Fed. Cir.: Alice Made Us Change Patent- Eligibility Rules: Fed. Cir.

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By Tony Dutra

Jan. 20 — The U.S. Supreme Court's Alice v. CLS Bank ruling gave “renewed vigor” to arguments against computer-implement patent eligibility that wouldn't have worked prior to the decision, the U.S. Court of Appeals for the Federal Circuit ruled Jan. 20.

Patent owners expecting the appeals court to say that lower courts have been too eager to knock patents out under Alice will have little to go on after this decision.

The court rejected Mortgage Grader Inc.'s argument that “Alice neither created a new defense nor changed the law.” As a result, the court affirmed alleged infringer First Choice Loan Services Inc.'s right to add, late in a district court infringement case, a defense based on Alice, as well as the ultimate judgment that Mortgage Grader's patents on shopping for loans online were ineligible under 35 U.S.C. §101.

The Federal Circuit's decision likely invalidates most if not all “patent claims that involve implementations of economic arrangements using generic computer technology.”

Look to Ultramercial III for Guidance

The issue arose because First Choice dropped its Section 101 defense, in the case before Judge Andrew J. Guilford of the U.S. District Court for the Central District of California, prior to Alice.

At that time, the Supreme Court patent eligibility test arguably applied only to ineligible laws of nature and natural phenomena, from Mayo Collaborative Servs. v. Prometheus Labs. Inc., 132 S. Ct. 1289, 2012 BL 66018, 101 U.S.P.Q.2d 1961 (2012) (54 DER A-1, 3/21/12), while ineligibility based on an invention being directed to an “abstract idea” relied on the Federal Circuit's post-Mayo 2013 decision in Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 2013 BL 164761, 107 U.S.P.Q.2d 1193 (Fed. Cir. 2013).

Guilford denied Mortgage Grader's motion to strike First Choice's attempt to revive the defense after the Supreme Court issued Alice Corp. Pty Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347, 2014 BL 170103, 110 U.S.P.Q.2d 1976 (2014) (119 DER A-9, 6/20/14).

The Federal Circuit affirmed Guilford's decision, noting that its reversal in 2014—after a second remand from the Supreme Court—of the outcome in Ultramercial clearly indicated that Alice had a significant impact. Ultramercial, LLC v. Hulu, LLC, 772 F.3d 709, 112 U.S.P.Q.2d 1750 (Fed. Cir. 2014).

“Our conclusion [in Ultramercial III] was expressly based on Alice’s holding that ‘adding a computer to otherwise conventional steps does not make an invention patent-eligible', ” the court said. “Ultramercial III demonstrates that a §101 defense previously lacking in merit may be meritorious after Alice.”

No Patent on ‘Anonymous Loan Shopping'

The court then affirmed the district court's application of the two-step test for patent eligibility set out in Mayo and particularized for software-implemented business methods in Alice.

Mortgage Grader's U.S. Patents Nos. 7,366,694 and 7,680,728 were directed to the abstract idea of “anonymous loan shopping,” failing step one, the court said. 

Step two overcomes that failure only if the claims include an “inventive concept,” it said. “No such inventive concept is present here,” the court said. “Instead, the claims ‘add' only generic computer components such as an ‘interface', ‘network' and ‘database'. These generic computer components do not satisfy the inventive concept requirement.”

Judge Leonard P. Stark of the U.S. District Court for the District of Delaware, sitting by designation, wrote the court's opinion, which was joined by Federal Circuit Judges Kathleen M. O'Malley and Richard G. Taranto.

Craig R. Kaufman of TechKnowledge Law Group LLP, Redwood City, Calif., represented Mortgage Grader. Rebecca J. Stempien Coyle of Levy & Grandinetti, Washington, represented First Choice.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek in Washington at mwilczek@bna.com

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