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Fed. Circ. Finds Another Alice Ruling Came Too Soon
Share us on: By Ryan Davis
Law360 (February 14, 2018, 7:22 PM EST) -- The Federal Circuit faulted a lower court Wednesday for invalidating data manipulation patents as abstract ideas on a motion to dismiss, the second time in days the court has held that a judge too quickly found that patents failed the U.S. Supreme Court’s Alice test.
As it did in a different case on Feb. 8, the Federal Circuit ruled that there were factual disputes about whether two Aatrix Software Inc. patents claim patent-ineligible subject matter, so Judge Harvey E. Schlesinger of the Middle District of Florida was wrong to dismiss the company’s suit against Green Shades Software Inc.
The appeals court held 2-1 that in addition to incorrectly finding that every claim of the two patents covered only the abstract idea of collecting and organizing data, the judge also should not have denied Aatrix’s motion to file an amended complaint the company said would show that the patents contained something more than conventional activities and were thus not abstract.
"These allegations, if accepted as true, contradict the district court’s conclusion that the claimed combination was conventional or routine," the Federal Circuit said. "Therefore, it was an abuse of discretion for the district court to deny leave to amend."
The ruling follows the same reasoning in last week’s Berkheimer v. HP Inc. decision, in which the appeals court said a judge wrongly granted summary judgment finding a patent ran afoul of the high court’s Alice holding that abstract ideas implemented on a computer are not patent-eligible under Section 101 of the Patent Act.
The Berkheimer ruling was the first time the appeals court expressly held that evaluating the validity of patents under Alice involves factual questions about whether a patent contains inventive components that make it patent-eligible. According to experts, that could make it much tougher for an accused infringer to invalidate patents under Alice early in a case.
The high court held that patents are invalid if they cover abstract ideas and do not transform them into something more than "well understood, routine and conventional activities previously known to the industry." The Federal Circuit has now twice emphasized that what is routine and conventional is a factual issue that often cannot be decided on summary judgment or motions to dismiss.
The court said Wednesday that the allegations in Aatrix’s 55-page amended complaint, which is 50 pages longer than its initial complaint, “suggest that the claimed invention is directed to an improvement in the computer technology itself and not directed to generic components performing conventional activities.”
The case began in February 2015, when Aatrix, a North Dakota-based company that makes accounting software, filed suit alleging that Florida-based Green Shades' Tax Filing Center software infringed its patents. The case was dismissed just over a year later.
Both the Berkheimer and Aatrix decisions were written by Judge Kimberly Moore and joined by Judge Richard Taranto. While the Berkhimer decision was unanimous, with Judge Kara Farnandez Stoll also on the panel, Judge Jimmie Reyna wrote a strong dissent in the Aatrix case saying he disagreed with "the majority's broad statements on the role of factual evidence" in the patent-eligibility analysis.
"Our precedent is clear that the Section 101 inquiry is a legal question," he said. "In a manner contrary to that standard, the majority opinion attempts to shoehorn a significant factual component into the Alice Section 101 analysis."
Making patent-eligibility a factual inquiry opens the door to "the introduction of an inexhaustible array of extrinsic evidence, such as prior art, publications, other patents and expert opinion," which "would turn the utility of the [motion to dismiss] procedure on its head," he said.
"This contradicts our case law that patent ineligibility under Section 101 is a question of law, and that it can be appropriately decided on a motion to dismiss," he said.
John Lunseth of Briggs & Morgan PA, an attorney for Aatrix, said the majority's holding "is a breath of fresh air in the law as applied following the U.S. Supreme Court's decision in Alice."
"The courts were, in too many cases, simply picking up and reading the patent, and with no or very limited factual information, deciding a particular software patent was patent-ineligible," he said. "We are gratified to see that there is a trend to return to the very long-standing law that ... dismissal is not appropriate where there are material issues of fact."
Joseph Bain of Shutts & Bowen LLP, an attorney for Green Shades, said the ruling is only procedural and did not address the merits, adding that the company believes it will prevail when the case returns to district court.
"Now that we know crystal-clear what Aatrix thinks the inventive concepts are, we will be able to show that they are routine and conventional on remand," he said.
Matthew Rizzolo of Ropes & Gray LLP, who is not involved in the case but follows the Federal Circuit's eligibility rulings, said Judge Reyna’s dissent and the potential of the rulings to impact a large number of cases make it likely the court will be asked to review this issue en banc.
“This decision combined with Berkheimer, if they hold, constitute a pretty high bar for 101 challenges at the outset of cases,” he said.
He noted that the new difficulties accused infringers will face in quickly getting patents invalidated under Alice in court could prompt more of them to make Section 101 challenges using the America Invents Act’s covered business method review program if their motions to dismiss are denied.
The patents-in-suit are U.S. Patent Numbers 7,171,615 and 8,984,393.
Judges Kimberly Moore, Richard Taranto and Jimmie Reyna sat on the panel for the Federal Circuit.
Aatrix is represented John Lunseth II of Briggs & Morgan PA.
Green Shades is represented by Joseph Bain and Harold Gillis of Shutts & Bowen LLP.
The case is Aatrix Software Inc. v. Green Shades Software Inc., case number 2017-1452, in the U.S. Court of Appeals for the Federal Circuit.
--Editing by Aaron Pelc.
