Courts Continue To Invalidate Patents For Ineligible Subject Matter At The Pleadings Stage
This article appeared in the April 1, 2015 Edition of The Legal Intelligencer
Less than 10 months ago, the Supreme Court issued its landmark decision regarding patent eligibility under 35 U.S.C. § 101 in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). Since then, the application of Alice by both district courts and the Court of Appeals for the Federal Circuit confirms that the impact of this case extends beyond the substantive aspects of patent eligibility. Alice has procedurally changed patent litigation. Indeed, courts applying Alice are invalidating patents at a previously unheard of (and still growing) rate following motions to dismiss under Fed. R. Civ. P. 12(b)(6) or motions for judgment on the pleadings under Fed. R. Civ. P. 12(c).
Under Section 101, an invention is eligible for patenting if it claims a “new, and useful process, machine, manufacture, or composition of matter.” The Supreme Court has “long held” that Section 101 is subject to several well-established exceptions: 1) laws of nature; 2) natural phenomena; or 3) abstract ideas. In Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), the Supreme Court established a two-step framework for reviewing patent eligibility: In step one, a court must determine whether the claims are directed to one of the three patent-ineligible concepts set forth above. If the court determines that the patent claims a patent-ineligible concept, under step 2, the court must next consider whether the claims amount to “significantly more” than the ineligible concept. While Mayo applied this two-step framework to laws of nature, Alice applied it to abstract ideas.
Determining patent eligibility at the outset of the litigation provides defendants with the opportunity for “a number of salutary effects,” including disposing of all or a portion of the case prior to incurring the significant expenses associated with discovery, as well as claim construction, expert witnesses, summary judgment and, ultimately, trial. See Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 718 (Fed. Cir. 2014). The Federal Circuit has affirmed a number of pleadings-stage patent eligibility decisions, lending further endorsement to this strategy in appropriate cases. See Ultramercial (affirming grant of motion to dismiss); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1351 (Fed. Cir. 2014) (affirming grant of motion for judgment on the pleadings).
In opposing motions to dismiss, Patentees have raised a number of arguments ranging from a pure, substantive opposition on patent eligibility grounds to procedural attacks on the prematurity of a pleadings-stage disposition. The prematurity arguments, detailed below, have been received with mixed success.
A common argument advanced by patentees regarding the alleged prematurity of a pleadings-stage patent eligibility motion is that claim construction is “ordinarily…desirable” because “the determination of patent eligibility requires a full understanding of the basic character of the claimed subject matter.” Bancorp Servs., LLC v Sun Life Assurance Co. of Canada, 687 F.3d 1266 (Fed. Cir. 2012). Defendants are quick to point out, however, that the very same case also notes that claim construction “is not an inviolable prerequisite to a validity determination under § 101.” Courts have been typically resolving this issue by adopting the patentees’ proposed construction for the purposes of resolving the pleadings-stage motion.
In Eclipse IP LLC v. McKinley Equip. Corp., Eclipse opposed defendants’ motion to dismiss for failure to recite patentable subject matter by arguing that there is “factual dispute whether the preambles of the asserted claims are limiting.” 2014 WL 4407592, at *5 (C.D. Cal. Sept. 4, 2014). The court disagreed with Eclipse, noting that claim construction is a question of law and Eclipse had failed to identify any relevant extrinsic facts in dispute. McKinley also represented to the court that it “… is fine with hav[ing] the Court assume that the preambles are limiting….” Even assuming for the purposes of the motion to dismiss that the preambles of the claims were limiting, the district court still found the claims failed to recite patentable subject matter and granted the motion to dismiss.
The Federal Circuit recently expressly approved of this type of resolution. Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat. Ass’n, 776 F.3d 1343, 1349 (Fed. Cir. 2014). In affirming a district court’s grant of a Rule 12(b)(6) motion to dismiss, the Federal Circuit rejected Content Extraction & Transmission’s (“CET”) prematurity argument that claim construction, fact discovery, and the submission of expert opinion were all required prior to consideration of the motion to dismiss. The district court bypassed this argument by adopting CET’s proposed constructions and “necessarily assuming that all of CET’s claims required a machine, even though several claims do not expressly recite any hardware structures.” The Federal Circuit agreed with the district court that “even when construed in a manner most favorable to CET, none of CET’s claims amount to ‘significantly more’ than the abstract idea ….’”
Preemptively requesting claim constructions from plaintiffs at an earlier stage when considering a Section 101 pleadings-stage motion may become standard procedure for courts undertaking an Alice analysis to moot a prematurity argument. In Priceplay.com Inc. v. AOL Advertising, Inc., the court requested Priceplay.com’s proposed constructions, without supporting arguments, prior to the oral argument for AOL’s Rule 12(b)(6) motion. Civ. No. 14-92-RGA (D. Del. March 18, 2015). During that oral argument, Priceplay.com conceded the proposed constructions would not alter the result under the Alice framework. The court, in granting AOL’s motion, found that (even under Priceplay.com’s constructions) the claimed computer features were “purely conventional” and merely “require a generic computer to perform generic computer functions.”
Some courts have, however, identified factual disputes requiring denial of Section 101 pleadings-stage motions. In StoneEagle Services, Inc. v. Pay-Plus Solutions, Inc. (decided prior to Priceplay), the court concluded that two aspects warranted denying Pay-Plus’ 12(c) motion: 1) the prosecution history of the “parent” patent, relied upon by the parties, was deemed to be evidence outside of the pleadings; and 2) a claim construction dispute arose as the parties disputed “the basic character of the claimed subject matter.” 2015 WL 518852 (M.D. Fla. Feb. 9, 2015).
These rulings are consistent with what appears to be a growing trend across the nation towards conducting an Alice analysis as a “threshold test” at the pleading stage to resolve patent eligibility. Patent eligibility as a litigation gatekeeper could serve as a boon to defendants by providing an early opportunity to terminate a litigation and avoid substantial discovery and other litigation costs. In suitable cases, this streamlined approach may also reduce the likelihood and amount of nuisance settlements a non-practicing entity (“NPE” – some of whom are referred to as “patent trolls”) may try to elicit. Patent trolls may no longer be able to leverage the high costs associated with discovery and other late-stage litigation proceedings to entice more than nominal settlements early in a case.
While Congress continues to debate new legislation in response to the outspoken belief of many in Congress that the court system has not done enough to curb abusive litigation practices of patent trolls, an early-disposition Alice attack (or threat of one) may turn out to be a potent and long sought troll killer.
Alice attacks are not limited, however, to patent trolls. Plaintiffs should be prepared for this procedural attack which could stop a lawsuit at its inception. In addition to addressing substantively the Alice analysis head on, plaintiffs will need to assess whether they can demonstrate that a motion to dismiss is premature because there are legitimate and relevant factual disputes, such as whether: 1) the pleadings-stage motion relies on evidence outside of the pleadings; or 2) there is more than one plausible reading of the claims – requiring more involved claim construction at a later stage of the proceedings.