By Michael Borella —

As 2015 drew to a close, the toll of the Alice Corp. v. CLS Bank Int'l decision on software and business method patents became apparent.  Post Alice, approximately 70% of all patents challenged under 35 U.S.C. § 101 have been invalidated in district courts, while the rate of § 101 rejections has exceeded 80% in some of the USPTO's art units where it was previously below 40%.  As a consequence, patentees have become increasingly concerned about whether key patents in their portfolios might be subject to an Alice challenge in litigation, as well as whether their new technologies are protectable.

In addition to limiting the scope of patentable subject matter in Alice, the Supreme Court, in Octane Fitness v. Icon Health and Fitness and Highmark Inc. v. Allcare Health Management Systems, has increased the number of situations in which 35 U.S.C. § 285 allows bad faith assertion of patent rights to expose a litigant to attorneys' fees.  Recently, these rulings came in play together in the Eastern District of Texas.

eDekka sued approximately 220 defendants, including 3balls, as allegedly infringing its U.S. Patent No. 6,266,674.  Claim 1 of the '674 patent recites:

1.  Method for storing information provided by a user which comprises:
    in response to user input, receiving and storing information;
    in response to user input, designating the information as data while the information is being received;
    in response to user input, designating at least a portion of the information as a label while the information is being received;
    in response to user input, traversing a data structure and providing an indication of a location in the data structure;
    in response to user input, storing the label at the location in the data structure; and
    associating the label with the data.

The Court described the patent as related to "storing and labeling information" and disclosing "a preferred embodiment that includes a cassette tape recorder with multiple buttons, a microphone, and a speaker."  eDekka targeted "online retailers that offer a shopping cart feature on their e-commerce websites" as alleged infringers.

A number of the defendants filed motions to dismiss under 35 U.S.C. § 101 on the grounds that the '674 patent did not meet the patent-eligibility requirements set forth by Alice.  The Court granted this motion, and the defendants followed up with another motion to make the case exceptional under 35 U.S.C. § 285.

Section 285, as interpreted in Octane Fitness, requires that an exceptional case "is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated."  Further, "[d]istrict courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances."  If the district court determines a case to be exceptional, then shifting of attorney's fees is appropriate if the moving party can establish so based on a preponderance of evidence.

The defendants took the position that "(1) eDekka's case was objectively unreasonable; and (2) eDekka litigated in an unreasonable manner."

With respect to the defendants' first point, the Court noted that "the '674 [p]atent is demonstrably weak on its face, despite the initial presumptions created when this patent was issued by the PTO."  Particularly, claim 1 refers to a data structure but does not limit this structure to one stored in or operated on a computer.  Given the claim's high-level definition of the invention, and its lack of any physical structure, the Court concluded that the "claims were clearly directed toward unpatentable subject matter, and no reasonable litigant could have reasonably expected success on the merits when defending against the numerous § 101 motions filed in this case."

But, eDekka argued that the claimed invention improves the functioning of technology by reducing "the time to retrieve information and the amount of information that must be retrieved" despite there being no basis in the claims for this notion.  eDekka also argued that the claims required a special purpose computer, even though there is no recitation of any sort of computer hardware in the claims, and only limited support for such in the specification.

The Court concluded that "eDekka repeatedly offered insupportable arguments on behalf of an obviously weak patent" and questioned whether eDekka thoroughly evaluated its claims against relevant law before initiating a large number of lawsuits.  Accordingly, the Court determined that these facts supported the case being held exceptional under § 285.

With respect to the defendants' second point, the Court found that eDekka's litigation history "reflects an aggressive strategy that avoids testing its case on the merits and instead aims for early settlements falling at or below the cost of defense."  For instance, just two days before the § 101 hearing, "counsel for eDekka contacted numerous defendants with offers to settle their cases for three-thousand dollars each."  Thus, the Court found "that it is reasonable to conclude that eDekka acted with the goal of exploiting the high cost to defend complex litigation to extract nuisance value settlement[s] from defendants."  This also weighed significantly toward the Court finding the case to be exceptional.

