Arguments of “as a whole”, “high level of abstraction,” “novelty/nonobviousness,” “physicality” and “machine-or-transformation test” for subject matter eligibility were successful at the PTAB and the district court, but not at the Federal Circuit
| August 30, 2019
Solutran, Inc. v. Elavon, Inc. (Fed. Cir. 2019) (Case Nos. 2019-1345, 2019-1460)
July 30, 2019
Chen, Hughes, and Stoll, Circuit Judges. Court opinion by Chen.
Summary
The Federal Circuit reversed the district court’s denial of summary judgment of ineligibility regarding a patented claims titled “system and method for processing checks and check transactions,” by concluding that the asserted claims are not directed to patent-eligible subject matter under § 101 because, under the Alice two-step framework, the claims recited the abstract idea of using data from a check to credit a merchant’s account before scanning the check, and because the claims do not contain an inventive concept sufficient to transform this abstract idea into a patent-eligible application.
Details
I. background
1. The Patent
Solutran, Inc. (Solutran) owns U.S. Patent No. 8,311,945 (’945 patent), titled “System and method for processing checks and check transactions.” The proffered benefits include “improved funds availability” for merchants and allegedly “reliev[ing merchants] of the task, cost, and risk of scanning and destroying the paper checks themselves, relying instead on a secure, high-volume scanning operation to obtain digital images of the checks.” ’945 patent at col. 3, ll. 46–62.
Claim 1, the representative claim of the ’945 patent, recites as follows:
1. A method for processing paper checks, comprising:
a) electronically receiving a data file containing data captured at a merchant’s point of purchase, said data including an amount of a transaction associated with MICR [(Magnetic Ink Character Recognition)] information for each paper check, and said data file not including images of said checks;
b) after step a), crediting an account for the merchant;
c) after step b), receiving said paper checks and scanning said checks with a digital image scanner thereby creating digital images of said checks and, for each said check, associating said digital image with said check’s MICR information; and
d) comparing by a computer said digital images, with said data in the data file to find matches.
2. The Alice Two-Step Framework under 35 U.S.C. § 101
To determine whether a patent claims ineligible subject matter, the U.S. Supreme Court has established a two-step framework. In Step One, courts must determine whether the claims at issue are directed to a patent-ineligible concept such as an abstract idea. Alice Corp. Pty. Ltd. v. CLS Bank International, 573 U.S. 208, 217 (2014). In Step Two, if the claims are directed to an abstract idea, the courts must “consider the elements of each claim both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.” Id. To transform an abstract idea into a patent-eligible application, the claims must do “more than simply stat[e] the abstract idea while adding the words ‘apply it.’” Id. at 221. At each step, the claims are considered as a whole. See id. at 218 n.3, 225.
3. The Patent Trial and Appeal Board (PTAB)
Two months after the Supreme Court issued the decision in Alice, the PTAB issued an institution decision granting a petition of a covered business method (CBM) review by U.S. Bancorp as to the § 103 challenge (obviousness) but denying a petition as to the § 101 challenge (lack of subject matter eligibility), concluding that claim 1 of the ’945 patent was not directed to an abstract idea. U.S. Bancorp v. Solutran, Inc., No. CBM2014-00076, 2014 WL 3943913 (P.T.A.B. Aug. 7, 2014). The PTAB reasoned that “the basic, core concept of independent claim 1 is a method of processing paper checks, which is more akin to a physical process than an abstract idea.” Id. at *8. It is noted that the CBM post-grant review certificate was issued under 35 U.S.C. § 328(b) on February 14, 2018, reflecting the final results of CBM2014-00076 determining that claims 1-6 are found patentable.
3. The District Court
Solutran sued U.S. Bancorp and its affiliate Elavon, Inc. (collectively, U.S. Bank) in the United States District Court for the District of Minnesota, alleging infringement of claims 1-5 of the ’945 patent. U.S. Bank moved for summary judgment that the ’945 patent was invalid because the claims were directed to the “abstract idea of delaying and outsourcing the scanning of paper checks.”
