Federal Circuit Is Finding More Inventions Patent-Eligible Despite Supreme Court’s Rigid Standard

Bruce D. Sunstein

By Bruce Sunstein. A member of our Patent Practice Group

October 2017 IP Update

The Supreme Court’s Prometheus (2012) and Alice (2014) decisions, discussed in these pages here and here, erected a wall of patent ineligibility that has stymied efforts at patenting most diagnostic methods and many categories of computer-related inventions.  While this wall of patent ineligibility is old news, it is noteworthy that the Federal Circuit has made and enlarged a hole in this wall through which some patent applications can now escape rejection.

The wall of patent ineligibility. In Prometheus and Alice, the Court eliminated from eligibility for patent protection any invention directed to what it said was an “implicit exception” in the patent laws.  That exception excludes patents for a law of nature, a natural phenomenon, or an abstract idea. The Court said that an invention of this type would be ineligible for patenting unless the claims in the application for the invention were deemed to define an “inventive concept” that amounts to “significantly more” than the law of nature, natural phenomenon, or abstract idea to which the patent claims are said to be directed.

The Court’s stated rationale for the decisions was that claims directed too closely to one of these concepts would improperly monopolize “the basic tools of scientific and technological work” resulting in a “preemption” of the advance of science and technology  Because the patent law already required patent claims to define a specific practical application of such a concept, the Court’s rationale makes little sense.

The Court has laid out a two-step process to determine whether the “implicit exception” to patent eligibility disqualifies claims in a patent application or a patent: (1) determine whether the patent claims are directed to a law of nature, natural phenomenon, or abstract idea, and (2) if so, determine whether those claims can escape ineligibility by defining an “inventive concept” that amounts to “significantly more” than the ineligible concept. Evaluating patent claims according to this two-step process is fraught with subjectivity.

The Federal Circuit fashions a hole in the wall. Although the Federal Circuit is bound by Supreme Court precedent, the parade of appeals since Alice has of necessity required the Federal Circuit to develop some rules for distinguishing between claims that are patent-eligible and claims that are not. Although the vast majority of decisions in this parade have affirmed ineligibility determinations, the Federal Circuit has decided a number of cases in favor of patent eligibility. DDR Holdings (2015, discussed here), Enfish (May, 2016, discussed here), and six more recent decisions point the way for at least some patent claims to get through the wall of patent ineligibility.

Rapid Litigation Management Ltd. v. CellzDirect, Inc. (July 2016) is the only one of these decisions that concerns the law-of-nature exception to patent eligibility. That case involved hepatocytes, which are a type of liver cell used for testing, diagnosis, and treatment. Before the invention in question, the hepatocyte cells were frozen in order to maintain them in inventory and, when needed, thawed for use. Because freezing damages these cells, it was thereafter necessary to determine which of the thawed cells remained viable. Refreezing the thawed cells was rejected as an option, owing to the damage inflicted by freezing the first time. The invention involved (A) subjecting previously frozen and thawed cells to density gradient fractionation to separate viable cells from non-viable ones; (B) recovering the viable cells; and (C) refreezing the viable cells.

The claims were invalidated in the lower court. In step one of the two-step process, the trial court held that the claims were “directed to an ineligible law of nature: the discovery that hepatocytes are capable of surviving multiple freeze-thaw cycles.” At step two, the court determined that “the patented process lacks the requisite inventive concept,” observing that, upon discovering the cells’ capability of surviving multiple freeze-thaw cycles, the inventors simply “reapplied a well-understood freezing process.”

The Federal Circuit reversed, finding that the claims are not simply directed to the ability of hepatocytes to survive multiple freeze-thaw cycles. Rather, the claims are directed to “a new and useful laboratory technique for preserving hepatocytes. This type of constructive process, carried out by an artisan to achieve ‘a new and useful end,’ is precisely the type of claim that is eligible for patenting.”

In CellzDirect, the technological wrinkle—refreezing of cells thought not to be able to withstand refreezing—made the difference in achieving eligibility status.  The different characterizations of this wrinkle by the Federal Circuit and the lower court highlight the subjective nature of the test that the Supreme Court now requires the lower courts to apply.

