Has Alice gone down the rabbit hole?

This column appeared in the April 18 TOP INTELLECTUAL PROPERTY LAWYERS special report.

[Federal Circuit rulings attached below.]

Since the U.S. Supreme Court's seminal decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), challenging patent subject matter eligibility under 35 U.S.C. Section 101 has become a favorite defense strategy. Drawn by the prospect of ending cases early -- before expensive claim construction and discovery -- defendants have been filing Alice challenges almost routinely, and often winning. But a new series of recent decisions by the U.S. Court of Appeals for the Federal Circuit indicates concern that the pendulum has swung too far, and discourages early Alice challenges by suggesting that patent-eligibility involves factual issues that often cannot be resolved on a motion to dismiss or early summary judgment motion.

Under Alice's two-pronged test for patent eligibility, the court first determines whether a claim is directed to an abstract idea, and then, if so, whether that claim includes an "inventive concept" that transforms the claim into patent-eligible subject matter. In particular, the Supreme Court held that well-understood, conventional, and routine elements were insufficient at step two.

Alice itself held that a conventional computer, without more, was not an inventive concept at step two, and subsequent Federal Circuit cases have concluded that claims reciting additional physical components such as scanners, telephones, and networks likewise lacked a saving inventive concept. See, e.g., In re TLI Commc'ns LLC Patent Litig., 823 F.3d 607 (Fed. Cir. 2016), Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat'l Ass'n, 776 F.3d 1343, 1347 (Fed. Cir. 2014); Mortg. Grader, Inc. v. First Choice Loan Serv. Inc., 811 F.3d 1314, 1324-25 (Fed. Cir. 2016). Moreover, numerous opinions have endorsed the idea that patent-eligibility may be decided on the pleadings or at summary judgment. See, e.g., OIP Techs. Inc. v. Amazon.com, Inc., 788 F.3d 1343, 1364 (Fed. Cir. 2015) (Mayer, J., concurring) ("Addressing 35 U.S.C. § 101 at the outset ... conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation"); Content Extraction, 776 F.3d at 1349. For example, in TLI Communications, the Federal Circuit concluded that it did not need to engage in fact-finding to uphold a dismissal because the specification described the claimed elements as performing "basic computer functions" or other functions "known" in the art.

In February, however, the Federal Circuit altered the landscape with its decision in Berkheimer v. HP, 881 F.3d 1360 (Fed. Cir. 2018). The patent there claimed a "digital asset management system" that parsed files into objects and tagged relationships between them. The district court concluded the claims were ineligible under Alice. The Federal Circuit upheld the district court's ruling regarding the first independent claim, agreeing that it was directed to an abstract idea and finding no "inventive concept" at step two because parsers "had existed for years prior to his patent."

But the panel reversed as to dependent claims that recited "storing a reconciled object structure in the archive without substantial redundancy." The patent's specification asserted that conventional systems created redundancy, while the claimed system eliminated redundancy in a unconventional manner. The Federal Circuit found that this description "create[d] a factual dispute regarding whether the invention describe[d] well-understood, routine, and conventional activities" or instead an "inventive concept." The court held that "the question of whether a claim element or combination of elements is well-understood, routine, and conventional to a skilled artisan in the relevant field is a question of fact" that "must be proven by clear and convincing evidence." And it concluded the specification's assertions that claimed features offered advantages over "conventional" prior art were enough to prevent summary judgment.

A few days after deciding Berkheimer, another Federal Circuit panel (including two of the same judges) went even further. Aatrix Software v. Green Shades Software also involved a patent claiming software and data structures, this time a process for creating electronic forms. 882 F.3d 1121, 1123-24 (Fed. Cir. Feb. 14, 2018). The district court dismissed the complaint, ruling that one independent claim was patent-ineligible because it was directed to an "intangible" embodiment, while the remainder were abstract because they merely recited steps for collecting and performing calculations on data. The district court also denied the patentee's motion to amend its complaint to add allegations that the claims recited inventive, non-abstract and unconventional features.

The majority of the Federal Circuit panel reversed both of the district court's rulings. The proposed amended complaint alleged that the claimed invention improved prior art electronic form software, and the majority concluded that those allegations created a factual dispute that should have precluded dismissal on the pleadings. Judge Jimmie Reyna dissented, arguing the majority's approach opened the door "for the introduction of an inexhaustible array of extrinsic evidence, such as prior art, publications, other patents, and expert opinion" and that plaintiffs could overcome Alice motions simply by drafting the complaint to contain intrinsic facts that "once alleged, must be taken as true, regardless of its consistency with the intrinsic record."

Both Berkheimer and Aatrix recognized that previous Federal Circuit decisions had resolved patent-eligibility as a matter of law, and both purported not to cast doubt on those decisions. Nevertheless, the new precedents create a recognizable tension with previous Federal Circuit decisions. Even more important, Berkheimer and Aatrix suggest a blueprint to overcome or avoid Alice motions altogether. Berkheimer suggests that prosecutors may insulate their patents from Alice motions by describing disadvantages of the prior art and the advantages of the claimed inventions in the specification. Likewise, Aatrix suggests plaintiffs should allege facts in their complaints purporting to show how their patents improve the "conventional" prior art.

Courts may find limits to those approaches. For example, under the Twombly/Iqbal paradigm, complaint allegations must be plausible, and courts may still take judicial notice of commonly-known facts. Courts may also refuse to allow plaintiffs to disavow admissions in their own patents. Moreover, defendants may use statements in the specification or the complaint for a variety of purposes, e.g., to seek narrow claim constructions or as cross-examination fodder.

Nevertheless, patent applicants and patentees now have Federal Circuit authority holding that step two of the Alice test may involve underlying fact questions and roadmaps to avoid judgment of patent-ineligibility as a matter of law. Although the Alice framework is controversial, one practical advantage was that it enabled courts to get rid of weak patents early in litigation, without great expense. Berkheimer and Aatrix could not and did not close that avenue altogether, but they have narrowed it. The tension they have created, and the dissent in Aatrix, suggest that an en banc Federal Circuit decision or Supreme Court review may ultimately be needed to clarify the extent to which patent-eligibility is a legal issue and, accordingly, when it can be resolved on the pleadings or on summary judgment.