Two Recent Supreme Court Patent Rulings At Issue in Case Argued at Federal Circuit

Bloomberg BNA’s Patent Trademark & Copyright Law Daily™is the IP industry’s premier news service, offering objective, timely,and reliable daily news coverage and commentary from leading IP law...

By Tony Dutra  

Aug. 5 — A case argued before the Federal Circuit on Aug. 5 may give the court a chance to weigh in on two decisions by the Supreme Court in June.

The appeal is specifically on whether a patent claim on a computing system that aims to sell every ticket to an event “at or near” the event time is indefinite in light of the high court's June 2 ruling in Nautilus.

But two judges on the court's panel questioned whether the claims would meet patent eligibility requirements under Alice v. CLS Bank, decided June 19.

How to Sell Every Ticket to a Football Game

Digonex Technologies Inc. owns two patents (U.S. Patent Nos. 8,095,424 and 8,112,303) claiming methods and systems, respectively, on a concept known as dynamic pricing—common in the airline industry and here adapted to events such as sports and concerts. The specification describes factors that go into continuously changing the prices of a ticket to an event such that the event producer will “sell the last product at the last minute on the last day.”

Qcue Inc. sells a dynamic pricing system and claims more than a dozen professionals sports teams as clients. Digonex sued Qcue for patent infringement.

Judge Sam Sparks of the U.S. District Court for the Western District of Texas granted Qcue's motion for a finding of invalidity for indefiniteness of independent claims 1, 5 and 8 of the '303 patent. Each claims a system configured “to sell out the items available in a limited quantity at or near the expiration time.”

The district court analyzed the term “at or near” under the Federal Circuit's “amenable to construction” indefiniteness standard at the time. It determined that the term may be amenable to construction but that such construction was “meaningless.” The court said:

Any system designed by a competitor necessarily faces some litigation risk, because the inventor cannot say with any certainty how “near” is too “near” the expiration time. This may be a fine system for patent-litigation plaintiffs, but it is no system at all for the public.

Digonex appealed. Qcue had countersued for copyright infringement, and that case is also before the Federal Circuit but not at issue here. No. 2014-1029.

Notably, even Qcue's response brief came after the two Supreme Court decisions that could affect the outcome:

• Nautilus, Inc. v. Biosig Instruments, Inc., 134 S. Ct. 2120, 2014 BL 151635, 110 U.S.P.Q.2d 1688 (2014).

• Alice Corp. Pty Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347, 2014 BL 170103, 110 U.S.P.Q.2d 1976 (2014).

A ‘Common Sense Gloss' on Nautilus

In fact, Chief Judge Sharon Prost's first question for Digonex's counsel was why Nautilus wouldn't make things worse for his client, since its “reasonable certainty” standard arguably makes it easier to show indefiniteness.

Michael J. Sacksteder of Fenwick & West LLP, San Francisco, essentially argued that the high court reshaped the standard rather than narrowed it. He quoted from the case: “The standard adopted here mandates clarity, while recognizing that absolute precision is unattainable.”

“The standard adopted here mandates clarity, while recognizing that absolute precision is unattainable.”Supreme Court in Nautilus

Sacksteder argued that the “at” in “at or near” was a point in time of absolute precision—when one sells the very last ticket at the last possible moment for attending the event at the highest price one could get from that ticket buyer. “But that can't be achieved in general,” he said, justifying why “or near” acknowledges that precision is unattainable.

Judge Todd M. Hughes supported the view that “near” would differ depending on whether the ticket were for a Jay-Z concert or “someone else”—he declined to identify a less popular musician. But Prost asked why Digonex could not have claimed some algorithm that would adjust “near” depending on factors like that, and Judge Kathleen M. O'Malley said, “At some point, a putative infringer has got to understand at what point you're infringing.”

Barry K. Shelton of Bracewell & Giuliani LLP, Austin, Texas, argued for Qcue, but if he thought two judges were definitely leaning his way, he was mistaken.

O'Malley now presented her view that common sense should come into play—especially, she seemed to say—in light of Nautilus. She asked: “Doesn't context matter?”

Shelton said that there was no context provided in the patent specification, “not a single sentence about what ‘near' means.” But Hughes then took up the point.

“There are not that many variables,” he said. “A skilled artisan could come up with [what ‘near' means in context]. It's just math; you could figure that out.”

Would Claims Pass Section 101 Muster?

Prost referred to O'Malley's “gloss of common sense,” and said, “It begs the question: What is the invention?”

Hughes was actually the first to bring up patent eligibility under 35 U.S.C. §101, asking Sacksteder to describe the “real invention” here.

Sacksteder replied to both judges saying that it was “a system of servers that automatically adjusts prices.” Hughes wanted to know whether the servers were “special” in any way or if they were just “general purpose computers,” invoking CLS Bank's holding that the latter are “not enough” to turn an abstract idea into something patent eligible. Sacksteder referred only to the special programming to adjust prices.

Hughes asked, “After CLS Bank, how is that patentable under Section 101?” He argued that dynamic pricing was just an idea and said, “I hate the term ‘abstract idea' [for patent ineligibility] but the Supreme Court likes it.”

Prost questioned whether a Section 101-based defense was even available to Qcue. Shelton noted that the district court denied Qcue's motion to dismiss the case based on patent ineligibility, and Qcue had no reason to appeal that decision after the indefiniteness finding.

He now argued, though, that CLS Bank should bar Digonex's “attempts to cover the broad category of dynamic pricing.”

Section 101 is not addressed in either party's brief, and the court is unlikely to dispose of the appeal on that ground. However, if it reverses on indefiniteness, the court may still have some advice on patent eligibility for the district court to consider on remand.

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

To contact the editor responsible for this story: Naresh Sritharan at nsritharan@bna.com

Recording of argument is available at http://www.cafc.uscourts.gov/oral-argument-recordings/search/audio.html, case No. 2014-1028.