On February 23, 2018, the district court entered summary judgment for Solutran finding that the ‘945 patent was patent eligible under 35 U.S.C. § 101 for following reasons:
· Step One: The district court found the previous CBM review of the ’945 patent by the PTAB persuasive, concluding that that the ’945 patent is directed to an improved technique for processing and transporting physical checks, rather than just handling data that had been scanned from the checks.
· Step Two: The district court concluded, in the alternative, that the asserted claims also recited an inventive concept under step two of Alice. The district court accepted Solutran’s assertion that “Claim 1’s elements describe a new combination of steps, in an ordered sequence, that was never found before in the prior art and has been found to be a nonobvious improvement over the prior art by both the USPTO examiner and the PTAB’s three-judge panel.” The district court also concluded that the claim passes the machine-or-transformation test because “the physical paper check is transformed into a different state or thing, namely into a digital image.”
U.S. Bank appeals, inter alia, the § 101 ruling. Solutran cross-appeals on the issue of willful infringement.
II. The Federal Circuit
The Federal Circuit reversed the summary judgment in favor of Solutran on the issue of the subject matter eligibility, concluding that, contrary to the views of the PTAB and the district court, the claims are not directed to patent-eligible subject matter under § 101 because the claims of the ’945 patent recite the abstract idea of using data from a check to credit a merchant’s account before scanning the check, and because the claims do not contain an inventive concept sufficient to transform this abstract idea into a patent-eligible application. The Federal Circuit thus did not review U.S. Bank’s alternative § 103 argument or Solutran’s cross-appeal relating to a potential willful infringement claim.
The unanimous court opinion by Circuit Judge Chen discussed each step of the two-step framework in detail.
1. Step One
The Federal Circuit concluded that the claims are directed to the abstract idea of crediting a merchant’s account as early as possible while electronically processing a check.
Comparison with Precedents
The Federal Circuit has a precedent as to the determination of “abstract idea” that the court finds it sufficient to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases, instead of establishing a definitive rule to determine what constitutes an “abstract idea.” Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1334 (Fed. Cir. 2016).
The court opinion argued that “[a]side from the timing of the account crediting step, the ’945 patent claims recite elements similar to those in Content Extraction & Transmission LLC v. Wells Fargo Bank, National Ass’n, 776 F.3d 1343 (Fed. Cir. 2014)” where the Federal Circuit held that a method of extracting and then processing information from hard copy documents, including paper checks, was drawn to the abstract idea of collecting data, recognizing certain data within the collected data set, and storing that recognized data in a memory. As for the account crediting step, the court opinion stated that “[c]rediting a merchant’s account as early as possible while electronically processing a check is a concept similar to those determined to be abstract by the Supreme Court in Bilski v. Kappos, 561 U.S. 593 (2010) and Alice.”
In sum, the court opinion concluded that the claims at issue are similar to those claims already found to be directed to an abstract idea in previous cases.
As A Whole
Solutran argued that the claims “as a whole” are not directed to an abstract idea. The court opinion countered by pointing out that “[t]he only advance recited in the asserted claims is crediting the merchant’s account before the paper check is scanned,” and concluded that this is an abstract idea.
The court opinion distinguished this case from previous cases where claims were held patent-eligible by noting that this is not “a situation where the claims “are directed to a specific improvement to the way computers operate” and therefore not directed to an abstract idea, as in cases such as Enfish,” nor is it “a situation where the claims are “limited to rules with specific characteristics” to create a technical effect and therefore not directed to an abstract idea, as in McRO, Inc. v. Bandai Namco Games America Inc., 837 F.3d 1299, 1313 (Fed. Cir. 2016).” The court opinion further stated that “[t]o the contrary, the claims are written at a distinctly high level of generality.”
High Level of Abstraction
The court opinion disagreed with Solutran that U.S. Bank “improperly construe[d] Claim 1 to ‘a high level of abstraction.’” While conceding that “all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas,” Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 70, 71 (2012), the court opinion stressed “where, as here, the abstract idea tracks the claim language and accurately captures what the patent asserts to be the “focus of the claimed advance over the prior art,” Affinity Labs of Texas, LLC v. DIRECTV, LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016), characterizing the claim as being directed to an abstract idea is appropriate.”
