September 25, 2015
By Lionel M. Lavenue; Shaton C. Menzie; Kara Specht
Authored by Lionel M. Lavenue, Shaton C. Menzie, and Kara A. Specht
The Supreme Court's landmark decision, Alice v. CLS Bank,1 established new requirements for subject matter eligibility under Section 101 of the Patent Act, 35 U.S.C. § 101, for patents involving abstract ideas. Since then, defendants have sought to quickly terminate patent litigations by addressing patentability at the very beginning of the case. To do so, they have increasingly used Rule 12 motions—such as a motion for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6)—to request that district courts consider questions of § 101 subject matter eligibility from the very beginning of a case—a technique achieving a very high degree of success.2
A new procedural mechanism, however, recently initiated by Judge Gilstrap in the U.S. District Court for the Eastern District of Texas, makes bringing § 101 subject-matter-eligibility challenges (generally known simply as "§ 101 challenges") before claim construction more difficult by requiring leave to file these motions. According to reports and interviews with Judge Gilstrap, his concern was the "ever-increasing" number of motions of this sort being filed, which indicates that filing § 101 motions may become standard procedure in every case. Consequently, this new screening procedure will serve as a gatekeeper of sorts, keeping out premature eligibility challenges, which may be more appropriate if brought after claim construction. According to the reports and interviews with Judge Gilstrap, preventing premature or overreaching validity challenges (and specifically § 101 challenges) with this new mandatory procedure may ultimately preserve judicial resources, as the court will not potentially waste time considering and ruling on motions not yet ripe for decision.
In the wake of the Supreme Court's decision in Alice, defendants accused of patent infringement have achieved increasing success in attacking certain patents before claim construction through dispositive motions based on § 101 subject matter eligibility. Litigants usually file these motions as a Rule 12(b)(6) failure to state a claim, a Rule 12(c) judgment on the pleadings, and/or a Rule 56 summary judgment ruling. Claim construction is generally not necessary prior to a ruling on these motions because courts simply adopt the patentee's proposed claim construction for the purpose of deciding § 101 subject matter eligibility. If successful, defendants, and the court, can dispose of the suits quickly, sometimes even faster than going through a covered business method (CBM) challenge under the new post-issuance review procedures enabled by the America Invents Act of 2011. Courts willing to consider these motions can also save judicial resources as well as litigation costs, avoiding expensive and lengthy claim construction, other early stage procedural motions like motions to stay or transfer, and often the bulk of discovery costs.
The filing of these motions before claim construction significantly increased after the Supreme Court handed down its decision in Alice. There the Court clarified that the § 101 framework outlined in Mayo,3 in which the Court invalidated the patent at issue as directed to an ineligible law of nature, also applies to all other judicially created categories of patent-ineligible subject matter under § 101—abstract ideas, laws of nature, and natural phenomena.4 Ultimately, the patent at issue in Alice, which claimed using a computer as a third-party intermediary to reduce settlement risk, was invalid because it was directed to an abstract idea.5 Simply implementing the abstract idea with a computer, the Supreme Court held, did not transform the idea into a patentable invention.6
After the Alice decision, the Supreme Court vacated the Federal Circuit's opinion in Ultramercial II, which had stated that "it will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter," and that the § 101 analysis, "while ultimately a legal determination, is rife with underlying factual issues."7 Then, on reconsideration, the Federal Circuit reversed itself and affirmed the district court's dismissal of the case under Rule 12(b)(6), finding the patent invalid for lack of patentable subject matter. Since then, the Federal Circuit has affirmed three other dismissals under Rule 12(b)(6) and one judgment on the pleadings under Rule 12(c), finding the patent invalid under § 101 before claim construction.8 This jurisprudence at the Federal Circuit ignited, not a spark, but a conflagration of Rule 12 motions.
Recently, however, Judge Gilstrap of the Eastern District of Texas, the judge with the busiest patent docket in the nation, added a new preliminary procedure. It requires that parties seek leave to file any dispositive Alice motions before claim construction. This procedure, outlined in a "Sample Docket Control Order," requires parties to show "good cause" before the court allows them to file early § 101 dispositive motions.9 To do so, the parties go through a letter-briefing process (a standard practice in the Eastern District of Texas with many different uses), in which the party seeking invalidation submits an opening letter brief of no more than five pages. Afterwards, the patentee has 14 days to answer in no more than five pages. The party seeking invalidation then has five days to file a three-page reply. No exhibits are permitted with any of the filings. Judge Gilstrap may then decide the issue based on the letter briefs, or he may hold a telephone conference, or he may hear oral argument before deciding to permit a complete § 101 motion. This new letter brief requirement applies even when a magistrate judge hears a case on behalf of Judge Gilstrap.
Despite inserting this procedural speed bump, Judge Gilstrap granted an early Alice motion in March 2015 in Clear with Computers v. Volvo Construction Equipment.10 So, Judge Gilstrap likely has an obtainable standard in mind for the "good cause" defendants must show to bring an early § 101 motion. But, the new letter brief policy will clearly minimize such motions, delaying the majority until after the court issues a claim construction order, from which litigants will then have two weeks to file § 101 motions (without using the letter briefing process). In part, this new policy may be because Judge Gilstrap finds that many § 101 questions contain underlying factual issues, which could benefit from claim construction and a more developed record. But, whatever the intent, the procedure will certainly result in moving the cases along more quickly towards claim construction and trial, rather than front-loading the threshold eligibility question.
