Federal Circuit Vacates Ruling From Bench On Patent Eligibility As Insufficient To Enable Appellate Review
On October 23, 2020, the Court of Appeals for the Federal Circuit (CAFC) issued an opinion vacating and remanding a bench ruling of the United States District Court for the District of Delaware holding all 159 claims in five asserted patents ineligible under 35 U.S.C. § 101. Realtime Data LLC v. Reduxio Systems, Inc., __ F.3d __ (Fed. Cir. October 23, 2020). In its decision, the CAFC concluded that the district court’s analysis of patent eligibility under Section 101 was too cursory to allow for meaningful appellate review, and directed the district court to consider the issue further and elaborate on its reasoning.
Section 101 of the United States patent laws prescribes the categories of inventions and discoveries that can properly be the subject of a patent: “any new and useful process, machine, manufacture, or composition of matter.” These categories are limited by judicially-created proscriptions against patenting abstract ideas, laws of nature, and natural phenomena. Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347, 2354–55 (2014) (quoting Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1294 (2012)).
In its decision, the CAFC acknowledged that deciding whether these judicially-created exceptions apply can be challenging, especially where the abstract idea exception is invoked, but emphasized that such decisions must nonetheless provide sufficient findings and reasoning to permit meaningful appellate review.
The five patents-in-suit are directed at methods and systems for digital data compression. Two purportedly address the problem of “data dependency” in prior art systems where the compression ratio achieved is highly contingent upon the content of the data being compressed, and describe a system that looks beyond file-type in attempting to address this problem. Two other patents-in-suit relate to improving data storage and retrieval bandwidth utilizing data compression and decompression, and purport to overcome certain limitations in the prior art by, for example, selecting encoding techniques based upon their ability to effectively encode different types of input data. The last patent-in-suit is directed to means for providing accelerated data transmission using compression and decompression to effectively increase transmission bandwidth and reduce latency.
Defendants filed a motion to dismiss challenging the patent eligibility of all 159 asserted claims under Section 101. During a July 19, 2019 hearing, the district court conducted two hours and eight minutes of oral argument on defendants’ motion, which focused primarily on claim 25 of the ’751 patent-in-suit. After oral argument, the district court declared all 159 challenged claims patent ineligible and stated that the hearing transcript would serve in place of a written decision. Plaintiff appealed.
The CAFC began its analysis by restating that patent eligibility must be decided using the two-part test established by the Supreme Court in Alice. At Alice step 1, a court must determine whether the individual claim elements and the elements as an ordered combination are directed to one of the patent-ineligible concepts that include laws of nature, natural phenomena, and abstract ideas. If a claim is directed to one of the ineligible concepts, then the court must consider Alice step 2 and decide whether the claim contains an “inventive concept” such that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.
Though the CAFC acknowledged that it reviews Section 101 decisions de novo, it emphasized that it remains a court of appeal not a court of original jurisdiction, and that district courts have an obligation to provide the CAFC with a reviewable decision, commensurate with the issues before it. The CAFC then held, based on four shortcomings in particular, that the district court’s analysis was insufficient to facilitate meaningful appellate review.
First, a colloquy between the district court and plaintiff at the hearing suggested the district court failed to evaluate the claims as a whole and improperly focused on factual questions relating to novelty and obviousness that are unsuitable for resolution at the pleading stage. Rather than focus first on whether the claims are “directed to” an abstract idea under Alice step 1, the district court repeatedly inquired whether claim limitations were novel or merely reflected common sense. According to the CAFC, to the extent the court was influenced by its subjective understanding of “common sense,” that was plainly irrelevant.
Second, to the extent the district court purported to resolve the “directed to” question of Alice step 1, its process was unclear and its conclusion questionable. One critical shortcoming in the district court’s decision, according to the CAFC, was that it failed to identify which, if any, claims are representative, and seemed to conclude that the patents as-a-whole are abstract, rather than providing a claim specific analysis, as required under Section 101.
Third, the court did not address, or even acknowledge, lengthy written opinions adopted by two other district courts concluding that the challenged claims are patent eligible. The CAFC stated that the district court should have, at a minimum, provided a considered explanation as to why those decisions were wrong.
Fourth, the district court failed to distinguish those cases identified by plaintiff as supporting a finding of patent eligibility. By not addressing even the one case held out as most comparable by plaintiff, the district court did not do enough reasoned the CAFC. The CAFC took care to point out that a written order is not always necessary in deciding Section 101 motions, but that in this instance, the district court did not do enough.
In a concurring opinion, Judge Taranto further criticized the district court decision for disregarding claim language that, according to the specification, provides improvement over the prior art, and for failing to consider whether the claims recite hardware components configured by programming to improve basic functionality.