Physicality of The Paper Checks Being Processed and Transported
The court opinion concluded that “the physicality of the paper checks being processed and transported is not by itself enough to exempt the claims from being directed to an abstract idea” by citing a precedent that “the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps,” In re Marco Guldenaar Holding B.V., 911 F.3d 1157, 1161 (Fed. Cir. 2018),
2. Step Two
The court opinion disagreed with the district court’s holding that the ’945 patent claims “contain a sufficiently transformative inventive concept so as to be patent eligible.”
As A Whole
The court opinion stated that “[e]ven when viewed as a whole, these claims “do not, for example, purport to improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field” and that “[t]o the contrary, as the claims in [Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014)] did, the claims of the ’945 patent “simply instruct the practitioner to implement the abstract idea with routine, conventional activity.”” The court opinion further found any remaining elements in the claims, including use of a scanner and computer and “routine data-gathering steps” (i.e., receipt of the data file), as “hav[ing] been deemed insufficient by this court in the past to constitute an inventive concept” in the past precedents. Content Extraction, 776 F.3d at 1349 (conventional use of computers and scanners); OIP Techs., Inc. v. Amazon.com, Inc., 788 F.3d 1359, 1363 (Fed. Cir. 2015) (routine data- gathering steps).
Novelty/Nonobviousness
In rejecting Solutran’s argument that these claims are patent-eligible because they are allegedly novel and nonobvious, the court opinion reiterated the precedent that “merely reciting an abstract idea by itself in a claim—even if the idea is novel and non-obvious—is not enough to save it from ineligibility.” See, e.g., Synopsys, Inc. v. Mentor Graphics Corp., 839 F.3d 1138, 1151 (Fed. Cir. 2016) (“[A] claim for a new abstract idea is still an abstract idea.” (emphasis in original)).”
Machine-or-Transformation Test
In rejecting Solutran’s argument that its claims passed the machine-or-transformation test—i.e., “transformation and reduction of an article ‘to a different state or thing,’” the court opinion stated “[w]hile the Supreme Court has explained that the machine-or-trans- formation test can provide a “useful clue” in the second step of Alice, passing the test alone is insufficient to overcome Solutran’s above-described failings under step two. See DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1256 (Fed. Cir. 2014) (“[I]n Mayo, the Supreme Court emphasized that satisfying the machine-or-transformation test, by itself, is not sufficient to render a claim patent-eligible, as not all transformations or machine implementations infuse an otherwise ineligible claim with an ‘inventive concept.’”).”
Takeaway
· The case demonstrates that courts still stick to the comparative approach in Alice step one, instead of defining or categorizing the “abstract idea.” This approach is notably in contrast with that of the U.S. Patent and Trademark Office, which follows the 2019 Revised Patent Subject Matter Eligibility Guidance on January 7, 2019, dividing Alice step one into two inquiries: (i) evaluate whether the claim recites a judicial exception; and (ii) evaluate whether the judicial exception is integrated into a practical application if the claim recites a judicial exception. The courts’ approach may give wider latitude to turn an issue of the subject matter eligibility in either direction for its less clarity of the standard.
· Physicality of subjects recited in a claim, novelty/nonobviousness of the claim, and passing of the machine-or-transformation test may not be enough to exempt the claim from being directed to an abstract idea.
“Built Tough”: Ford’s Design Patents Survive Creative Attacks by Accused Infringers
| August 21, 2019
Automotive Body Parts Association v. Ford Global Technologies, LLC
July 23, 2019
Before Hughes, Schall, and Stoll
Summary
The Federal Circuit is asked to decide two questions: what types of functionality invalidate a design patent, and whether the same rules of patent exhaustion and repair rights that apply to utility patents ought to also be applied to design patents. On the former, the Federal Circuit decides that “mechanical or utilitarian” functionality, rather than “aesthetic functionality”, invalidates a design patent. On the latter, however unique design patents are from utility patents, the Federal Circuit declines to apply the well-established rules of patent exhaustion and right to repairs differently between design and utility patents.
