Patent Docs

IPO Webinar on Willfulness, Enhanced Damages, and Opinions of Counsel

February 18, 2017

The Intellectual Property Owners Association (IPO) will offer a one-hour webinar entitled "Willfulness, Enhanced Damages, and Opinion of Counsel Since Halo" on February 23, 2017 from 2:00 to 3:00 pm (ET). Natalie Hanlon Leh of Wilmer Cutler Pickering Hale and Dorr LLP, Christopher Marchese of Fish & Richardson PC, and Michael Zeliger of K&L Gates LLP will examine how courts post-Halo have decided the sufficiency of pleading for enhanced damages at the motion-to-dismiss stage, and consider the factors that have most strongly influenced recent district court decision to enhance — or not enhance — damages, including notice by the patent owner (cases such as CH20 and Finjan), copying (Westerbeke, Imperium, and PPC), and opinions of counsel (Dominion, Presidio, and Boston University).

The registration fee for the webinar is $135 (government and academic rates are available upon request). Those interested in registering for the webinar can do so here.
Webinar on Using Broadest Reasonable Interpretation in Patent Prosecution

February 18, 2017

Strafford will be offering a webinar/teleconference entitled "How to Use Broadest Reasonable Interpretation to Your Advantage in Patent Prosecution — Establishing Scope of Claims, Avoiding Sect. 112(f), Preserving Enforceability" on March 9, 2017 from 1:00 to 2:30 pm (EST). Charles Bieneman and Christopher Francis of Bejin Bieneman will provide guidance for patent prosecution in light of the Broadest Reasonable Interpretation (BRI) standard, and examine recent Federal Circuit decisions and decisions from the USPTO's Patent Trial and Appeal Board that provide practical lessons for using BRI to your advantage in prosecution. The webinar will review the following issues:

• What guidance do Federal Circuit and PTAB decisions give patent counsel on the application of BRI?
• What arguments are effective in overcoming patent examiners' unreasonable claim interpretations?
• Why is defining claim terms in specification and using the definitions critical?
• How can patent counsel distinguish cases where extrinsic evidence has been used to supplement the specification?
• If and when should extrinsic evidence be used?

The registration fee for the webinar is $297. Those interested in registering for the webinar, can do so here.
FCBA Webast on International Patent Strategies

February 18, 2017

The Federal Circuit Bar Association (FCBA) will be offering a webcast entitled "International Patent Strategies" on February 24, 2017 from 11:00 am to 12:00 pm (EST) at the FCBA Office in Washington, DC. Dr. Penny Gilbert of Powell Gilbert LLP; Gaëlle Bourout of Cabinet Plasseraud; Corey Salsberg, VP, Global Head IP Affairs, Novartis; and Erin Gibson of DLA Piper will explore international patent strategies and the variables at play.

Those interested in registering for the webcast, can do so here.
Webinar on PTAB Proceedings and Appeals before the Federal Circuit

February 18, 2017

The American Bar Association (ABA) Center for Professional Development and Section of Intellectual Property Law will be offering a live webinar entitled "How to Structure PTAB Proceedings and Appeals before the Federal Circuit" on March 8, 2017 from 1:00 to 2:00 pm (ET). David Cochran of Jones Day (moderator); James Smith, Ecolab, former Chief Judge for the PTAB; and Paul Michel, former Chief Judge for the U.S. Court of Appeals for the Federal Circuit, will review key decisions of the Federal Circuit, establishing the level of review accorded to different issues on appeal from the PTAB and explore how these limits impact practitioners' approaches to conducting PTAB trials, and discuss and explore strategies and recommendations for conducting PTAB proceedings with an "eye" toward potential appeal to the Federal Circuit.

The registration fee for the webcast is $150 for members and $195 for non-members. Those interested in registering for the webinar, can do so here.
Webcast on Trends in Paragraph IV Challenges

February 18, 2017

The Knowledge Group will offer a live webcast entitled "Trends in Paragraph IV Challenges: What Lies Ahead in 2017 and Beyond" on February 28, 2017 from 12:00 to 2:00 pm (EST). Pablo D. Hendler of Jones Day, and Dean L. Fanelli and Jamaica Szeliga of Seyfarth Shaw LLP will provide an analysis of the recent trends in Paragraph IV patent challenges, and discuss significant court decisions and settlement outcomes on patent challenges. The panel will cover the following topics:

