Appellate rulings transform patent eligibility challenges

Over the course of seven days in February 2018, the U.S. Court of Appeals for the Federal Circuit issued two decisions that should change the way patent practitioners approach eligibility challenges under 35 U.S.C. Section 101. To be sure, while the Federal Circuit's Berkheimer and Aatrix decisions do not represent departures from the framework of the U.S. Supreme Court's Alice test, they do impact (if not outright transform) how eligibility challenges are, practically speaking, being developed, presented and decided.

In Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018), Berkheimer appealed a summary judgment decision invalidating claims of his patent under Section 101. On review, the Federal Circuit concluded that the challenged claims were directed to an abstract idea and proceeded to the second step of the Alice inquiry. See Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014). But when analyzing whether Berkheimer's claims satisfied the second prong of the Alice test, the Federal Circuit held that "[t]he 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." Id. at 1368 (emphasis added). (The court made sure to emphasize that its holding does not preclude a Section 101 determination at the motion to dismiss or summary judgement phase in every case.) Moreover, this factual determination "goes beyond what was simply known in the prior art." Id. at 1369. "The mere fact that something is disclosed in a piece of prior art, for example, does not mean it was well-understood, routine, and conventional." Id. And the Federal Circuit held that this question of fact "must be proven by clear and convincing evidence." Id. In view of the record, the Federal Circuit found that there existed a genuine issue of material fact as to whether some of the challenged claims could survive the second step of Alice, and reversed and remanded those claims for further proceedings. Id. at 1370.

One week later, the Federal Circuit issued its decision in Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121 (Fed. Cir. 2018). Aatrix appealed the lower court's grant of a Rule 12(b)(6) motion invalidating six claims of two patents as directed to ineligible subject matter, and denying a motion to amend the complaint. The Federal Circuit ultimately found the lower court's "refusal to permit an amended complaint was erroneous because at that stage there certainly were allegations of fact that, if Aatrix's position were accepted, would preclude the dismissal." Id. at 1126. Specifically, the proposed amended complaint contained statements about, e.g., specific allegations about problems solved by the patented inventions, the benefits of the claimed solution, and improvements over the prior art. See id. at 1127-28. The Federal Circuit remanded, noting "a need for claim construction[] to be conducted on remand after the amended complaint is filed." Id. at 1129.

These decisions created (or at the very least highlighted) an apparent tension with Supreme Court precedent. As Judge Haldane Meyer recently pointed out in concurrence, "the Supreme Court has taken up four subject matter eligibility challenges in recent years, but has never once suggested that the section 101 calculus includes any factual determinations." In re Marco Guldenaar Holding B.V., 2017-2465 (Fed. Cir. Dec. 28, 2018). Bucking this trend, the Federal Circuit has now firmly taken the position that patent eligibility does (or at least can) include factual determinations. One thing to watch in the coming terms will be whether the Supreme Court decides to weigh in here.

Thus the unifying take away from Berkheimer and Aatrix is that Section 101 challenges may not, at least for the time being, be the simple question of law that many courts have treated them as since Alice. As such, these decisions have significant consequences on how parties approach such challenges. Patent owners are beefing up complaints (even more than they were post-Alice) with facts to support the second prong of the Alice test in order to avoid motions to dismiss. Patent owners finding themselves on the losing end of a motion to dismiss may nevertheless try to revive their claims with an amended complaint (and courts are increasingly allowing this). Challengers may choose chose to file early Section 101 motions as a motion for judgment on the pleadings under Rule 12(c) in an attempt to avoid the situation where the patent owner simply amends the complaint in order to moot a pending motion to dismiss. Challengers may seek to develop a factual record -- both for the benefit of the district court and to increase chances of success on an eventual appeal -- before bringing any motion based on Section 101. And juries -- yes juries -- are now being asked to weigh in on Alice determinations. For example, a recent jury in the Eastern District of Texas was asked whether an accused infringer "prove[d] by clear and convincing evidence that the claim elements of [the asserted claims] were well-understood, route, and conventional to a personal of ordinary skill in the art as of [the priority date]?" Maxwell, Ltd. v. ZTE (USA) Inc., 5:16-cv-00179-RWS, Dkt. 228 (June 29, 2018).

District courts appear to be taking note of the Federal Circuit's direction. In the year since Berkheimer and Aatrix were decided, Section 101 challenges at the motion to dismiss stage have only been granted in approximately 32 percent of cases, compared to the roughly 44 percent success rate for such motions before that time (and since Alice). The relative success rates of summary judgment motions have seen a similar trend. Between Alice and Berkheimer/Aatrix, summary judgments of invalidity based on patent eligibility were granted about 44 percent of the time, whereas only 31 percent of such motions have been granted in the last year.

Ultimately, while the Federal Circuit has not altered the actual test to evaluate patent subject matter eligibility, the practical realities of raising and defending against such challenges are much different today than they were a year ago. Practitioners should take heed, adjust strategies accordingly, and realize that their jury may ultimately be asked to weigh in on questions of patent eligibility. 