After considering the totality of circumstances, the Court held the case to be exceptional and awarded attorneys' fees to the defendants.  The Court did so reluctantly, stating that it did not wish to "unintentionally narrow the public's access to the courts by chilling future decisions to seek redress for a case in which success is not guaranteed," but that "the threshold of exceptionality has been crossed by eDekka."

As noted above, Alice has dramatically increased the likelihood that certain types of claims will be invalidated under § 101.  At first blush, this case might suggest that asserting such claims raises the specter of exceptionality challenges.  Perhaps, but eDekka also attempted to defend its claims with unfounded arguments while engaging in an aggressive litigation strategy.

Generic Software Claims Found Ineligible under § 101

By Joseph Herndon —

A common theme found in recent patent litigation is that software claims lacking detail are more likely to be found invalid under 35 U.S.C. § 101.

The U.S. District Court for the Western District of Washington at Seattle issued an opinion on December 15, 2015 in a case captioned Recognicorp, LLC v. Nintendo Co. Ltd., et al. (case no. C12-1873RAJ) regarding patent eligibility under 35 U.S.C. § 101 of software claims.  Ultimately, the District Court found that the patent claims are ineligible under § 101.

Through a number of assignments, Recognicorp is the current assignee of U.S. Patent No. 8,005,303 (the '303 Patent), entitled "Method And Apparatus For Encoding/Decoding Image Data".  Recognicorp alleged that Nintendo infringed the '303 Patent by selling composite image customization products, including "software included on the Nintendo Wii to create and customize a facial (or other) feature of a Mii."

In the Nintendo gaming architecture, a Mii is a free-form digital avatar used in Nintendo's Wii gaming consoles, and allows users to develop a likeness of themselves, other people, or invented characters.  After creating a Mii using the Mii Channel on a Wii or the Mii Maker application on a Nintendo 3DS or Wii U, Mii's can be used as playable characters in various titles for each of the named consoles.

The '303 Patent discloses a "method and an apparatus for encoding images" and explains that "[i]t is known in the art to create images on the basis of components that are assembled to form a complete image," such as by using "[p]aper strips containing exemplary features" or by using "a program element running on a computing platform which allows a user to select individual components and combining them on a pre-selected face."  In so "constructing an image, pictorial entities are selected from a library of entities as assembled into images," storage of which may require "significant amounts of memory."  As a result, the '303 Patent explains that "there exists a need in the industry to refine the process of encoding images such as to reduce the memory requirements for storage and the bandwidth required for the transmission of the image."

Figure 1 of the patent is reproduced below that illustrates a process flow diagram of the method of claim 1.

Claim 1 is provided below:

1.    A method for creating a composite image, comprising:
    displaying facial feature images on a first area of a first display via a first device associated with the first display, wherein the facial feature images are associated with facial feature element codes;
    selecting a facial feature image from the first area of the first display via a user interface associated with the first device, wherein the first device incorporates the selected facial feature image into a composite image on a second area of the first display, wherein the composite image is associated with a composite facial image code having at least a facial feature element code and wherein the composite facial image code is derived by performing at least one multiplication operation on a facial code using one or more code factors as input parameters to the multiplication operation; and
    reproducing the composite image on a second display based on the composite facial image code.

The District Court noted the Supreme Court's two-part test to analyze claims for patent-eligibility.  First, courts must determine whether the claims at issue are directed to one of those patent-ineligible concepts, and if so, then secondly courts must examine what else is there in the claims before them by considering "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'".

The second part has been characterized as searching for an "inventive concept" — i.e., an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.

Is the '303 Patent Directed to A Patent Ineligible Concept?

The District Court noted that in essence, the steps claimed in the '303 Patent boil down to: (1) displaying potential input variables (the facial features and their modifications), (2) selecting and manipulating the inputs, (3) deriving an output code by performing a "multiplication operation" on the inputs, and (4) outputting the original inputs on another device by performing the sequence in reverse on another device.

The District Court further summarized the '303 Patent by stating that, in other words, the '303 Patent utilizes a "paint by numbers" approach to creating, encoding, and decoding composite facial images.  This reasoning was used to conclude that the steps of the patent are directed to the abstract idea of encoding and decoding composite facial images using a mathematical formula.