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Fed. Circ. Finds Another Alice Ruling Came Too Soon
Share us on: By Ryan Davis
Law360 (February 14, 2018, 7:22 PM EST) -- The Federal Circuit faulted a lower court Wednesday for invalidating data manipulation patents as abstract ideas on a motion to dismiss, the second time in days the court has held that a judge too quickly found that patents failed the U.S. Supreme Court’s Alice test.
As it did in a different case on Feb. 8, the Federal Circuit ruled that there were factual disputes about whether two Aatrix Software Inc. patents claim patent-ineligible subject matter, so Judge Harvey E. Schlesinger of the Middle District of Florida was wrong to dismiss the company’s suit against Green Shades Software Inc.
The appeals court held 2-1 that in addition to incorrectly finding that every claim of the two patents covered only the abstract idea of collecting and organizing data, the judge also should not have denied Aatrix’s motion to file an amended complaint the company said would show that the patents contained something more than conventional activities and were thus not abstract.
"These allegations, if accepted as true, contradict the district court’s conclusion that the claimed combination was conventional or routine," the Federal Circuit said. "Therefore, it was an abuse of discretion for the district court to deny leave to amend."
The ruling follows the same reasoning in last week’s Berkheimer v. HP Inc. decision, in which the appeals court said a judge wrongly granted summary judgment finding a patent ran afoul of the high court’s Alice holding that abstract ideas implemented on a computer are not patent-eligible under Section 101 of the Patent Act.
The Berkheimer ruling was the first time the appeals court expressly held that evaluating the validity of patents under Alice involves factual questions about whether a patent contains inventive components that make it patent-eligible. According to experts, that could make it much tougher for an accused infringer to invalidate patents under Alice early in a case.
The high court held that patents are invalid if they cover abstract ideas and do not transform them into something more than "well understood, routine and conventional activities previously known to the industry." The Federal Circuit has now twice emphasized that what is routine and conventional is a factual issue that often cannot be decided on summary judgment or motions to dismiss.
The court said Wednesday that the allegations in Aatrix’s 55-page amended complaint, which is 50 pages longer than its initial complaint, “suggest that the claimed invention is directed to an improvement in the computer technology itself and not directed to generic components performing conventional activities.”
The case began in February 2015, when Aatrix, a North Dakota-based company that makes accounting software, filed suit alleging that Florida-based Green Shades' Tax Filing Center software infringed its patents. The case was dismissed just over a year later.
Both the Berkheimer and Aatrix decisions were written by Judge Kimberly Moore and joined by Judge Richard Taranto. While the Berkhimer decision was unanimous, with Judge Kara Farnandez Stoll also on the panel, Judge Jimmie Reyna wrote a strong dissent in the Aatrix case saying he disagreed with "the majority's broad statements on the role of factual evidence" in the patent-eligibility analysis.
"Our precedent is clear that the Section 101 inquiry is a legal question," he said. "In a manner contrary to that standard, the majority opinion attempts to shoehorn a significant factual component into the Alice Section 101 analysis."
Making patent-eligibility a factual inquiry opens the door to "the introduction of an inexhaustible array of extrinsic evidence, such as prior art, publications, other patents and expert opinion," which "would turn the utility of the [motion to dismiss] procedure on its head," he said.
"This contradicts our case law that patent ineligibility under Section 101 is a question of law, and that it can be appropriately decided on a motion to dismiss," he said.
John Lunseth of Briggs & Morgan PA, an attorney for Aatrix, said the majority's holding "is a breath of fresh air in the law as applied following the U.S. Supreme Court's decision in Alice."
"The courts were, in too many cases, simply picking up and reading the patent, and with no or very limited factual information, deciding a particular software patent was patent-ineligible," he said. "We are gratified to see that there is a trend to return to the very long-standing law that ... dismissal is not appropriate where there are material issues of fact."
Joseph Bain of Shutts & Bowen LLP, an attorney for Green Shades, said the ruling is only procedural and did not address the merits, adding that the company believes it will prevail when the case returns to district court.
"Now that we know crystal-clear what Aatrix thinks the inventive concepts are, we will be able to show that they are routine and conventional on remand," he said.
Matthew Rizzolo of Ropes & Gray LLP, who is not involved in the case but follows the Federal Circuit's eligibility rulings, said Judge Reyna’s dissent and the potential of the rulings to impact a large number of cases make it likely the court will be asked to review this issue en banc.
“This decision combined with Berkheimer, if they hold, constitute a pretty high bar for 101 challenges at the outset of cases,” he said.
He noted that the new difficulties accused infringers will face in quickly getting patents invalidated under Alice in court could prompt more of them to make Section 101 challenges using the America Invents Act’s covered business method review program if their motions to dismiss are denied.
The patents-in-suit are U.S. Patent Numbers 7,171,615 and 8,984,393.
Judges Kimberly Moore, Richard Taranto and Jimmie Reyna sat on the panel for the Federal Circuit.
Aatrix is represented John Lunseth II of Briggs & Morgan PA.
Green Shades is represented by Joseph Bain and Harold Gillis of Shutts & Bowen LLP.
The case is Aatrix Software Inc. v. Green Shades Software Inc., case number 2017-1452, in the U.S. Court of Appeals for the Federal Circuit.
--Editing by Aaron Pelc.
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