• Important rule changes
• What's pending in the courts at various levels
• Supreme Court treatment in these matters
• Guidelines for providing notice
• Practice tips IPR's and ANDA litigations
• Recent Trends on Patent Challenges
• Factors Influencing These Trends
• Paragraph IV Court Decisions and Settlements

The registration fee for the webcast is $299 (regular rate) or $199 (government/nonprofit rate). Those interested in registering for the webinar can do so here.
PTAB Decides CRISPR Interference in Favor of Broad Institute — Their Reasoning

February 16, 2017

By Kevin E. Noonan —

Yesterday, the Patent Trial and Appeal Board (PTAB) of the U.S. Patent and Trademark Office rendered judgment that there was no interference-in-fact between the claims in interference between the Regents of the University of California/Berkeley and the Broad Institute. Shortly after this judgment appeared, the Board issued its "Decision on Motions" (Paper No. 893) explaining its reasoning.

Although both parties had received the Board's permission to file a number of briefs in the preliminary part of the interference, the Board rendered its decision on Broad Motion No. 2, that there was no interference in fact. The basis of the requirement for an interference-in-fact can be found in the Rules governing interferences:

An interference exists if the subject matter of a claim of one party would, if prior art, have anticipated or rendered obvious the subject matter of a claim of the opposing party and vice versa.

37 C.F.R. 17 § 41.203(a). In this case, the Board set out these requirements with respect to these parties:

In this proceeding, to prevail on its argument that there is no interference, Broad must show that the parties' claims do not meet at least one of the following two conditions:

1) that, if considered to be prior art to UC's claims, Broad's involved claims would not anticipate or render obvious UC's involved claims, or

2) that, if considered to be prior art to Broad's claims, UC's involved claims would not anticipate or render obvious Broad's claims.

Broad will prevail and a determination of no interference-in-fact will be made if a preponderance of the evidence indicates one of these conditions is not met.

Here, it was undisputed that UC's claims would not anticipate the Broad's claims-in-interference because all of Broad's claims contained the affirmative limitation that the CRISPR technology be operative in eukaryotic cells, and the UC's claims were devoid of any limitation regarding the context in which CRISPR was applied.

Thus, the question before the Board was whether the evidence presented by the parties established that the UC claims, if prior art, would have rendered the Broad's claims obvious. The Board concluded that they would not, and hence there was no interference-in-fact between the parties' claims in the interference.

In considering the evidence before it, the PTAB gave greater weight to contemporaneous, cautious statements in the art in view of Doudna's disclosure of in vitro CRISPR activity regarding whether the system would work in eukaryotic cells. Specifically these statements convinced the Board that while the results "suggested the 'exciting possibility'" that CRISPR-Cas9 could be operative in eukaryotic cells, "it was not known whether such a bacterial system would function in eukaryotic cells." And, "[i]n another report, Doudna was quoted as stating that she had experienced 'many frustrations' getting CRISPR to work in human cells and that she knew that if she succeeded, CRISPR would be 'a profound discovery.'" UC's assertion of other statements by their inventors that could be interpreted more positively did not convince the Board that there was a reasonable expectation of success in the art for getting the CRISPR-Cas9 system to work in eukaryotic cells, the Board stating that:

Although the statements express an eagerness to learn the results of experiments in eukaryotic cells and the importance of such results, none of them express an expectation that such results would be successful.

The Board swept aside UC's argument that this reasoning was flawed because the standard is not the inventor's expectations but those of the worker of ordinary skill by stating that "if the inventors themselves were uncertain, it seems that ordinarily skilled artisans would have been even more uncertain." Even UC's own expert voiced (contemporaneous) skepticism regarding whether the skilled worker would have had an expectation of success that the invention would be operative in eukaryotic cells in view of Inventor Doudna's success in vitro. In particular, the Board quoted UC's expert as having said (contemporaneously with Inventor Doudna's report of in vitro CRISPR activity):

There is no guarantee that Cas9 will work effectively on a chromatin target or that the required DNA-RNA hybrid can be stabilized in that context.

The Board concluded that "[w]e fail to see how 'no guarantee' indicates an expectation of success."

All the other contemporaneous references cited by UC suffered the same fate, wherein scientists' characteristic caution in predicting how a developing technology will actually develop was interpreted by the Board as not supporting UC's argument that the skilled worker had a reasonable expectation of success in having the CRISPR-Cas9 system be operative in eukaryotic cells.