The District Court cited to other decisions and noted that such other courts have found that encoding and decoding data is a "fundamental concept" — or put another way, an abstract idea.

The District Court separately noted that processes that can be performed entirely in the human mind or with pen and paper are not patentable, and even without construing the claims to determine the precise parameters of the encoding scheme, the District Court noted that the specific image encoding process likely can be performed entirely within the human mind or with pen and paper.  So long as the individual is provided the specific input variables — here, the facial feature element codes and code factors — she can apply the "multiplication operation" on the facial code until she can derive a composite image code.  When another individual is provided this same composite facial image code, he could perform the multiplication operation backward to derive the same composite image.

This allegation by the District Court, that the claim can be performed entirely in the human mind, is troublesome since it ignores the first clause "displaying facial feature images on a first area of a first display via a first device associated with the first display," which cannot be performed in the human mind and necessarily requires computer technology.  Nonetheless, seeing as this first step is likely considered insignificant extra-solution activity, the outcome of patent ineligibility is unlikely to be changed despite this possible flawed "separate" reasoning.

The District Court rounded out the analysis by rejecting the argument that the claims are necessarily rooted in computer technology, an attempt to save them from invalidity under section 101, by stating that the claims merely require reproducing the image on a different device or generically "transmitting" the image code.  Transmission may be completed "either verbally or through electronic communication means" (also providing that the "data transmission medium" can be through "any other communication medium suitable for the transfer of data").

In other words, the '303 Patent does not solve a problem created by or specifically arising in a particular technological environment as it can be applied to many technological environments.

Does the '303 Patent Describe an Inventive Concept?

Here, the District Court noted that there is little doubt that the claimed steps for generating a composite facial image — namely selecting, manipulating, and incorporating facial features into a composite image — are purely conventional.  The '303 Patent's specification itself discloses that these very methods for creating composite facial images were well established in the prior art.

The other claimed steps were considered obvious in the field.  Generating a composite facial image necessarily requires a degree of customization based on manipulating the essential elements of a face.  But, again, the '303 Patent itself acknowledges common techniques for creating composite facial images involved dividing the image of a face into constituent features and then selecting and combining features to create the image from a given library of features.

The District Court did away with the final step of reproducing a previously generated facial image as being obvious as well by assuming that there was no other use for it — "why create a customized face if not to recreate it?"  Here, lack of description of alternative use cases in the specification probably did not help.

The Defendant argued that the encoding scheme and algorithm provide the "inventive concept" needed to render the claims patent-eligible.  But, the '303 Patent itself acknowledged that constructing composite images based on selected individual features was well known in the art.

Since the '303 Patent's claimed methods and systems do not improve the function of a computer nor do they improve upon methods of creating composite images, the innovation claimed by the '303 Patent is merely a more efficient manner of encoding composite facial image data by using a generic computer.

The District Court concluded that the '303 Patent failed both prongs of the Alice test.

The "Machine or Transformation" Test

As an alternative, the District Court additionally analyzed the claims under the "Machine or Transformation" test, in which a method claim may be patentable if (1) it is tied to a particular machine or apparatus or (2) it transforms a particular article into a different state or thing.  The discussion was short, however, with the District Court simply noting that the mere manipulation or reorganization of data does not satisfy the transformation prong and the machine prong was not considered.

Looking over the '303 Patent, it appears that the patent is well-written with sufficient detail, however, the claims failed to incorporate necessary detail to survive § 101.  Because the claims are broad, the description of prior art or known concepts in the patent itself worked against any arguments alleging that the claims describe an inventive concept.

Novel aspects of claim 1 are within wherein clauses of the "selecting" limitation, and using wherein clauses to recite such aspects can be a problem itself since such clauses can be considered to recite optional material (MPEP § 2111.04).  Further, those novel aspects are recited generically, such as "incorporates the selected facial feature image into a composite image on a second area of the first display," "associated with a composite facial image code having at least a facial feature element code," and "derived by performing at least one multiplication operation on a facial code".  Details for how any of these functions are performed likely would improve the prospects of the claim surviving § 101.

If a broad independent claim is desired, perhaps usage of dependent claims as fallback positions to recite the details can be helpful if the patent is ever intended to be asserted in court.