reporting data) could save patentability if such activity was unrelated to the core “inventive concept.” Id. at 1303-04.

Alice v. CLS Bank

In May of 2013 the Federal Circuit issued an en banc decision in CLS Bank Int’l v. Alice Corp. 717 F.3d 1269 (Fed. Cir. 2013) (per curiam). Alice concerned several patents with claims directed to business methods, systems, and a “Beauregard” style apparatus for computer-implemented escrow services. In a 7-3 decision with no majority opinion, the Federal Circuit held that Alice’s method and Beauregard apparatus claims were directed towards patent ineligible subject matter. The Circuit was evenly split as to whether Alice’s system claims were patentable.

In June of 2014 the Supreme Court unanimously held that all of Alice’s claims were ineligible for patenting.[1] According to the Court, analysis of patent-eligible subject matter questions involves a two-part test implicit in Mayo, and later elaborated on by the Federal Circuit. The first step in this test is determining “whether the claims at issue are directed to a patent-ineligible concept. If so, the court then asks whether the claims’ elements … transform the nature of the claim into a patent-eligible application.”[2] The Court provided no new guidance as to what constitutes an abstract idea or patent-ineligible concept, however, falling back on analogy to Bilski.[3] Contrary to the analysis of the Federal Circuit, and to its own precedent in Diehr and Flook, the Court appeared to rely on the fact that risk hedging, although not a “preexisting, fundamental truth,” was still a “fundamental economic practice” sufficiently well-known to establish it as a mere abstract idea. Alice at 2357. In Alice, as in Bilski, the Court seems to conflate issues of patent-eligible subject matter with what were previously considered separate questions of novelty and non-obviousness.[4] The Court ignored much of Mayo’s extensive discussion of “preemption,” and (again) sidestepped any sort of categorical holding on when commercial and social relationships in economic “processes” could ever be patent-eligible.

In the Federal Circuit

Shortly after Alice the Federal Circuit decided Digitech.[5] The claims in Digitech recited a method and a “device profile” used for image capture, transformation and reproduction, which the Circuit characterized as directed exclusively towards data manipulation and transformation. Citing Mayo and Alice, mere data manipulation was found categorically unpatentable as an “ethereal, non-physical” abstract idea. Id. at 1350. “Without additional limitations, a process that employs mathematical algorithms to manipulate existing information to generate additional information is not patent eligible.” Id. at 1351. The patent owner’s argument that the “device profile” was a tag or other embodiment of hardware or software was rejected as not reflecting the actual claim language. Id. Under the pre-emption analysis of Mayo, Judge Edmond explained that the claims at issue were “so abstract and sweeping as to cover any and all uses of a device profile,” an abstract idea. Id. Following this rule, any algorithmic data manipulation without physical transformations would appear to constitute an unpatentable abstract idea. Mere presolution or postsolution steps such as collecting data and reporting results via a conventional apparatus remain insufficient to satisfy the second prong of the Mayo/Alice test.

Although the majority and dissenting opinions of IP Engine v. AOL[6] did not address patentable subject matter, Senior Judge Mayer wrote a concurrence specifically to address patent eligibility of claims directed to a method for filtering Internet search results.[7] Judge Mayer provocatively argued that Alice “for all intents and purposes, recited a ‘technological arts’ test for patent eligibility.” Id. at *9. He interprets Mayo and Alice to say that:

“[s]ection 101 mandates not only that claims disclose an advance in science and technology—as opposed to an innovation in a non-technological discipline such as business, law, sports, sociology, or psychology—but also that this advance be both significant and well-defined. *** [I]f claims are drawn to the application of principles outside of the scientific realm—such as principles related to commercial or social interactions—no amount of specificity can save them from patent ineligibility. *** In the more difficult cases—where it is uncertain whether claims are sufficiently ‘technological’ to warrant patent protection—subject matter eligibility will often turn on whether the claims describe a narrow inventive application of a scientific principle, or instead simply recite steps that are necessarily part of the principle itself. *** At its core, section 101 prohibits claims which are ‘overly broad[]’ . . . in proportion to the technological dividends they yield. Id. at *10.