Nor was the Board convinced based on the history of the development of CRISPR technology, which showed that many laboratories independent of the Doudna group quickly applied the new technology to manipulate eukaryotic cell genomic DNA:

Regardless of how many groups achieved success in eukaryotic cells, we are not persuaded that such success indicates there was an expectation of success before the results from these experiments were known. The unpublished results of research groups are not necessarily an indication of whether ordinarily skilled artisans would have expected the results achieved. Instead of viewing such work as evidence of an expectation of success, we consider the number of groups who attempted to use CRISPR-Cas9 in eukaryotic cells to be evidence of the motivation to do so, an issue that is not in dispute. We agree with Broad's argument that a large reward might motivate persons to try an experiment even if the likelihood of success is very low.

The Board supported its determination with a survey of case law where the evidence showed there was, or was not, a reasonable expectation of success in obviousness determinations. On balance, the Board found that this evidence further supported their decision that there was insufficient evidence of a reasonable expectation of success to support UC's allegation that their earlier work and publications would have rendered the Broad's invention obvious. In this case, this evidence was that "differences in gene expression, protein folding, cellular compartmentalization, chromatin structure, cellular nucleases, intracellular temperature, intracellular ion concentrations, intracellular pH, and the types of molecules in prokaryotic versus eukaryotic cells, would contribute to this unpredictability [regarding whether the CRISPR-Cas9 system would be operative in eukaryotic cells]." In response to UC's allegations that these considerations turned out not to be an impediment to CRISPR's activity in eukaryotic cells, the Board said "[t]he relevant question before us is whether those of skill in the art would have expected there to be problems before the experiments were done," not whether it turned out that the experiments were successful once they were tried.

Finally, the Board rejected UC's citation of other prokaryotic genetic modification systems found to work in eukaryotes, generally on the grounds that there was no "commonality" in these methods that would have refuted the Broad's evidence that the skilled worker would not have had any reasonable expectation of success.

In conclusion, the Board stated that "[w]e note that '[i]t is well-settled that a narrow species can be non-obvious and patent eligible despite a patent on its genus,'" citing AbbVie Inc. v. Mathilda & Terence Kennedy Inst. of Rheumatology Trust, 764 F.3d 8 1366, 1379 (Fed. Cir. 2014), and that "[a]n 'earlier disclosure of a genus does not necessarily prevent patenting a species member of the genus,'" citing Eli Lilly & Co. v. Bd. of Regents of Univ. of Wash., 334 F.3d 1264, 1270 (Fed. Cir. 2003).

UC/Berkeley has suggested in public statements that it may appeal the Board's decision. It is well to recognize in this regard that the question of whether there is a reasonable expectation of success in an obviousness determination is a question of fact (see, e.g., Par Pharm., Inc. v. TWi Pharm., Inc., 773 F.3d 1186, 1196 (Fed. Cir. 2014)), and that the Federal Circuit must defer to the PTAB's factual determinations under the substantial evidence standard of review. Dickenson v. Zurko. Accordingly, while appeal of this decision remains a possibility the manner in which the Board rendered its decision and its reasoning suggest that prevailing in such an appeal may be quite difficult.
Personal Web Technologies, LLC v. Apple, Inc. (Fed. Cir. 2017)

February 15, 2017

By Michael Borella —

Apple filed a successful petition for Inter Partes Review (IPR) of Personal Web Technologies' U.S. Patent No. 7,802,310. In its final written decision, the Patent Trial and Appeal Board (PTAB) agreed with Apple's contention that the claims of the '310 patent were obvious. On appeal, the Federal Circuit reversed.

Obviousness is one of the most common issues dealt with during prosecution and post-grant proceedings. While the determination of whether a claim is obvious is ostensibly an objective matter, reasonable minds can differ. Thus, there is often a gray area where the subjective opinion of a patent examiner or finder of fact can sway the decision one way or the other. Ten years ago, in KSR Int'l Co. v. Teleflex Inc., the Supreme Court attempted to add some color to the obviousness inquiry by requiring that there is a clearly articulated rationale to support a determination of obviousness. Still, many obviousness contentions, whether made in the USPTO or the courts, are conclusory in nature.

The '310 patent is directed to "locating data and controlling access to data by giving a data file a substantially unique name that depends on the file's content." The patent describes generating the name through use of a hash function over the content. When a user attempts to access the file, the invention requires "comparing that name with a plurality of values in a network, determining whether a user is authorized to access the data, and providing or denying access to the data based on that determination."

