11 Step Computer Method Patent Defines Patent Eligible Subject Matter

The Federal Circuit Court of Appeals (“Federal Circuit”) reversed the trial court’s decision that the process – a computer method claim – was not statutory subject matter under 35 U.S.C. § 101. Ultramercial, LLC v. Hulu, LLC, Case No. 2010-1544 (Fed. Cir. Sept. 15, 2011) (available here). The 11 step computer program method patent claim was held to be a machine under the “machine or transformation” (MOT) test. Earlier, the District Court had dismissed the patent owner’s case without formally construing the 11 elements in the method patent claim and this failure to properly construe the claim elements in a Markman ruling was a factor in the reversal.

“This court has never set forth a bright line rule requiring district courts to construe claims before determining subject matter eligibility. Indeed, because eligibility is a ‘coarse’ gauge of the suitability of broad subject matter categories for patent protection, Research Corp. Techs., Inc. v. Microsoft Corp., 627 F.3d 859, 869 (Fed. Cir. 2010), claim construction may not always be necessary for a § 101 analysis. See, e.g., Bilski v. Kappos, 130 S. Ct. 3218, 3231 (2010) (finding subject matter ineligible for patent protection without claim construction).” Slip opn. p. 5.

The § 101 subject matter eligibility analysis is merely a threshold check. Claim patentability ultimately depends on “the statutory conditions the patent statute such as novelty, nonobviousness, and adequate disclosure.” See Ultramercial, p. 6; Classen Immunotherapies, Inc. v. Biogen IDEC, Nos. 2006-1634, 2006-1649, 2011 WL 3835409, at *6 (Fed. Cir. Aug. 31, 2011) (pointing out the difference between “the threshold inquiry of patent-eligibility, and the substantive conditions of patentability”).

Per the Federal Circuit, the claimed invention in this case was a method for monetizing and distributing copyrighted products over the Internet. “As a method, it satisfies § 100’s definition of ‘process’ and thus falls within a § 101 category of patent-eligible subject matter. Thus, this court focuses its inquiry on the abstractness of the subject matter claimed by the ’545 patent.” p. 9.

“‘[I]nventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act.’ Research Corp., 627 F.3d at 869. The ’545 patent [in suit] seeks to remedy problems with prior art banner advertising, such as declining clickthrough rates, by introducing a method of product distribution that forces consumers to view and possibly even interact with advertisements before permitting access to the desired media product. By its terms, the claimed invention purports to improve existing technology in the marketplace. By its terms, the claimed invention invokes computers and applications of computer technology.” P. 9-10 (emphasis added).

The ’545 patent claims a particular method for monetizing copyrighted products, consisting of the following steps: (1) receiving media products from a copyright holder, (2) selecting an advertisement to be associated with each media product, (3) providing said media products for sale on an Internet website, (4) restricting general public access to the media products, (5) offering free access to said media products on the condition that the consumer view the advertising, (6) receiving a request from a consumer to view the advertising, (7) facilitating the display of advertising and any required interaction with the advertising, (8) allowing the consumer access to the associated media product after such display and interaction, if any, (9) recording this transaction in an activity log, and (10) receiving payment from the advertiser. ’545 patent col.8 ll.5-48. Many of these steps are likely to require intricate and complex computer programming. In addition, certain of these steps clearly require specific application to the Internet and a cyber-market environment.

In conclusion, the many claim elements, which constitute the claimed process restrictions of: viewing, restricting, limiting access, displaying and processing payments, satisfy the “machine” portion of the “machine or transformation” (MOT) test.

Mixing Function and Apparatus Elements in a Patent Claim Creates Invalid Claim

The Court of Appeals for the Federal Circuit affirmed a summary judgment for invalidity due to indefiniteness under Section 112 ¶ 2 because patentee’s apparatus claim included a method step. Rembrandt Data Tech. LP v. AOL, LLC, Case No. 2010-1002 (Fed. Cir. April 18, 2011) (available here).

Patentee Rembrandt’s apparatus claim covered a data transmitting device or modem using a data processing algorithm but the apparatus claim ended with an element “transmitting the trellis encoded frames” which did not include the Section 112 ¶ 6 prefatory “means for” language. Rembrandt argued that the court should amend or construe the “transmitting” claim limitation to be a “transmitter section for” which, if approved, would bring the claim limitation within the scope of the statutory “means plus function” provisions of 35 U.S.C. § 112 ¶ 6. The Federal Circuit, in affirming the trial court’s finding of invalidity due to claim indefiniteness under § 112, rejected Rembrandt’s claim revision argument and “held that ‘reciting both an apparatus and a method of using that apparatus renders a claim indefinite under Section 112, paragraph 2.’” Rembrandt, slip opn. pg. 15, citing IPXL Holdings, L.L.C. v. Amazon.com, Inc., 430 F.3d 1377, 1384 (Fed. Cir. 2005) and Ex parte Lyell, 17 U.S.P.Q.2d 1548 (B.P.A.I. 1990).

