Can a Patent be Both Abstract and Not-abstract: How Much Does the Factual Record Matter in Determining Questions of Patentable Subject Matter?

Mar 30, 2017

When a patent is challenged on subject matter eligibility grounds in an American Invents Act covered business method (CBM) review it is usually a good prediction that the subject patent is soon to be found invalid. However, two recent and related Patent Trial and Appeal Board (PTAB) decisions deviated from this trend. Whether these recent decisions indicate a coming shift toward the patent owner at the PTAB on the issue of subject matter eligibility or are just outlier decisions based on the PTAB’s desire to not directly contradict the Federal Circuit is a question still to be answered. However, due to these decisions, the Federal Circuit may soon need to weigh in on whether the PTAB or a district court can find a patent invalid for ineligible subject matter when a different district court or even the Federal Circuit has already found the same patent contains patent eligible subject matter. Answering this question may impact whether defendants and petitioners place significantly more emphasis on developing the factual record in making subject matter eligibility challenges.

Two patents owned by Trading Technologies International, Inc. were subject to CBM reviews instituted, in part, on grounds that the patents were directed to abstract ideas and thus ineligible subject matter under the U.S. Supreme Court’s Alice ruling. (CBM2015-0179 and CBM2015-0182). However, on January 18, 2017, one month before the PTAB issued final written decisions, the Federal Circuit held that a district court correctly found both of these patents contained patentable subject matter. Trading Tech. Int’l v. CQG, Inc., 2016-1616. In relying almost exclusively on the Federal Circuit’s decision, the PTAB reversed its initial determination and issued final written decisions finding that both patents were not directed to abstract ideas and contained patent eligible subject matter.

In an uncommon event, both PTAB decisions contained a dissent, and a lengthy one at that. While the majority discusses the patent eligibility issue over three pages, the substantive analysis of the issue is resolved in four sentences relying solely on the Federal Circuit’s handling of the issue:

The Federal Circuit has already decided that the claims at issue before us are not directed to an abstract idea. Trading Techs., 2017 WL 192716 at *4. Petitioner provides no persuasive reason for us to ignore that guidance, particularly with respect to whether the claims are directed to an abstract idea. See, e.g., Pet. Br. 3–5. For example, Petitioner offers no persuasive explanation as to why its characterization of the alleged abstract idea would affect the Federal Circuit’s determination that the claims are not directed to an abstract idea. See id. at 5. We also are not apprised of a persuasive reason to arrive at a different outcome with respect to whether the claims are directed to an abstract idea based on the differences between the record before us and that before the Federal Circuit alleged by Petitioner. See id. at 3–5.

In contrast, the dissent, written by the same author as the decisions to institute the CBM proceedings, analyzes the patent eligibility issue over 19 pages. The dissent explains why the patents should be found invalid even in light of the Federal Circuit’s handling of the exact same issue. In short, the dissent argues that patent eligibility is a question of law based on underlying facts. Therefore, while the Federal Circuit upheld a district court’s ruling that the graphical user interface system of the patents is not an idea that has long existed, the record before the PTAB in the CBM proceedings was different. The record before the PTAB had compelling evidence that the graphical user interface system was based on routine and conventional elements. This record included an expert declaration as well as various prior art that was not before the district court. Moreover, as the petitioner in the CBM proceedings was not a party to the Federal Circuit appeal, it should be entitled to submit and be heard on different arguments and evidence. Finally, as the Federal Circuit designated its decision as non-precedential, the dissent argues that it leaves open the possibility that the Federal Circuit would reach a different result based on a different record.

Both the Federal Circuit decision and the PTAB final written decisions are headed back to the Federal Circuit. The Federal Circuit’s decision is subject to a petition for en banc rehearing, citing the lengthy dissents in the CBM proceedings. Pursuant to a request by the Federal Circuit, Trading Technologies responded to the request for en banc rehearing on March 20, 2017. In addition to substantively explaining why the Federal Circuit’s decision was well-reasoned and in line with precedent, Trading Technologies has also argued that the issues raised by the dissents will be addressed by the Federal Circuit through the appeals of the PTAB final written decisions, which have already been separately docketed. No decision on the petition for en banc rehearing has been made yet.

The Federal Circuit will be given the opportunity to address the issues raised by the dissents through either or both the en banc rehearing of the district court decision or through the appeal of the PTAB final written decisions. While the Federal Circuit may be able to avoid the issues raised by the dissent (through finding the patents not directed to an abstract idea even in light of the record before the PTAB), the Federal Circuit may have to confront two as yet undecided issues. First, is subject matter eligibility a pure question of law or a question of law based on underlying facts? If it is a question of law, it is subject to de novo review, no deference is given to the district court or PTAB, and the factual record should be largely irrelevant. If it is a mixed question, then some level of deference should be given to the district court or PTAB and the factual record may be highly relevant. Second, if it is a mixed question, can the same claims of the same patent be found valid (eligible subject matter) by one district court and simultaneously be found invalid (ineligible subject matter) by either another district court or the PTAB based on different records? Currently, many subject matter eligibility challenges are made as a motion to dismiss or a motion for judgment on the pleadings with little reliance on a developed factual record. If the Federal Circuit answers both questions in the affirmative (regardless of whether the Trading Technologies patents are found to be abstract or not), both future defendants and petitioners are likely to place a significantly greater emphasis in developing the factual record in subject matter eligibility challenges. Moreover, while there has been a growing emphasis on deciding questions of subject matter eligibility early in litigation, Patent Owners may point to this need for a factual record as yet a further reason for Courts to deny such early motions.

Jason J. Keener HeadshotThis article was written by Jason J. Keener who is the Chair of the Intellectual Property Group at Fox Swibel Levin & Carroll LLP. He can be reached at jkeener@foxswibel.com.

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