Apple alleged that various claims of the '310 patent were obvious over two references, Woodhill and Stefik. According to the Court, "Woodhill discloses a system for using content-based identifiers in performing file management functions, such as backing up files," while "Stefik discloses an authentication system designed to control access to digital works stored in a repository."

The Court reviewed the PTAB's decision de novo for the determination of obviousness, and based on the substantial evidence standard for its findings of fact. Under the latter, the Court asks "whether a reasonable fact finder could have arrived at the agency's decision, which requires examination of the record as a whole, taking into account evidence that both justifies and detracts from an agency's decision."

This required that the PTAB justify and explain (i) that all claim elements at issue could be found in Woodhill and Stefik, and (ii) that "a person of ordinary skill in the art would have been motivated to combine the prior art in the way claimed by the '310 patent claims at issue and had a reasonable expectation of success in doing so." The Court particularly emphasized the requirement of explanation, stating that "the amount of explanation needed will vary from case to case, depending on the complexity of the matter and the issues raised in the record."

The Court further noted that its review of the PTAB in this fashion was also in accordance with administrative law. Particularly, "the agency is obligated to provide an administrative record showing the evidence on which the findings are based, accompanied by the agency's reasoning in reaching its conclusions." Thus, the PTAB "must articulate logical and rational reasons for decision."

The Court went on to point out how the PTAB failed to meet these requirements. For one claim element, the PTAB stated that it relied on Stefik as disclosing the element, and referred to a specific part of Apple's petition in doing so. But this part of the petition only referenced Woodhill, and the PTAB did not address this apparent discrepancy. For another claim element, the PTAB did not address all features therein.

The Court also found that the PTAB did not properly articulate its reasoning as to why one of skill in the art would be motivated to combine Stefik and Woodhill in the manner recited by the claims. The PTAB once again relied on reasoning from Apple's petition, but "that reasoning seems to say no more than that a skilled artisan, once presented with the two references, would have understood that they could be combined." This, however, is insufficient, because "it does not imply a motivation to pick out those two references and combine them to arrive at the claimed invention." The issue is not whether the references could be combined, but whether they would be combined by one of skill in the art. Moreover, the PTAB failed to explain and provide evidence for "how the combination of the two references was supposed to work."

In the Court's view, the amount of explanation needed to support a conclusion of obviousness depends on the complexity of the technology at issue. Here, the PTAB's explanation was lacking. As a result, the Court remanded the case back to the PTAB to "reconsider the merits of the obviousness challenge, within proper procedural constraints."

In some measure, this opinion centers on whether the PTAB set forth a sufficient explanation to be sustainable upon judicial review, based on the PTAB's disposition under an administrative agency. But it also provides a colorable argument that patent examiners need to live up to that standard as well. It is all too common for a patent examiner or a challenger in a PTAB proceeding to identify claim elements that exist in the prior art, then state, in a wholly conclusory fashion, that it would be obvious to combine the prior art references. But, as clearly called out in this opinion, this is insufficient. Obviousness rests on whether one of skill in the art would have a reason to combine the references in a manner that would lead to the claims. Such reasoning is all too frequently missing, and this case provides patentees with language to rebut such improper contentions.

Personal Web Technologies, LLC v. Apple, Inc. (Fed. Cir. 2017)
Panel: Circuit Judges Taranto, Chen, and Stoll
Opinion by Circuit Judge Taranto
PTAB Decides CRISPR Interference — No interference-in-fact

February 15, 2017

The U.S. Patent and Trademark Office's Patent Trial and Appeal Board (PTAB) handed down its decision today that there is no interference-in-fact between several patents and patent applications owned by The Broad Institute and applications owned by the Regents of the University of California, Berkeley. This decision ends the interference without any prejudice to any of the claims corresponding to the interference count. Accordingly, both parties will be able to license (and assert) their patents to any third party.

The basis for the PTAB's decision is contained in a paper (#893) entitled Decision on Motions. That paper is not yet available on the PRAB website. We will post on this decision when it becomes available.

For additional information regarding this topic, please see:

• "Guest Post — The Patient Side of the CRISPR Patent Battle," December 19, 2016
• "CRISPR Interference Motions Set," March 23, 2016
• "CRISPR Interference Declared," January 28, 2016
Shire Development LLC v. Watson Pharmaceuticals Inc. (Fed. Cir. 2017)

February 14, 2017

By Kevin E. Noonan —

The Federal Circuit, in its third opinion involving ANDA litigation between these parties over Shire's LIALDA^® (mesalamine) product, has apparently brought this case to a close in generic drug maker Watson's favor, in a decision handed down last Friday.

