Adverse CBM Determination Could Undermine District Court Alice Defense

Alice Corp. Pty, Ltd. v. CLS Bank Int’l (“Alice”) distills the patentable subject matter debate into a two-step analysis.  This analysis overlaps in significant respect with the two-part analysis for assessing whether or not a patent claim qualifies as a covered business method (“CBM”) under Section 18 of the AIA.  For this reason, CBM petitions typically advance a § 101 ground of unpatentability as a matter of course.  The similarities in analytical frameworks — particularly between the “search for an inventive concept” of Alice’s second step and the “technical solution” in CBM’s second part — have not escaped the attention of the Patent Trial and Appeal Board (“PTAB”) and district courts which have compared and sometimes referenced one to support the other.  This relationship should be of particular concern to defendants raising a § 101 invalidity defense in district court actions and should make filing/timing of a CBM petition an important strategic consideration going forward.

Alice and the Standing Threshold for CBM Review

In Alice, the Supreme Court clarified the analytical framework that it promulgated in Mayo Collaborative Servs. v. Prometheus Laboratories, Inc. for patentable subject matter under 35 U.S.C. § 101.  The first step in this analysis is to determine whether the claims at issue are directed to laws of nature, natural phenomena, or abstract ideas.  If so, the second step — described as “a search for an inventive concept” — requires consideration of the elements of the claims “individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.”  That is, the court “must examine the limitations of the claims to determine whether the claims contain an ‘inventive concept’ to ‘transform’ the claimed abstract idea into patent-eligible subject matter.” 

The second step of the Alice analysis resembles the second part of the CBM analysis under AIA § 18 which provides an exception to otherwise qualified business methods that are directed to “technological inventions.”  According to this provision, the universe of covered business methods excludes patents for “technological inventions,” which are defined by: (1) “whether the claimed subject matter as a whole recites a technological feature that is novel and unobvious over the prior art” and (2) “solves a technical problem using a technical solution.”   

Parallels Between the Analytical Frameworks

The similarity between these provisions has not been lost upon the PTAB which has cited its CBM standing analysis to reinforce the second step of its Alice analysis.  In J.P. Morgan Chase v. Intellectual Ventures II LLC, the PTAB supported both its standing and Alice “inventive concept” holdings with its finding that “Patent Owner does not explain sufficiently how the access mechanism recited in [the claim-at-issue], construed as ‘hardware and/or software for controlling access to data,’ requires any more than the generic hardware and computer components disclosed in the [patent-at-issue].”  Similarly, the PTAB has referenced its CBM standing analysis to combat patent owners’ arguments that challenged claims have additional elements that transform their abstract ideas into patent-eligible applications.   

In its standing analysis, the PTAB will consider whether the challenged claim (a) merely recites “known technologies, such as computer hardware, communication or computer networks, software, memory, computer-readable storage medium, scanners, display devices or databases, or specialized machines, such as an ATM or point of sale device[;]” (b) recites “the use of known prior art technology to accomplish a process or method, even if that process or method is novel and non-obvious[;]” or (c) combines “prior art structures to achieve the normal, expected, or predictable result of that combination.”    These guideposts mark the same path mapped by Mayo and Alice — the additional features purportedly limiting the claim from monopolizing the abstract idea must be more than “well-understood, routine, conventional activity.”    Accordingly, the PTAB relies on similar factors to assess whether an “inventive concept” exists for purposes of its Alice analysis.  It cites prior art and/or reference material such as textbooks to determine if the challenged claim covers “well-understood, routine, conventional activity” that “does not add significantly more to the abstract idea.” 

Alice, Mayo, and progeny

Standing for CBM Review

Contains an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.

“solves a technical problem using a technical solution.”

Machine-or-transformation test provides a “useful clue” — the claim is (1) “tied to a particular machine or apparatus,” or (2) “transforms a particular article into a different state or thing.”

Must be more than “well-understood, routine, conventional activity.”

Must be more than (a) “known technologies,” (b) “known prior art technology to accomplish a process or method, even if that process or method is novel and non-obvious,” or (c) a combination of “prior art structures to achieve the normal, expected, or predictable result of that combination.”

PTAB and District Court

The PTAB has closely followed the jurisprudence developing around Alice.  In Ultramercial, Inc. v. Hulu, LLC, the Federal Circuit resurrected the machine-or-transformation test as “a ‘useful clue’ in the second step of the Alice framework.”  That is, “[a] claimed process can be patent-eligible under § 101 if: ‘(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.’”  This tie between the claimed process and a particular machine is closely aligned with the “technical solution” required by the second part of CBM standing. 