The Patent Statute permits a patentee to use “functional method” language in an apparatus or system claim to cover structural items performing the function if those items are adequately described in the patent specification. “An element in a claim for a combination may be expressed as a means or step for performing a specified function without the recital of structure, material, or acts in support thereof, and such claim shall be construed to cover the corresponding structure, material, or acts described in the specification and equivalents thereof.” 35 U.S.C. § 112 ¶ 6.

In general, Rembrandt’s claim covered a modem. A modem is “a communications device that enables a computer to transmit information over a standard telephone line.” The ’236 patent, entitled “Fractional Rate Modem with Trellis,” describes a modem utilizing both the “fractional rate encoding” technique for more rapidly transferring data and the “trellis encoding” technique for reducing errors in data transmission. (patent available here).

The Court’s attention was directed to claim 3. The first four elements of claim 3 of the ’236 patent recite apparatus elements: buffer means, fractional encoding means, second buffer means, and trellis encoding means. The final element is a method: “transmitting the trellis encoded frames.” Claim 3 of the ’236 patent reads:

3. A data transmitting device for transmitting signals corresponding to an incoming stream of bits, comprising: first buffer means for partitioning said stream into frames of unequal number of bits and for separating the bits of each frame into a first group and a second group of bits; fractional encoding means for receiving the first group of bits of each frame and performing fractional encoding to generate a group of fractionally encoded bits; second buffer means for combining said second group of bits with said group of fractionally encoded bits to form frames of equal number of bits; trellis encoding means for trellis encoding the frames from said second buffer means; and transmitting the trellis encoded frames.

’236 patent col.6 ll.1-24, (emphasis added).

2011 Patent Law Reform – The Leahy-Smith America Invents Act

The Patent Statute, 35 U.S.C. sec. 100, will soon be amended by Presidential approval of the recently passed 2011 Leahy-Smith America Invents Act, H.R. 1249 (available here). Several sections of the America Invents Act (“AIA”) are effective one year after the President signs the bill but of note are portions of the AIA which become effective immediately upon signing. Immediate implementation of the best mode requirements in Section 112, false patent marking Section 287, reexamination, taxes, and fees are key portions of the legislation. Most dramatically, the AIA changes the U.S. patent system to a “first to file” system, similar to most foreign systems, and abandons the “first to invent” statutory concepts which dominated U.S. practice for decades. The first to file system is effective in one year.

Effective Upon Signing:

Best mode: Section 282 of the current Patent Statute lists, as an enumerated defense, a failure to disclose “the best mode contemplated by the inventor of carrying out his invention.” Effectively immediately, Section 15 of the AIA amends 35 U.S.C. 282 by eliminating this failure to disclose defense (“the best mode contemplated by the inventor”). However, the same condition for patentability remains in Section 112. Therefore, the significance of this change is uncertain. The AIA does not eliminate the Section 112 “best mode contemplated” requirement for patents.

False Patent Marking – Virtual Marking: Section 16 of the AIA amends the patent marking provision at Section 287. Patentees may virtually mark their products “by fixing … [on the product or label] the word ‘patent’ or the abbreviation ‘pat.’ together with an address of a posting on the Internet, accessible to the public without charge for accessing the address, that associates the patented article with the number of the patent.” Of significance to many pending lawsuits is that False Marking actions may now only be brought by the Federal Government or competitors who suffered competitive injury. The AIA states: ‘‘(b) A person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.’’ Qui tam actions and the assessment of a civil penalty shared with the government are abolished as of the date of the enactment. The cottage industry for false marking claims has effectively ended.

Patent Term Extension: Section 37 of the AIA amends provisions for patent term extension of FDA commercial marketing or use permits. See 35 U.S.C. 156(d)(1).

Tax Strategies: A new provision in the AIA explicitly excludes certain inventions form patent protection. The legislation states that any strategy for reducing, avoiding, or deferring tax liability, whether known or unknown at the time of invention or the filing of a patent application, “shall be deemed insufficient to differentiate a claimed invention from the prior art.” AIA, Section 14. The provision expressly excludes tax preparation inventions. All pending patent applications and all patents issued on or after the date of enactment are subject to AIA Section 14.

Human Organisms: AIA Section 33 states that “no patent may issue on a claim directed to or encompassing a human organism.” This provision applies to all any pending patent applications.

Katz Litigates 1,975 Patent Claims Against 165 Defendants

Patent litigation is complex but Ronald Katz’s multi-district litigation against 165 defendants establishes a new high water mark in the intellectual property field.  In re Katz Interactive Call Processing Patent Litig., Case No. 2009-1450 (Fed. Cir. Feb. 18, 2011)(available here).  Katz appealed a final judgement from the U.S. District Court for Central California which held numerous claims in Katz’s portfolio invalid or not infringed.