Details
Ford Motor Company introduced the F-150 pickup trucks in the 1970’s, and the trucks have become a mainstay of Ford’s lineup. The trucks’ popularity has endured, as the model is now in its thirteenth generation, with Ford claiming to have sold more than 1 million F-150 trucks in 2018.
Ford Global Technologies, LLC (“Ford”) is a subsidiary of Ford Motor Company, and manages the parent company’s intellectual property. Ford’s large patent portfolio includes numerous design patents covering different design elements of Ford vehicles. Among those design patents are U.S. Design Patent Nos. D489,299 and D501,685.
The D’299 patent is directed to an “exterior vehicle hood” having the following design:
The D’685 patent is directed to a “vehicle head lamp” having the following design:
The patented designs are found on the eleventh generation F-150 trucks, which were in production from 2004 to 2008:
Automotive Body Parts Association (“Automotive Body”) is an association of companies that distribute automotive body parts. The member companies serve predominantly the collision repair industry, selling replacement auto parts to collision repair shops or directly to vehicle owners.
Ford began asserting the D’299 and D’685 patents against Automotive Body in 2005, when Ford initiated a patent infringement action in the International Trade Commission. The ITC action was ultimately settled, followed by a few years of relative quiet until 2013, when tension grew after a member of Automotive Body began selling replacement parts covered by Ford’s two design patents.
In 2013, Automotive Body, together with the member company, initiated a declaratory judgment action in a district court, seeking to have the D’299 and D’685 patents declared invalid, or if valid, unenforceable. Automotive Body moved the district court for summary judgment of invalidity and unenforceability, but was denied. Automotive Body’s appeal of that denial of summary judgment leads us to this decision by the Federal Circuit.
Automotive Body’s arguments on appeal mirror those made in the district court.
- Invalidity
Automotive Body makes two main invalidity arguments. First, the designs of Ford’s two patents are “dictated by function”, and second, the two designs are not a “matter of concern”.
The “dictated by function” argument involves a basic design patent concept: if an article has to be designed a certain way for the article to function, then the design cannot be the subject of a design patent.
Design patents protect only “new, original and ornamental design[s] for an article of manufacture”. 35 U.S.C. 171(a). To be “ornamental”, a particular design must not be essential to the use of the article.
Automotive Body argues, rather creatively, that the designs of Ford’s headlamp and hood are functionally dictated not only by the physical fit on a F-150 truck, but also by the aesthetics of the surrounding body parts. Automotive Body’s position is that these commercial requirements for aesthetic continuity, driven by customer preferences, render Ford’s designs functional.
The Federal Circuit disagrees:
We hold that, even in this context of a consumer preference for a particular design to match other parts of a whole, the aesthetic appeal of a design to consumers is inadequate to render that design functional…If customers prefer the “peculiar or distinctive appearance” of Ford’s designs over that of other designs that perform the same mechanical or utilitarian functions, that is exactly the type of market advantage “manifestly contemplate[d]” by Congress in the laws authorizing design patents.
In other words, functionality that invalidates a design should be “mechanical or utilitarian”, and not aesthetical.
Particularly damaging to Automotive Body’s argument is Ford’s abundant evidence of “performance parts”, that is, alternative headlamp and hood designs that would also fit the F-150 trucks. As the Federal Circuit explains, “the existence of ‘several ways to achieve the function of an article of manufacture,’ though not dispositive, increases the likelihood that a design serves a primarily ornamental purpose.”
To bolster its functionality argument, Automotive Body attempts to borrow the doctrine of “aesthetic functionality” from trademark law.
Under that doctrine, trademark protection is unavailable to features that serve an aesthetic function that is independent and distinct from the function of source identification. For example, “John Deere green”, the color, may invoke an immediate association with John Deere, the brand, but the color itself also serves the significant nontrademark function of color-matching many farm equipment. As such, the color is not entitled to trademark protection.[1]
The Federal Circuit quickly disposes of Automotive Body’s “aesthetic functionality” argument, finding that the doctrine rooted in trademark law does not apply to patent law. The competitive considerations driving the “aesthetic functionality” doctrine of trademark law do not apply to the anticompetitive effects of design patents.