District courts have also recognized the close alignment of the CBM and Alice inquiries.  In Sophos Incorporated v. RPost Holdings, Inc. et al, the court held that the second step of Alice had been satisfied and denied judgment on the pleadings that the patents-in-suit were invalid because they claimed unpatentable abstract ideas.  Applying Alice, the court concluded that the claims did not lack an inventive concept and found support in the PTAB’s denial of petitions to institute CMB review of the patents-in-suit.  Furthermore, recalling the language of the second part of CBM standing, the Court noted that “the patents-in-suit aim to solve a technical problem of electronic messages” and identified the “patents-in-suit’s technical solution” in determining that step two of the analysis under Alice was satisfied.   

Despite these analytical parallels, a district court will not necessarily follow the PTAB’s lead on CBM standing in its own Alice determination for Board determinations that did not hinge on a question of technical contribution in the art.  In Global Cash Access, Inc. v. NRT Technology Corp., the court found the first step of Alice satisfied and noted its disagreement with the PTAB’s threshold analysis.  However, the court disagreed only with whether the challenging party had “oversimplified the challenged claims” and did not express any compunction with a comparison between the CBM standing and Alice analyses itself.   

The independent analysis of some district courts on the first step of the Alice inquiry is heartening for failed petitioners, such as the recent decision in Plaid Technologies Inc. v. CBM2014-00065, Paper 7 (PTAB August 23,2016). In this case, while finding the patent eligible for CBM review, and that the technological invention prong was not met by the mere inclusion of conventional computer hardware, the Board nevertheless denied the 101 challenge on step one of Alice, explaining:

“[W]e agree with Patent Owner that Petitioner’s proffered assertion that the claims of the ’783 patent are directed to retrieving and storing personal information is an impermissible over-generalizing of the claims. . . . [W]e note that independent claim 1 recites repeatedly references to computer technology, such as ‘wide- area computer network,’ ‘processor,’ ‘information provider,’ ‘data,’ and ‘end user,’ which supports our determination that independent claim 1 is directed to computer technologies, such as retrieving and storing personal information securely stored under the control of a processor at a remote location. To be sure, technology is usually analyzed under the second step of [Alice], however, that is not to say that it cannot also be a factor to support a determination concerning the first step of Alice. . . . Petitioner’s analyses as to whether ‘retrieving and storing personal information’ is an abstract idea are misplaced, as Petitioner has not identified any evidence or analysis concerning ‘information securely stored at a remote location.'” 

Conclusion and Practical Implications

            Petitioners and Patent Owners before the PTAB and parties arguing patent validity of business related patents in district court thus have another source of support for their § 101 positions.  However, this PTAB determination is not without risk.  The similarities between the second step of Alice and the second part of CBM standing have been recognized to allow one to support or undermine the other.  Thus, the interrelationship between these two analytical frameworks is another consideration warring parties in district court should have before filing and/or when opposing a petition for CBM review.  

134 S. Ct. 2347 (2014).
132 S. Ct. 1289 (2012).
Alice, 134 S. Ct. at 2355.
Id. (quoting Mayo, 132 S. Ct. at 1298, 1297).
Id. at 2357 (quoting Mayo, 132 S.Ct. at 1294, 1298).
37 C.F.R. § 42.301(b).
Case CBM2014-00157, Paper 40 at 17 (PTAB Jan. 12, 2016).
See Informatica Corp v. Protegrity Corp., Case CBM2015-00021, Paper 38 at 33 (PTAB May 31, 2016); Epicor Software Corp. v. Protegrity Corp., Case CBM2015-00002, Paper 46 at 31 (PTAB April 20, 2016).
Office Patent Trial Practice Guide, 77 Fed. Reg. 48,756, at 48,763–64 (Aug. 14, 2012).
Alice, 134 S.Ct. at 2359-60 (quoting Mayo, 132 S.Ct. at 1294).
Epicor Software Corp. v. Protegrity Corp., Case CBM2015-00006, Paper 54 at 33 (PTAB Apr. 18, 2016).  See also Apple Inc. v. SmartFlash LLC, Case CBM2015-00033, Paper 40 at 22 (PTAB May 26, 2016) (prior art was evidence that this concept was well-known and conventional and thus not inventive); Square, Inc. v. Protegrity Corp., Case CBM2014-00182, Paper 60 at 33 (PTAB March 2, 2016) (based on patent, declaration, and textbook, PTAB finds claim is “well-understood, routine, conventional activity that does not add significantly more to the abstract idea.”).
772 F.3d 709, 716 (Fed. Cir. Nov. 14, 2014).
Id. (quoting In re Bilski, 545 F.3d 943, 954 (Fed.Cir.2008) (en banc), aff’d on other groundsBilski v. Kappos, 561 U.S. 593, 130 S.Ct. 3218 (2010)).
No. 1-13-cv-12856, at 24-27 (D. Mass. June 3, 2016).
Id. at 27 n.6.  
Id. at 26-27 (emphasis added).
No. 2:15-cv-00822, at 12 n.6 (D. Nev. Mar. 25, 2016).