A Sea Change after Alice: Recent Court Decisions Show Patents Are Vulnerable under Section 101 Attack

Since 2010, the Supreme Court has issued four decisions on patent-eligible subject matter under 35 U.S.C. § 101. In the most recent decision, Alice Corp. v. CLS Bank, the Court continued the restrictive approach set forth in its own precedents in Gottschalk v. Benson,[1] Parker v. Flook,[2] and Diamond v. Diehr,[3] and invalidated patents directed to computerized methods for mitigating settlement risk by using a third-party intermediary. The most significant passage in the Alice decision is that the Court expressly adopted the two-step test it elaborated in Mayo Collaborative Services v. Prometheus Laboratories[4] for all types of patent subject matter issues, including laws of nature, natural phenomena, and abstract ideas.[5]

Within four months of the Alice decision, the lower courts have rejected patents in fifteen out of twenty cases.[6] Almost all courts based their analysis on the Mayo two-step test, where the first step is to determine whether the claims are directed at patent-ineligible subject matter, and if so, the second step is to determine whether any additional elements would transform the claims into patent-eligible inventions. Most patents challenged were found to be directed to abstract ideas and there were no limitations that could transform the nature of the claims into a patent-eligible subject matter.[7] Although the Alice Court declined to define the term “abstract ideas,” the lower courts seemed to have little trouble finding claims directed to abstract ideas.[8] The most vulnerable patents appear to be those having similar subject matters as patents at issue in Bilski v. Kappos (directed to methods of hedging risk in the commodity industry, found invalid for claiming an abstract idea), Mayo (directed to methods for calibrating the dosage of some medicines, found invalid for claiming a law of nature), or Alice (directed to methods for implementing an escrow concept using general computers, found invalid for claiming an abstract idea).

Another interesting trend is that the district courts have been willing to decide Section 101 issues at early stages of litigation, even without claim construction.[9] Among the seventeen district court cases, nine were brought under Fed. R. Civ. P. § 12(b)(6) and two under Fed. R. Civ. P. § 12(c). The district courts denied the motions as premature in only three of these cases because there was insufficient evidence in the record to determine whether any of the claimed limitations could meet the second step of the Mayo test.

Although some commentators believe that the Alice decision has not added much to the existing law on Section 101, the recent lower court decisions show that the federal courts are increasingly likely to invalidate patents, especially business methods and software patents, on Section 101 grounds, and are willing to do it at early stages of litigation.

Table 1

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[1] 409 U.S. 63 (1972).

[2] 437 U.S. 584 (1978).

[3] 450 U.S. 175 (1981).

[4] 132 S. Ct. 1289 (2012).

[5] 134 S. Ct. 2347, 2355 (2014).

[6] Table 1 shows the results of Section 101 cases after Alice, based on research conducted with Westlaw and Docket Navigator.

[7] See e.g. Cogent Med., Inc. v. Elsevier Inc., 2014 WL 4966326, DietGoal Innovations LLC v. Bravo Media LLC, 2014 WL 3582914, Eclipse IP LLC v. McKinley Equip. Corp., 2014 WL 4407592, Open Text S.A. v. Alfresco Software Ltd, 2014 WL 4684429, Tuxis Technologies LLC v. Amazon.com Inc., CV 13-1771-RGA (D. Del. Sept. 3, 2014), Loyalty Conversion Sys. Corp. v. Am. Airlines, Inc., 2014 WL 4364848, McRO, Inc. v. Atlus U.S.A., 2014 WL 4772196, CMG Fin. Servs., Inc. v. Pac. Trust Bank, F.S.B., 2014 WL 4922349, Comcast IP Holdings I, LLC v. Sprint Commc’ns Co. L.P., 2014 WL 3542055, Every Penny Counts, Inc. v. Wells Fargo Bank, N.A., 2014 WL 4540319, Walker Digital, LLC v. Google, Inc., 2014 WL 4365245, buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, Digitech Image Technologies, LLC v. Electronics for Imaging, Inc., 758 F.3d 1344, and Planet Bingo, LLC v. VKGS LLC, 576 F. App’x 1005.

[8] See id.

[9] This is directly contrary to the Federal Circuit’s decision in Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 1339 (Fed. Cir. 2013) (concluding that “Rule 12(b)(6) dismissal for lack of eligible subject matter will be the exception, not the rule.”)  The Ultramercial decision was vacated and remanded to the Federal Circuit for further consideration in light of AliceWildTangent, Inc. v. Ultramercial, LLC, 134 S. Ct. 2870 (2014).  In CMG Fin. Servs., Inc. v. Pac. Trust Bank, F.S.B., the district court granted the motion for summary judgment of invalidity under Section 101, rejecting the argument that the motion was premature because the court had not construed the terms.  2014 WL 4922349 at 8.

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Dan Liu

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