Two recent Federal Circuit decisions could undermine early Alice motions.
Zachary Silbersher
Anyone who has followed Federal Circuit cases addressing Alice decisions has felt the whip-saw brain squeeze of trying to reconcile them all. While some clear guidelines have emerged that have made assessing whether a given patent is susceptible to Alice, there remains a thick, gray cloud over how, exactly, the two-step framework applies in practice. Two recent decisions from the Federal Circuit, Berkheimer v. HP and Aatrix Software v. Green Shades Software, may have established some more concrete guidance on handling early Alice motions in patent cases.
Since the Supreme Court issued its Alice decision in 2014, the doctrine has been so deadly not just because it has successfully invalidated so many software patents. Patents have been routinely invalidated under obviousness and anticipation analysis for decades. Rather, the reason Alice made such a splash is because defendants could use it in early motions to dismiss the case. Those early motions, typically motions to dismiss under 12(b)(6) or motions for judgment on the pleadings under 12(c), occur before discovery. That means before document productions, experts, depositions and all the other stuff that typically makes litigation so expensive.
But all of those early dismissals under Alice were predicated on the presumption that no discovery is really necessary. Section 101 eligibility is a question of law, and therefore, over the past four years, judges look at a patent, and with nothing more than their own eyes and the defendant’s attorney argument, decided whether the patent is directed to eligible subject matter. The two recent Federal Circuit decisions, Berkheimer and Aatrix, potentially change that calculus. They both hold that certain questions underlying the Alice analysis are indeed factual questions. Because of that, early Alice motions may soon start failing if plaintiffs can show issues of fact exist, which require further discovery, and thus preclude an early decision under Alice.
This does not mean that patents will no longer be invalidated under Alice. Nor is this the first time that the Federal Circuit has signaled that discovery may actually be required to decide Alice motions. For instance, McRo v. Bandai Namco Games, and other cases, also suggested that discovery may be required to resolve factual issues that underlie the determination whether a patent is directed to eligible subject matter. But as we previously discussed, if showing that a patent is ineligible requires the same, if not more, discovery than showing it is obvious or anticipated, than that relegates Alice to the back of the case with all the other motions. At that point, the utility of Alice must be weighed against all the other equally expensive decisions, which dilutes its potency. In the end, Alice may just fade away.
In the first recent Federal Circuit case, Berkheimer v. HP, the patent is directed to a method of managing and archiving digital files. By parsing and tagging objects through a file system, the invention eliminates storage of redundant texts and graphics, and also permits a change made to one document to carry over to multiple documents. The Federal Circuit agreed with the lower court that the claims were direct to abstract concepts, including the abstract concepts of storing or editing.
But the Court disagreed with the lower court on step two. Turning to the second step of the Alice analysis, the Court held a patent directed to an abstract concept can nevertheless be patent-eligible if it contains an “inventive concept.” Exactly what constitutes an “inventive concept” has never been clear. Nevertheless, the Federal Circuit has held that “inventive concept” is satisfied when a claim element, or combination of elements, includes more than what was well-understood, routine or conventional in the art. Yet, in Berkheimer, the Court held that the answer to that question is a question of fact.
That is the important point. The Court confirmed that determining whether a patent is ineligible is question of law—i.e., on that can be determined by the Judge without recourse to a jury. While the ultimate determination of whether a patent is directed to ineligible subject matter is a question of law, that determination may rest on a factual question, i.e., whether the claims are directed to something that was neither well-understood, routine or conventional.
Questions of fact require evidence. Evidence must be collected through discovery. Discovery includes document requests, interrogatories, experts, depositions, and so forth. Most importantly, discovery sweeps in evidence, facts and tidbits that are neither in the complaint nor the patent. Since motions to dismiss cannot rely upon facts outside of the complaint or patent, then the Berkheimer decision illustrates—if not a bright line, then perhaps marginally illuminated one—when early motions to dismiss a patent case under a § 101 Alice motion will no longer work.
The Berkheimer case was not itself resolved on 12(b)(6) motion to dismiss, but rather on summary judgment. Yet, for the same reasons, Berkheimer illustrates why winning a § 101 Alice motion on summary judgment may be equally difficult. The lower court granted HP’s motion for summary judgment after finding that the patent was directed to computer functions that were well-understood, routine and convention. Yet, the Federal Circuit found that that was the lower court’s error. It determined that whether Berkheimer’s patent was directed to routine or convention computer functions was a question of fact, and because HP proffered no evidence to show this fact, it could not be entitled to summary judgment. Rather, the case would have to be remanded to collect further evidence, and potentially be put before a jury.