Katz owns a number of patents on interactive call processing systems and call conferencing systems. The 14 patents that Katz asserts in the appeal to the Federal Circuit (the patent appeals court) all relate to interactive call processing systems. The patents fall into four groups; the patents in each group share a common specification. The first group of patents, the “Statistical Interface” group, covers a telephonic interface system for acquiring data from a large group of callers and using that data to identify some subset of the group.  The second group of patents, the “Conditional Interface Plus” group, covers “a telephonic-computer interface system.” The third group of patents, the “Dual Call Mode” group, covers a telephone call processing system for receiving and processing calls relating to a game or contest format.  The last patent, U.S. Patent No. 6,335,965 (“the ’965 patent”), the “Voice-Data” patent, claims a telephone-computer interface system that is designed to receive and identify both digital signals and voice signals from callers.

Katz asserted a total of 1,975 claims from 31 patents against 165 defendants.  The District Court sorted out the defendants into 50 groups of related corporate entities.  The District Court also ordered Katz to select no more than 40 claims per defendant group and to narrow this selection to 16 claims per defendant group after discovery.

“The court further directed that the total number of claims to be asserted against all defendants could not exceed 64 (eight claims for each unique specification including four specifications not at issue in this appeal). However, the court added a proviso that the limitations on the numbers of claims were not immutable. The proviso permitted Katz to add new claims if they ‘raise[d] issues of infringement/validity that [were] not duplicative’ of previously selected claims. Katz added new claims to exceed a total of 64 across all the actions, but the number of claims did not exceed 16 per defendant group.”  Slip Opn. 7.

Katz then moved to sever the non-selected claims and argued that his rights to due process under the law relative to the non-selected claims were violated.  The District Court denied the motion.  The defendants then jointly moved for summary judgment on the issues of anticipation, obviousness, written description, and indefiniteness. In response, the District Court held all the claims selected against defendants to be either invalid or not infringed by the accused devices. The trial court then entered final judgments in favor of defendants.

“The district court granted summary judgment of indefiniteness as to a number of the asserted claims under two different theories. With respect to certain claims that were drafted in the means-plus-function format prescribed by 35 U.S.C. § 112 ¶ 6, the [district] court concluded that the claims were invalid for indefiniteness because the only corresponding structure disclosed in the specification was a general purpose computer and the specification did not disclose an algorithm by which the general purpose computer performed the recited function. We affirm that ruling in part, vacate it in part, and remand for further proceedings. The district court also invalidated several claims as indefinite for claiming both an apparatus and a method of using that apparatus. We affirm that ruling.”  Slip Opn. 15-16.  With respect to the “§ 112 ¶ 6 – indefinite because only a general purpose computer was disclosed,” the Federal Circuit cited WMS Gaming, Inc. v. International Game Technology, 184 F.3d 1339 (Fed. Cir. 1999); Aristocrat Technologies Australia Pty Ltd v. International Game Technology, 521 F.3d 1328 (Fed. Cir. 2008); and Harris Corp. v. Ericsson Inc., 417 F.3d 1241 (Fed. Cir. 2005).

The Federal Circuit construed Net MoneyIN, Inc. v. VeriSign, Inc., 545 F.3d 1359 (Fed. Cir. 2008)(see earlier blog on this case) which addressed that same § 112 ¶ 6 issue, holding that NetMoneyIn’s claims were invalid.  “The only recited structure for performing that function [in NetMoneyIn] was a ‘bank computer.’ The patentee [therein] contended that the recited structure was sufficient because a person of ordinary skill in the art would understand that a bank computer compares account data and transaction amount data to determine if credit is available. This court rejected that argument on the ground that the specification did not disclose an algorithm to perform the specified function, even though a person of ordinary skill in the art might have been able to devise one.”  Slip Opn. 21-22.  The lesson for practitioners is: no recited algorithm, no valid means-plus-function patent claim.

As for the “indefinite because claim recites apparatus and method of use,” the Federal Circuit stated: “The district court held that Statistical Interface claims … are indefinite under IPXL Holdings, L.L.C. v. Amazon.com, Inc., 430 F.3d 1377, 1384 (Fed. Cir. 2005), because they claim both an apparatus and a method of use. In IPXL, this court addressed a claim that covered a system with ‘an input means’ and required a user to use the input means. This court held that the claim was indefinite because it was unclear ‘whether infringement . . . occurs when one creates a system that allows the user [to use the input means], or whether infringement occurs when the user actually uses the input means.’” Slip Opn. 24.  “Like the language used in the claim at issue in IPXL (‘wherein . . . the user uses’), the language used in Katz’s claims (‘wherein . . . callers digitally enter data’ and ‘wherein . . . callers provide . . . data’) is directed to user actions, not system capabilities.”  Id. “Katz’s claims, however, create confusion as to when direct infringement occurs because they are directed both to systems and to actions performed by ‘individual callers.’ Katz’s claims therefore fall squarely within the rationale of IPXL and are indefinite.”  Slip Opn. 25.

Other Katz claims were invalidated because his specification did not explain claimed functions and structures.  Other claims were invalidated in light of prior art.

Ultimately, the Court affirmed some rulings by the District Court, reversed others and remanded the case back to the lower court.  It seems Katz lives to fight another day on his “1,975 Patent Claims versus 165 Defendants,” at least to some degree.