The lawsuit involved Watson's ANDA filing seeking approval for a generic version of Shire's controlled-release oral pharmaceutical composition for the treatment of inflammatory bowel disease, Crohn's disease, and ulcerative colitis, sold by Shire under the brand name LIALDA®. Shire listed U.S. Patent No. 6,773,720 in the Orange Book having claims for its patented formulations of the active pharmaceutical ingredient mesalamine (5-amino salicylic acid). These formulations were characterized as having high concentrations (85-90% by weight) of the API. The formulations contain an "inner hydrophobic matrix" and an "outer hydrophilic matrix," as used in the following representative claims of the '720 patent:

1. Controlled-release oral pharmaceutical compositions containing as an active ingredient 5- amino-salicylic acid, comprising:
    a) an inner lipophilic matrix consisting of sub- stances selected from the group consisting of unsaturated and/or hydrogenated fatty acid, salts, esters or amides thereof, fatty acid mono-, di- or triglycerid[e]s, waxes, ceramides, and cholesterol derivatives with melting points below 90° C., and wherein the active ingredient is dispersed both in said the lipophilic matrix and in the hydrophilic matrix;
    b) an outer hydrophilic matrix wherein the lipophilic matrix is dispersed, and said outer hydrophilic matrix consists of compounds selected from the group consisting of polymers or copolymers of acrylic or methacrylic acid, alkylvinyl polymers, hydroxyalkyl celluloses, carboxyalkyl celluloses, polysaccharides, dextrins, pectins, starches and derivatives, alginic acid, and natural or synthetic gums;
    c) optionally other excipients;
    wherein the active ingredient is present in an amount of 80 to 95% by weight of the total composition, and wherein the active ingredient is dispersed both in the lipophilic matrix and in the hydrophilic matrix.

The claimed formulations provide the "sustained and uniform manner" by which the mesalamine API is released as the drug passes through the gut.

In the first trial on the merits, the District Court construed the term "inner hydrophobic matrix" to mean "a matrix including at least one lipophilic excipient, where the matrix is located within one or more substances," and construed "outer hydrophilic matrix" to mean "a matrix of at least one hydrophilic excipient, where the matrix is located outside the inner lipophilic matrix."

On appeal the Federal Circuit reversed, holding that these constructions did not comport with the "ordinary and customary" meanings of the claim terms because they were "impermissibly broad." Specifically, that panel held that the District Court had properly construed the term "matrix" in each instance as "a macroscopically homogeneous structure in all its volume," but disagreed with how the court construed "lipophilic matrix" to mean "a matrix that includes at least one lipophilic excipient." This error arose because the District Court's construction "focuse[d] on the lipophilic properties of an excipient in the matrix, rather than the properties of the matrix itself." That panel believed that the intrinsic evidence mandated a construction wherein lipophilicity (or, for that matter the hydrophilicity) is a characteristic of the matrix, not the excipient in the matrix, according to distinctions found in the specification.

Shire petitioned for certiorari and the Supreme Court vacated this decision and remanded to the Federal Circuit for reconsideration in view of the Court's intervening decision in Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. In that case, the Court set forth the standard of Federal Circuit review of district courts' claim construction, changing the completely de novo standard of Fas v. Cybor to one wherein questions of law are to be reviewed de novo but factual determinations of a district court should be reviewed for clear error, i.e., giving deference to the district court's factual findings pursuant to Federal Rule of Civil Procedure 52(a)(6). Notably, this change was not mandated for cases where a district court relied solely on the intrinsic evidence (plain meaning of the claim language, the specification and the prosecution file history). On remand, the Federal Circuit saw fit not to change its earlier determination that the District Court had erred (based on its determination that the District Court had relied only on intrinsic evidence) and remanded the matter to the District Court for trial according to that panel's claim construction.