The Court in Berkheimer hinted at another nuance that may also make winning § 101 challenges more difficult. The Court noted that whether a claimed technology is directed to something well-understood, routine or conventional is not the same has whether that same technology existed in the prior art. In other words, it’s not the same as showing it was obvious. Rather, the Court stated, “[t]he mere fact that something is disclosed in a piece of prior art, for example, does not mean it was well-understood, routine, and conventional.” (Slip op. at 14). That suggests that showing a patent is ineligible under Alice may, in fact, require more evidence than a typical obviousness analysis. If so, that would greatly mitigate the utility of early Alice motions in dismissing patent cases.
In the second case, Aatrix Software v. Green Shades Software, the patents were directed to software for easily designing and creating forms that can be populated with third-party data. The lower court dismissed the case on a 12(b)(6) motion to dismiss. The court found that the patents were directed to abstract ideas of “collecting, organizing, and performing calculations on data to fill out forms,” which the court suggested could be performed with pen and paper. The court also found that the claims were not otherwise directed to an “inventive concept,” and were thus ineligible. Importantly, the lower court also denied Aatrix’s motion to file an amended complaint.
On appeal, the Federal Circuit found that Aatrix’s proposed amended complaint contained allegations that purportedly showed why its patents were not directed to computer functionality that was well-understood, routine or conventional. The Court found that, if taken as true, Aatrix’s amended complaint contradicts the lower court’s finding that the patents are directed to routine and conventional technology. The Court also found that Aatrix identified certain issues of claim construction that, if resolved in Aatrix’s favor, would also have contradicted the lower court’s finding that the patents were directed to routine and conventional technology. In sum, the Court vacated the early dismissal of Aatrix’s case, and remanded to the lower court to reconsider the 12(b)(6) motion in light of Aatrix’s amended allegations.
Similar to the Court in Berkheimer, the Aatrix Court also confirmed that, even though the § 101 question is one of law, the subsidiary question of whether the patents claim routine and conventional technology is itself a question of fact. If a patentee can show that question requires further discovery or resolution by a jury, then that is a pathway for plaintiff’s to avoid early dismissal of patent cases under § 101.
Together, Berkheimer and Aatrix show that prevailing on early Alice motions will be more difficult. Indeed, they arguably give plaintiffs a pathway for defeating these early motions. They underscore that defeating an Alice motion is not simply a matter within the four corners of the patent, but also what is alleged in the complaint. Going forward, plaintiffs fearful that their patents may be susceptible to an early Alice motion can preemptively defend themselves by bolstering the allegations in their complaint. If the complaint includes evidence and allegations that directly speaks to why the patents are not directed to technology that was well-understood, routine or conventional, those allegations should, in theory, open up factual questions. Open factual questions is a basis for courts to deny early motions to dismiss. Rather, Alice questions—like almost all other questions in patent law—will increasingly be decided before a jury.
One Judge on the Federal Circuit’s panel cautioned that the Aatrix decision may have given patent-plaintiffs an easy way to circumvent early Alice motions. Judge Reyna, who concurred in the ultimate result, nevertheless dissented in the extent to which the majority held that factual questions are part of the Alice analysis. Judge Reyna cautioned that patent-plaintiffs facing an early Alice motion can simply amend their complaint to allege facts bolstering their contention that their patents are not directed to routine or conventional technology. And those facts, according to Judge Reyna, would have to be taken as true “regardless of its consistency with the intrinsic record.” (Slip op., dissent, p. 2).
Judge Reyna’s cautionary statements appear, potentially, over-blown. Outside of patent cases, in typical commercial litigation, motions to dismiss under 12(b)(6) are a frequent tool used by defendants to short-circuit a case. There is extensive jurisprudence over what it means for facts to be assumed as true on a motion to dismiss, and to date, civil-litigation plaintiffs have hardly gained free reign to escape motions to dismiss simply by stuffing their complaints with facts and allegations inconsistent with the underlying contract. It is unlikely that the Federal Circuit will have reason to develop jurisprudence in this area where facts in a complaint will be taken as true on a motion to dismiss, even when they contradict the patent or prosecution history. In short, civil litigation outside of the patent context has proven that a motion-to-dismiss jurisprudence can be developed that balances out Judge Reyna’s concerns.
Moreover, since the Supreme Court issued Alice in 2014, one could argue that too many lower courts have treated the question whether the patented technology was well-understood, routine or conventional as one that can be decided without recourse to any extrinsic evidence. To many on the plaintiff’s side, that sort of question smacks of the type that would typically demand discovery and development of a record. Yet, to date, too many patents have fallen under the lower court’s dictate that this type of question can be decided through the filter of only attorney argument from the defendant.
If anything, Judge Reyna may be correct – patent-plaintiffs may be able to defeat more early motions under Alice if they can allege facts showing the patented technology was neither routine or conventional. That’s pretty much the way that most other things in litigation works. Rather than warranting moments of caution, Berkheimer and Aatrix may be finally catching up Alice with what is standard in general litigation.