Automotive Body’s second invalidity argument is that the designs of Ford’s two patents are not a “matter of concern”.
The “matter of concern” argument involves the straightforward concept that, if no one cares about a particular design, then that design is not deserving of patent protection. Automotive Body argues that Ford’s patented headlamp and hood designs are not a “matter of concern”, because an F-150 owner in need of a replacement headlamp or hood would assess the replacement part simply for their aesthetic compatibility with the truck.
The Federal Circuit finds two faults with Automotive Body’s arguments. First, that an F-150 owner would assess the aesthetic of a headlamp or hood design means that, by definition, the designs are a matter of concern. Second, Automotive Body errs in temporally limiting the “matter of concern” inquiry to when a consumer is purchasing a replacement part. The proper inquiry is “whether at some point in the life of the article an occasion (or occasions) arises when the appearance of the article becomes a ‘matter of concern’”.
- Unenforceability
Automotive Body’s unenforceability arguments are also two-fold.
First, Automotive Body argues that under the doctrine of patent exhaustion, the authorized sale of an F-150 truck exhausts all design patents embodied in the truck. This exhaustion therefore permits the use of Ford’s designs on replacement parts intended for use with the truck.
The Federal Circuit disagrees that the doctrine of patent exhaustion should be so broadly applied.
The doctrine of patent exhaustion is triggered only if the sale is authorized, and conveys only with the article sold. Since Ford has not authorized Automotive Body’s sales of replacement headlamps and hood, and Automotive Body is not a purchaser of Ford’s F-150 trucks, the Federal Circuit easily concludes that Automotive Body cannot rely on patent exhaustion as a defense.
Automotive Body’s second argument is that an authorized sale of the F-150 truck also conveys to the owner the right to repair, so that the owner of the F-150 truck would be permitted to replace the headlamps or hood on the truck.
Here also, the Federal Circuit disagrees with Automotive Body’s broad application of the right to repair.
The right to repair allows an owner to repair the patented headlamps or hood on the truck, but does not allow the owner to make new copies of the patented designs.
A common premise of Automotive Body’s unenforceability arguments is their broad interpretation of the term “article of manufacture” as used in the statute. From Automotive Body’s perspective, the term includes not only the patented component, but also the larger product incorporating that component. By this interpretation, the sale of either the patented headlamps or hood, or the truck containing the patented headlamps or hood would totally exhaust Ford’s rights in the design patents.
The Federal Circuit rejects Automotive Body’s broad interpretation:
In our view, the breadth of the term “article of manufacture” simply means that Ford could properly have claimed its designs as applied to the entire F-150 or as applied to the hood and headlamp… Unfortunately for ABPA, Ford did not do so; the designs for Ford’s hood and headlamp are covered by distinct patents, and to make and use those designs without Ford’s authorization is to infringe.
Had Ford’s design patents covered the whole F-150 truck, the sale of the truck would have exhausted Ford’s rights in those patents. But, as it were, Ford’s patents cover only the designs of the headlamps and the hood, and not the design for the truck as a whole. As such, while the authorized sale of an F-150 truck permits the owner to use and repair the headlamps and the hood, the sale leaves untouched Ford’s ability to prevent the owner from making new copies of those designs.
It is not uncommon for aftermarket suppliers, especially those who supply parts intended to restore a vehicle to its original condition and aesthetics, to promise identity or near identity between its products and the OEM parts. This promise, however, would effectively be an admission that the products infringe any design patents covering the part. In this respect, this Federal Circuit decision may signal a tough road ahead for aftermarket suppliers.
Takeaway
- Use design patents not only to protect a product as a whole, but also to protect the smallest sellable component of the product.
[1] Interestingly, a district court recently determined that trademark protection extended to the combination of “John Deere green” and “John Deere yellow” as a color scheme.
Predictability and Criticality – Disclosure of Species Can Support Broader Genus
| August 5, 2019
IN RE: GLOBAL IP HOLDINGS LLC
July 5, 2019
Before Moore, Reyna, and Stoll
Summary
This precedential decision illustrates that disclosure of a species can support a broader genus claim. The test for sufficiency is whether the specification “reasonably conveys to those skilled in the art that the inventor had possession of the claimed subject matter as of the filing date.” Predictability and criticality are relevant to the written description inquiry.
