Lessons and Challenges Arising Out of the Federal Circuit’s New Focus on Factual Issues in “Patent Eligibility” Disputes

With its Alice and Mayo opinions, the U.S. Supreme Court dramatically changed how patent eligibility under 35 U.S.C. § 101 is defined. In the years following these opinions, the practice of invalidating patents on motions to dismiss for lacking patent-eligible subject matter has gone from controversial to conventional. Even when the issue is not resolved on the pleadings, such invalidity judgments under § 101 are often entered at the summary judgment stage, as a matter of law. In both postures, questions of fact are resolved in favor of the patent owner, but fact issues have—until recently—remained only theoretical in the § 101 context.

This changed in the first few months of 2018 with the Federal Circuit issuing three separate opinions where fact issues underlying the § 101 analysis were outcome-determinative; the court resolved each of these appeals in favor of the patentee. Naturally, frequent patent litigants have taken note of the Federal Circuit’s new focus on the factual issues that may impact the disposition of a § 101 dispute, and this article will identify some of the lessons these Federal Circuit cases offer to those making or confronting § 101 challenges.

A Brief Overview of the Alice/Mayo Framework

The text of § 101 broadly permits patents on “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof” that otherwise satisfies the requirements of Title 35. There are, however, three judicially recognized “exceptions” to patent eligibility under § 101: “laws of nature, physical phenomena, and abstract ideas.”

To determine whether a claim falls within one of these exceptions and is therefore ineligible to be patented, courts apply a two-step test. In step one, a court determines if the claim is “directed to” one of the three patent-ineligible exceptions and, if so, proceeds to the second step. In step two, the court asks whether the elements of the claim, taken individually or “as an ordered combination,” add “significantly more” to the ineligible subject matter. This “significantly more” is sometimes referred as an “inventive concept.” The Supreme Court has further explained that elements reciting “well-understood, routine, and conventional activity” do not add an inventive concept.

Something New in the “Conventional Activity”

Each of the following three Federal Circuit opinions provides an example where a fact—whether the elements of the claims at issue were “well-understood, routine, and conventional” at step two of the Mayo/Alice test—precluded a judgment of § 101 invalidity as a matter of law. Usefully for practitioners, each of these examples arose during a different stage of the case: one at the pleading stage, one on summary judgment and one after trial.

  • Berkheimer v. Hewlett-Packard Inc. – The Federal Circuit vacated summary judgment of invalidity under § 101 with respect to some claims but not others. The claims on which the judgment was vacated all recited a step that, according to the specification, conventional systems could not perform. The court explained that whether something is “well-understood, routine, and conventional” is a question of fact and requires more than just showing it was disclosed in the prior art. Furthermore, because patents are presumed valid, the party seeking to prove invalidity under § 101 bears the burden of proving this fact. Accordingly, the statements in the specification—apparently unrebutted by the defendant—were sufficient to create a fact issue.
  • Aatrix Software, Inc. v. Green Shades Software, Inc. – Roughly a week after Berkheimer, the Federal Circuit vacated a § 101 invalidity dismissal because the patent owner’s proposed amended complaint adequately alleged that the claims contained an inventive concept. The amended complaint alleged specific ways in which the claimed invention improved on the prior art software. Accepting these allegations as true, as required on a motion to dismiss, the court held that the claims did not recite solely “well-understood, routine, and conventional activity” and therefore added an “inventive concept.” It was therefore error to dismiss the complaint without granting the patent owner leave to amend.
  • Exergen Corp. v. Kaz USA, Inc. – Applying Berkheimer, the Federal Circuit affirmed a post-trial judgment of no invalidity under § 101 in this non-precedential decision. Even though the individual elements of the claims were present in the prior art, the trial court did not clearly err by finding no evidence that the elements were so prevalent as to be “well-understood, routine, and conventional” in the field.

The conclusion that the “well-understood, routine, and conventional” inquiry is factual was central to all three of these decisions and will have lasting consequences. If allegations alone can establish an inventive concept at the pleading stage, some patents may survive motions to dismiss that would not have made it to discovery before. Indeed, well-drafted complaints may discourage the filing of such motions in the first place. Moreover, beyond the pleading stage, parties may need to present evidence (possibly including expert testimony) showing how prevalent or not the critical claim elements were in the field. In some cases, failing to do so may be decisive.

New Avenues, New Questions

As a result of these new cases, patent owners may have new avenues to victory against § 101 invalidity claims. As in the Aatrix Software decision, distinguishing the claimed invention from “conventional” technology in the complaint may be an effective road to surviving an early determination under § 101. Moreover, where such allegations are supported by specific assertions in the specification, they may be sufficient to hold the challenger to its burden of proving invalidity, as happened in Berkheimer.

Nevertheless, the purportedly unconventional elements must be present in the claims to be salient. This lesson from Berkheimer should not be overlooked. While the invalidity judgment in that case was vacated with respect to some claims, it was affirmed with respect to the claims that did not recite the elements described in the patent as improving upon conventional systems.

Parties accused of infringement would do well to recognize this and other ways in which Berkheimer and its companions might be distinguished. Indeed, the Berkheimer panel stressed that its holding did not cast doubt on earlier decisions affirming § 101 invalidity dismissals and distinguished such cases as lacking disputed issues of fact. Genuine factual disputes might be less frequent than one would expect. Patents often admit in their specifications that the claims encompass well-known systems, e.g., to avoid an enablement rejection during prosecution. Courts may also be capable of taking judicial notice of the conventional nature of some components. Such cases may still be ripe for early invalidity judgments under § 101, including at the pleading stage.

Finally, the new avenues opened to patent owners lead to new questions for which the Federal Circuit has not provided answers. In Exergen, for example, the court declined to address whether the fact questions underlying the Alice/Mayo test must be answered by a jury because, in that case, the Seventh Amendment argument had been waived. In addition, the type of evidence needed to prove that a claimed feature is “well-understood, routine, and conventional” remains uncertain.

At the end of the day, whether a patent claims patentable subject matter is still a question of law, meaning it can be decided on a pre-trial motion when there are no material fact issues. Future developments in this evolving area of the law may determine how common such fact issues will be and how effectively they can be raised to counter challenges under § 101.