Mayer sees this as a Constitutional limit of patent eligibility. Id. at *11. While his statements go far beyond the literal language of Alice and Mayo,[8] they nonetheless seem to explain the actual results of those and other recent cases, and pick up the question of the “preemption” raised in Mayo but not analyzed in Alice. Judge Mayer found that the I/P Engine claims represented “merely an Internet iteration of the basic concept of combining content and collaborative data,” as a person might do manually by consulting a guidebook and asking friends for suggestions while planning a visit to London. Id.

Planet Bingo[9] dealt with claims to a computer system for managing bingo games, and in particular storing bingo numbers for multiple game sessions. The Federal Circuit found the claims ineligible for patenting. Returning to a familiar pre-Bilski “machine-or-transformation” analysis, the Federal Circuit asked, hypothetically, whether the method could have been performed solely using “mental steps.” Under this analysis, the mere recitation of a computer added no meaningful limitation to the claims. The patent owner’s argument that humans could not manage the “thousands, if not millions” of numbers involved were rejected as not being commensurate with the explicit language of the claims, which only required “two sets of Bingo numbers”. Id. at *2–3. In an faint echo of a technological arts test (but with little explicit analysis), the Federal Circuit determined that the solution of a “tampering problem” and “other security risks” constituted unpatentable abstract ideas that failed to add “significantly more”, drawing analogies to Bilski and Alice.

The Federal Circuit also recently issued the precedential opinion BuySAFE, Inc. v. Google, Inc.[10] BuySAFE dealt with method and Beauregard claims toward providing a performance guarantee for an “online commercial transaction” via a “computer network”. Id. at 1351-52. In keeping with Digitech, BuySAFE noted that this “inventive concept” must exist “in the physical realm”—data manipulation is not sufficient. Id. at 1353. The claims were held to be “squarely about creating a contractual relationship” that was “beyond question of ancient lineage” and the “invocation of computers add[ed] no inventive concept.” Id. at 1355. The mere fact “that a computer receives and sends the information over a network—with no further specification—is not even arguably inventive.” Id. However, citing Bilski, the opinion adds the caveat that “[i]f enough extra is included in a claim, it passes muster under section 101 even if it amounts to a ‘business method.’” Id. at 1354. An example of a “business method” that recites an “inventive concept” sufficient to establish patent eligibility has yet to pass before the Supreme Court, and none of the post-Alice Federal Circuit (or PTAB) decisions have found one either. Quoting Alice, the BuySAFE opinion further discusses a need to “effect an improvement in any other technology or technical field[.]” Id. (emphasis added). Whether other Federal Circuit judges will join Judge Mayer in establishing an explicit post-Alice “technological arts” test therefore remains to be seen. If any sort of consensus view is emerging on the Federal Circuit, it may be less due to insights provided by Alice and more a result of the changing makeup of the court and the chance makeup of the panels hearing recent cases.

At the Patent Trial and Appeal Board

In Bancorp v. Retirement Capital[11] a review under the Transitional Program for Covered Business Method Patents of U.S. Pat. No. 6,625,582 found claims unpatentable as directed to an abstract idea. The patent related to a “computerized method” for converting future social security payments into immediate disbursements. Id., at *2–3. By way of analogy to the claims in Bilski and Alice, the PTAB panel found that “the concept of advancing funds based on future retirement payments is an economic practice long prevalent in our system of commerce and squarely within the realm of abstract ideas.” Id. at *6–7. The PTAB determined that a preamble recitation of “a computerized method” did not meaningfully limit the claims, and that claims reciting payments “deposited into accounts” did not require a computer, since they “could be performed as a series of verbal transactions exchanging physical money or via pen and paper.” Id. at *7. Similarly, the PTAB held that a means-plus-function limitation requiring “electronic transfer” only used a computer in a generalized fashion. Id. at *6. Here, the Specification worked against the patent owner, because it referred only to “known computer capabilities” and “the well-known technique of electronic funds transfer.”