This appeal is the result of that trial, wherein the District Court again found infringement under 35 U.S.C. § 271(e)(2). And once again the Federal Circuit reversed, in an opinion by Judge Hughes, joined by Chief Judge Prost and Judge Taranto. In this opinion, the panel focused on the Markush groups recited in the claims ("selected from the group consisting of"; see Ex parte Markush, 1925 C.D. 126 (Comm'r Pat. 1925) and MPEP 803.02), which format the opinion noted was relevant to the opinion because, in its earlier claim construction they formed the basis for the Court's determination that "'the correct construction requires that the inner volume contain substances from the group described for the inner lipophilic matrix (which are all lipophilic substances), and that the outer volume separately contain substances from the group described for the outer hydrophilic matrix (which are all hydrophilic).'" The District Court here found that the presence of components of the lipophilic and hydrophilic matrices comprising Watson's formulation falling outside the scope of the Markush groups did not bar infringement because these components were "'unrelated' to the invention because they did not drive the water-affinity property of their respective matrices." In some instances, permitting unrelated components to be present in an invention claimed using Markush group language is permissible, according to the opinion, provided that these are related to "aspects unrelated to the invention," citing Norian Corp. v. Stryker Corp., 363 F.3d 1321, 1331 (Fed Cir. 2004). Here, however, Watson's formulation "does not facially satisfy the claim 1(b) Markush limitation," according to the opinion, because the extragranular space comprising the outer hydrophilic matrix contains lipophilic magnesium stearate, a component not recited in the claim 1(b) Markush group.

Specifically, the Federal Circuit rejected the District Court's distinction that "magnesium stearate in the extragranular space is overwhelmed by the hydrophilic properties of the sodium starch glycolate in the extragranular space" based in part on expert testimony that the hydrophilic "'sodium starch glycolate is more potent than the mag[nesium] stearate" when "outside" the granules.'" Indeed, the District Court found (and the Federal Circuit agreed) that magnesium stearate "retained its lipophilic character in the extragranular space" to the same extent that it exerted a lipophilic effect in granules. On that basis, the panel held that the compound "structurally and functionally" is related to the invention as claimed and thus violates the Markush group of claim 1(b), which does not recite magnesium stearate as a member thereof. In doing so, the panel rejected Shire's contention (adopted by the District Court) that magnesium stearate in Watson's formulation was used as a lubricant and not for its lipophilic properties and was not lipophilic enough to render the outer matrix lipophilic. According to the opinion, Norian did not impose a requirement that related components were only those that "advance or are intended to advance" the inventive elements recited in a Markush group, on the grounds that such a requirement would be equivalent to construing "consisting of" in the Markush language to have a scope of "comprising" or "consisting essentially of" (the latter phrasing being most closely related to the scope that Shire advanced in its claim construction arguments).

The Court remanded with directions to enter judgment of non-infringement, thus putting Watson in the position to be able to market its generic mesalamine formulation (the Hatch-Waxman 30-month stay having expired long ago). Shire may still appeal, either by requesting rehearing en banc or filing another certiorari petition. Insofar as the Federal Circuit's opinion is based on the District Court's factual findings (supported by expert testimony) cert. is not a foregone conclusion. It will depend on whether Shire can convince the Justices that the Federal Circuit has not minded the High Court's lessons regarding claim construction. Perhaps needing to delve into the minutiae of Markush claiming will be enough to deter the Court from revisiting this aspect of claim construction so soon after its Teva decision (similar to the Court refusing to grant cert. in the Sequenom case after its recent spate of diagnostic method claim cases). But this case provides a reminder of the tortured path litigants may need to take to get what presumably is a final outcome, and the uncertainty that persists until entry of a final judgment from which there is no further appeal.

Shire Development LLC v. Watson Pharmaceuticals Inc. (Fed. Cir. 2017)
Panel: Chief Judge Prost and Circuit Judges Taranto and Hughes
Opinion by Circuit Judge Hughes
Integrated Technological Systems, Inc. v. First Internet Bank of Indiana (E.D. Tex.)

February 13, 2017

Business Method / Software Patent Invalidated for Claiming Ineligible Subject Matter

By Joseph Herndon —

In the U.S. District Court for the Eastern District of Texas, Integrated Technological Systems, Inc. (ITS) sued First Internet Bank of Indiana (FIB) of infringing four patents, U.S. Patent Nos. 7,912,786; 8,131,643; 8,321,347; and 8,620,809. FIB moved to dismiss the complaint for failure to state a claim, contending that the subject-matter claimed by the patents is not eligible for patenting under 35 U.S.C. § 101. The Court granted the motion, and found that the claimed automated business process for transferring money funds simply lacked enough detail to survive the challenge.