The remaining recent decisions involve the abstract-idea exception. In Visual Memory LLC v. Nvidia Corp. (August, 2017), the invention involves a memory system with programmable operational characteristics that can be tailored for use with multiple different processors without the accompanying reduction in performance. The claims had been held ineligible by the lower court as directed to the “abstract idea of categorical data storage.” The Federal Circuit reversed, holding that the claims are not directed to an abstract idea at all, thus making the claims eligible under step one of the Alice analysis.  The court reasoned that the claims are directed to a technological improvement: an enhanced computer memory system. In its decision, the Federal Circuit relied upon Enfish and Thales Visionix, Inc. v. United States (March 2017), which it usefully summarized, in part, as follows (citations have been omitted):

Two recent cases inform our evaluation of whether the claims are “directed to” an abstract idea. In Enfish, we held claims reciting a self-referential table for a computer database were patent-eligible under Alice step one because the claims were directed to an improvement in the computer’s functionality. . . The specification described the benefits of using a self-referential table—faster searching and more effective data storage—and highlighted the differences between the claimed self-referential table and a conventional database structure. . . Based on this, we rejected the district court’s characterization of the claims as being “directed to the abstract idea of `storing, organizing, and retrieving memory in a logical table.'”. . . We emphasized that the key question is “whether the focus of the claims is on the specific asserted improvement in computer capabilities (i.e., the self-referential table for a computer database) or, instead, on a process that qualifies as an `abstract idea’ for which computers are invoked merely as a tool.”. . . .

Moreover, it was appropriate to consider the technological improvement embodied in the claims at step one. . . . because Alice does not “broadly hold that all improvements in computer-related technology are inherently abstract and, therefore, must be considered at step two.”. . . .

Similarly, in Thales, we determined that claims reciting a unique configuration of inertial sensors and the use of a mathematical equation for calculating the location and orientation of an object relative to a moving platform were patent eligible under Alice step one. Inertial sensors in prior art systems measured motion relative to the earth and were prone to computational errors. . . .The patented system achieved greater accuracy than these prior art systems by measuring inertial changes of the tracked object relative to the moving platform’s reference frame. . . .We disagreed with the Court of Federal Claims’ conclusion that the claims were directed to the abstract idea of using mathematical equations to determine the position of a moving object relative to a moving reference frame. Rather, we concluded that the claims were directed to “systems and methods that use inertial sensors in a non-conventional manner to reduce errors in measuring the relative position and orientation of a moving object on a moving reference frame.” . . .

The decision in McRO, Inc. v. Bandai Namco Games America Inc. (September 2016) similarly concluded that the claims are not directed to a patent-ineligible concept and therefore, under Alice step one, are patent-eligible. McRO makes clear that the Supreme Court’s fear of “preemption” is arguably the most important aspect of patent eligibility analysis, as virtually every patent eligibility decision by the courts, by patent examiners, and by administrative law judges in the Patent and Trademark Office is, at heart, a gauge of the level of preemption that would result if a given claim were allowed.  Furthermore, McRO makes clear that the preemption analysis should occur at step one of the Alice test. In illuminating a path to eligibility at step one, McRO, Thales, and Enfish are important decisions.

The decision in BASCOM Global Internet Services v. AT&T Mobility (June, 2016) concerned an individually customizable Internet filtering tool that is located on a remote Internet Service Provider (ISP) server. Although under Alice step one, claims directed to such a tool might be considered directed to the abstract idea of filtering content, still the court found the claimed subject matter to be patent-eligible under Alice step two: “By taking a prior art filter solution (one-size-fits-all filter at the ISP server) and making it more dynamic and efficient (providing individualized filtering at the ISP server), the claimed invention represents a “software-based invention that improve[s] the performance of the computer system itself.”

Amdocs (Israel) Ltd. v. Openet Telecom, Inc. (November, 2016), involved patents claiming parts of a system designed to solve an accounting and billing problem faced by network service providers. Here again the Federal Circuit reached the Alice step two process before determining that the patent claims were eligible for patenting. The Federal Circuit said that the system in the patent claims question is not so broadly described as to cause preemption concerns. Instead, the court said, it is narrowly circumscribed to the particular system outlined. “As in BASCOM, this is a technical improvement over prior art technologies and served to improve the performance of the system itself.”

What these post-Alice Federal Circuit decisions have in common is a recognition that where a technological twist incorporated into the invention distinguishes the claimed invention from the prior art, that twist can also prevent the claimed invention from being characterized as directed to a patent-ineligible concept. These decisions also assure us that technologically sophisticated software, even though it is “merely” software, can qualify as patent-eligible if it can be regarded as improving the operation of computers.

Until the wall of patent ineligibility erected by Prometheus and Alice has been removed by legislation (or by a most unlikely change of heart by the Supreme Court), the success of getting through this wall will depend on convincing the Patent and Trademark Office and the courts that the invention has a technological twist that makes a difference and does not preempt an entire field of technology.