By failing to present the claimed steps as representing new computer programming or hardware rather than known, general purpose computer equipment and techniques, the patent failed to meaningfully limit the abstract idea it invoked, rendering it patent-ineligible. “Neither the claims nor the specification provide[d] complex technological implementations or modifications of” the technologies involved, and the patent “recite[d] no specific technological mechanism for achieving its result.”[12] This analysis suggests that if complex programming is not described somewhere in a patent application for a software-related invention, there is a substantial risk of fatal patent eligibility concerns. The PTAB panel mentioned in passing the question of preemption by “encompass[ing] the full scope of an abstract idea” but did not rule on that question or even assign it to any particular step of the overall eligibility analysis. Id. at 20.

What’s Next?

Recent district court decisions have offered new analyses of a wider range of claimed technologies. For instance, a very articulate order in McRO, Inc. v. Activision Publ’n, Inc., CV-14-336 (C.D. Cal. Sept., 22, 2014), struck down claims for lip-synching of animation as patent ineligible because a generic recitation of “rules” at the point of novelty merely required automation of known, manual processes, and was therefore preemptive. Although the claimed point of novelty went beyond the prior art, that “extra” recitation was still found to be an unpatentable abstract idea. Another district court case, Tuxis Techs., LLC v. Amazon.com, Inc., No. 13-1771 (D. Del., Sept. 3, 2014) employed, at least in part, a different analysis than post-Alice Federal Circuit or PTAB decisions. Although the court credits this analysis to Alice (when Mayo seems closer), it directly assessed whether the claims were “preemptive” by looking to a list of hypothetically non-infringing processes enumerated by the patent owner. Cases like these will be worth watching if appealed.

[1] Alice Corp. v. CLS Bank Int’l, 134 S.Ct. 2347 (2014).

[2] Id. at 2355, citing Mayo, 132 S.Ct. at 1296–97.

[3] Bilski v. Kappos, 561 U.S. 593 (2010), determined that claims to a business method for risk hedging were directed to an unpatentable abstract idea, but rejected the Federal Circuit’s exclusive use of the “machine or transformation” test in favor of a vaguer and highly discretionary inquiry based in part based characterizing the underlying principles of the claims as being old and well-known.

[4] Diamond v. Diehr and Parker v. Flook, for instance, state that the issue of subject matter patent eligibility is distinct from and unrelated to novelty and obviousness inquiries. Diehr, 450 U.S. at 188; Flook, 437 U.S. at 588.

[5] Digitech Image Techs., LLC v. Elecs. for Imaging, Inc., 758 F.3d 1344 (Fed. Cir. 2014) (concerning U.S. Pat. No. 6,128,415).

[6] IP Engine, Inc. v. AOL Inc., 2014 WL 3973501 (Fed. Cir., Aug. 15, 2014) (non-precedential).

[7] The claimed filtering system used both content based filtering (e.g. extracting features such as text from an information item) and collaborative filtering (e.g. assessing relevance based on feedback from other users).

[8] But compare MySpace, Inc. v. GraphOn Corp., 672 F.3d 1250 (Fed. Cir. 2012) (Mayer, J., dissenting).

[9] Planet Bingo, LLC v. VKGS LLC, 2014 WL 4195188 (Fed. Cir., Aug. 26, 2014) (non-precedential).

[10] BuySAFE, Inc. v. Google, Inc., 765 F.3d 1350 (Fed. Cir. 2014).

[11] U.S. Bancorp v. Retirement Capital Access Mgmt. Co., 2013 WL 8538864, CBM2013-00014 (PTAB, Aug. 22, 2014).

[12] Id., but contrast Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 1342,1353 (Fed. Cir. 2013).