Background
Global IP Holdings LLC (Global) filed a reissue application seeking to broaden the claims of its U.S. Patent No. 8,690,233[1]. The reissue application sought to change the term “thermoplastic” to “plastic” in independent claims 1, 14 and 17. Claim 1 is representative:
1. A carpeted automotive vehicle load floor comprising:
a composite panel having first and second reinforced
thermoplastic skins and athermoplastic cellular core disposed between and bonded to the skins, the first skin having a top surface;a cover having top and bottom surfaces and spaced apart from the composite panel; and
a substantially continuous top covering layer bonded to the top surface of the panel and the top surface of the cover to at least partially form a carpeted load floor having a carpeted cover, wherein an intermediate portion of the top covering layer between the cover and the panel is not bonded to either the panel or the cover to form a living hinge which allows the carpeted cover to pivot between different use positions relative to the rest of the load floor.
The reissue declaration of the inventor explained that he is the inventor of over fifty U.S. patents in the field of plastic-molded products and that he was aware of the use of other plastics than thermoplastics (such as thermoset plastics) for composite panels with a cellular core.
The claims of the reissue application were rejected for failing to comply with the written description requirement of 35 U.S.C. § 112, first paragraph. The Examiner noted that the specification only describes the skins and core being formed of thermoplastic materials. Thus, the Examiner considered the change to result in new matter.
On appeal to the Patent Trademark and Appeal Board (PTAB), Global argued that “because the type of plastic used is not critical to the invention and plastics other than thermoplastics were predictable options, the disclosure of thermoplastics (species) supports the claiming of plastics (genus).” The PTAB rejected these arguments, explaining that “regardless of the predictability of results of substituting alternatives, or the actual criticality of thermoplastics in the overall invention, [Global’s] Specification, as a whole, indicates to one of ordinary skill in the art that the inventors had possession only of the skins and core comprising specifically thermoplastic.”
Discussion
The CAFC reviewed the PTAB’s legal conclusions de novo and its fact finding for substantial evidence. The CAFC found that the PTAB legally erred in its analysis. In particular, the PTAB’s finding that the specification was insufficient “regardless of the predictability of results of substituting alternatives, or actual criticality of thermoplastics in the overall invention” conflicts with Ariad Pharm., Inc. v. Eli Lilly & Co., 598 F.3d 1336, 1351 (Fed. Cir. 2010) (en banc). The CAFC explained that “the predictability of substituting generic plastics for thermoplastics in the skins and cellular cores of vehicle load floors is relevant to the written description inquiry.” In addition, criticality of an unclaimed limitation to the invention “can be relevant to the written description requirement.”
The CAFC pointed to In re Peters, 723 F.2d 891, 893–94 (Fed. Cir. 1983), in which the original claims were directed to a metal tip having a tapered shape. In a reissue application of that patent, the claims were amended to cover both tapered and non-tapered tips. The Board held that the broadened claims were not supported because the original disclosure only disclosed tapered tips. The CAFC disagreed, explaining that:
“[t]he broadened claims merely omit an unnecessary limitation that had restricted one element of the invention to the exact and non-critical shape disclosed in the original patent.” Id. We reasoned that the disclosed tip configuration was not critical because no prior art was overcome based on the tip shape and “one skilled in the art would readily understand that in practicing the invention it is unimportant whether the tips are tapered.”
Accordingly, the decision of the PTAB is vacated and remanded to address the relevant factors including predictability and criticality in order to determine whether the written description requirement has been satisfied.
Takeaways
Although a specification may not literally disclose a broader genus, disclosure of a species may support a broader genus, depending on the predictability and criticality of the feature.
Could Global seek an even broader claim by deleting “thermoplastic” in its entirety? Perhaps so, if deletion of thermoplastic is considered not critical to overcome prior art as in In re Peters. A review of the patent does show use of generic terms of “skin” and “cellular core” (column 5, lines 1-26 for example).
[1] A review of the file history shows that 15 patents issued from the same priority application no. 13/453,201.