The Court followed the two-part subject matter eligibility (SME) test in which the Court first determines whether the claims at issue are directed to a patent ineligible concept, and if the claims are directed to an ineligible concept, the court then considers 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.

Step One

The patents-in-suit share a substantially similar specification. The summary of the invention in each patent describes the "primary objective" of the invention — "to provide a method and system for sending money transfers such as cash between a sender and a remotely located recipient without a pre-established relationship, such as an account link, between the parties." The concept to which the patents are directed is illustrated by an example in which the sender of funds first enters their account information "via an electronic input device . . . such as . . . a touch-tone telephone, a computer modem, an automated teller machine (ATM), and the like." The sender then authorizes a money transfer, funds are transferred to an "electronic escrow agent," and the funds are then forwarded to the recipient.

Each asserted claim is directed to this same concept. The claims differ to the extent they recite variations in how to implement the concept. The '786 patent claims, for example, recite a "computer machine system for transferring money funds." The computer system recited by the '643 patent claims, by contrast, is "adapted to being accessed by a communication medium device," such as a phone. Thus, the claims differ in the types of hardware and the means used to transfer the funds.

The Court noted that the patents do not describe the type or configuration of the hardware as inventive. To the contrary, the specifications state that the invention does not require special hardware since existing ATM terminals can easily be used with the invention. The specifications also explain that while the preferred embodiment describes using a touch-tone telephone to send the money transfer, other devices can be used, including personal computers connected to modems, the Internet, merchant card swipe machines, live telephone operators, P.O.S. (Point of Sale Terminals), and automated telephone operators.

Because each asserted claim is directed to the same concept, and because the claims only differ in the way in which the concept is implemented, the '786 patent claims were considered sufficiently representative of all the asserted claims for purposes of determining subject-matter eligibility. Claim 1 of the '786 patent recites:

1. An automated business process computer machine system for transferring money funds comprising:
    a computer system which receives, processes and transmits account information data in order to effect simultaneous money transfers from sending debit card accounts to receiving debit card accounts; and
    the computer system being adapted to being accessed by a human sender's communication medium device, wherein the computer system receives the account information data and transfer authorization data from the communication medium device, and processes and transmits the data in automated modes with data transmission language through transmission and electronic mediums, so that the computer system processes and effects a money transfer from a sending debit card account to a receiving debit card account without the necessity of a pre-established relationship between the sending debit card account and the receiving debit card account, and
    in which the computer system simultaneously repeats the computer system processes and, by the computer system, effects additional transfers between different sending debit card accounts and different receiving debit card accounts causing simultaneous money transfers from the different sending debit card accounts to the different receiving debit card accounts.

The Court considered the query to be whether the concept to which claim 1 is directed, i.e., the concept of transferring funds between accounts without a pre-established link between the accounts, is an abstract idea. ITS highlighted that the claims include a particular limitation that is novel — "without the necessity of a pre-established relationship between the sending debit card account and the receiving debit card account," as recited in claim 1 of the '786 patent.

Although it appears that this feature is novel and was the reason the Examiner allowed the claims over prior art, the Court noted that a novel abstract idea can still be an abstract idea.

While the concept of simultaneously transferring funds without the necessity of a pre-established link between accounts does not seem abstract, the term "abstract" in the context of § 101 law does not mean the same thing as it does in common parlance. Indeed, there is no definitive rule to determine what constitutes an "abstract idea," but rather, it is sufficient to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases.

The Court found that the patents-in-suit describe transferring funds through an "electronic escrow agent," and whether this concept is "fundamental" or not, it is impossible to distinguish it from other business methods found to be abstract in previous cases. The Court thus found step one to be satisfied, i.e., the claims are directed to an abstract idea, in a conclusory manner.

Step Two

The Court found that the claims recite nothing more than conventional computer activities or routine data-gathering steps. Although ITS insisted that claim construction is necessary before making this determination, the Court found that the patents themselves are sufficient to answer the question. The patents describe conventional media and components, such as personal computers, the Internet, cell phones, and ATMs, and expressly state that specialized hardware is not required.

Without any description in the patents themselves indicating special purpose hardware, or hardware configured in a new way, the patents were not able to survive the step two challenge. Since the claims broadly recite functions that can be performed by any generic computing device, no new inventive step was identified. As a result, the claims were found to be invalid under section 101.

Report and Recommendation by Magistrate Judge Roy S. Payne