For plaintiffs, and particularly those asserting patents that are not appropriate for a § 101 challenge, Judge Gilstrap's approach is a positive one. The Alice ruling, while giving defendants a clearer pathway to challenge patents covering patent-ineligible subject matter, has also resulted in inappropriate challenges, further burdening some already overburdened dockets. Therefore, in these circumstances, the letter briefing process gives the court a chance to consider (1) if patent at issue is the type that the Supreme Court meant to be addressed with its Alice ruling; and (2) if the asserted patent is one for which the record needs to be further developed for the court to make an informed ruling on subject matter eligibility.
For defendants, Judge Gilstrap's new approach poses some problems. Typically, the deferral of a § 101 challenge under Rule 12 could result in higher costs of litigation, especially when litigating against non-practicing entities, which often assert business-method patents more susceptible to a § 101 challenge and use discovery costs to drive settlement. For example, if a defendant knows that there is little hope of bringing a § 101 challenge early, then early settlement may result by rote, rather than initially trying for § 101 dismissal under Rule 12 or expending costs through claim construction or beyond. Also, without an easy route to a Rule 12 motion, a patent of questionable merit may live on unnecessarily—freely available for further litigation elsewhere.
Defendants must also worry about their general inability to obtain a stay in the Eastern District of Texas during the patent eligibility challenges. For example, in Advanced Marketing Systems v. CVS Pharmacy, Magistrate Judge Mitchell denied a motion for a stay, even though she also granted the letter brief request to file a § 101 dispositive motion.11 She reasoned that "[s]topping the forward progress of the case before the motion is even filed or considered is counterproductive."12 For accused infringers, situations like this mean that, even when defendants follow the proper procedures, they will have no way to avoid expensive and possibly needless discovery as the Rule 12 motion is considered. But the judges in the Eastern District of Texas typically decide issues on letter briefs quickly, assuaging this concern somewhat.
The Federal Circuit has not yet directly addressed the issue, but Federal Circuit Judge Mayer, in several concurring opinions, has urged early resolution, very clearly advocating for the use of Rule 12 motions to address § 101 challenges.13 Judge Mayer explained that, although district courts may determine the order in which they hear issues, "the public interest in eliminating defective patents is an even more important countervailing concern, which counsels strongly in favor of resolving subject matter eligibility at the threshold of litigation."14 Additionally, seeking early resolution of § 101 issues, Judge Mayer explains, conserves judicial resources and protects litigants from vexatious infringement suits.15 Judge Mayer even went so far as to compare Section 101 subject matter eligibility to the issue of federal subject matter jurisdiction, stating that "if claimed subject matter does not fall within the ambit of Section 101, any determination on validity or infringement constitutes an impermissible advisory opinion."16
Other patent-heavy districts, such as the Northern District of California and the District of Delaware, have tended to follow Judge Mayer's reasoning, hearing many § 101 motions well before claim construction. Incredibly, the Northern District of California has granted or partially granted 82 percent of the § 101 motions heard since Alice.17 And, similarly, the District of Delaware has granted or partially granted 90 percent of them.18 On the other end of the spectrum, the Eastern District of Texas has granted only 27 percent.19 This stark difference exemplifies the drastically different approaches to handling post-Alice § 101 motions around the country.
Thus, insulated by this new letter brief requirement for § 101 challenges, the Eastern District of Texas will continue to attract patent lawsuits, as plaintiffs seek to take advantage of the patentee-friendly rules in that forum. For although the new procedure is likely grounded in an interest to conserve judicial resources and produce more informed decisions, it will nonetheless serve as another hoop though which defendants must jump in Texas.
But, as nature abhors a vacuum, this rule change before Judge Gilstrap cannot be viewed myopically, because defendants still have other tools available. In deed, as the Federal Circuit has recently confirmed,20 as long as an asserted patent qualifies as a covered business method patent, defendants continue to have the powerful option of filing a petition with the Patent Trial and Appeal Board to challenge subject matter eligibility. And, currently, if a CBM petition is instituted, there is a 94.89 percent chance of success in completely cancelling the instituted claims.21 Moreover, if CBM review is instituted, even in the Eastern District of Texas, a stay is all but mandatory pending the CBM final written decision.22
But, if a patent does not qualify for CBM review, then the party's only options, in the Eastern District of Texas before Judge Gilstrap at least, are to seek inter partes review (with a lower chance of a stay of the district court case, where a stay is not basically guaranteed, as with a CBM petition) or sojourn through the new letter brief process of filing a § 101 motion, which probably may not be resolved until months into the case.
Endnotes
1 Alice Corp. Pty Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347, 2014 BL 170103, 110 U.S.P.Q.2d 1976 (2014) (88 PTCJ 513, 6/20/14).
2 After the decision in Alice, courts nationwide have seen a 400 percent increase in the number of motions filed and a 10 percent increase in grant of these motions. The Alice-Effect: An Empirical Study of Section 101 Motion Practice, Stephen A. Marshall, Mar. 9, 2015, available at http://www.fr.com/fishlitigation/the-alice-effect-an-empirical-study-of-section-101motion-practice/.
3 Mayo Collaborative Servs. v. Prometheus Labs. Inc., 132 S. Ct. 1289, 2012 BL 66018, 101 U.S.P.Q.2d 1961 (2012) (83 PTCJ 727, 3/23/12).
4 Alice, 134 S. Ct. at 2355.
5 Id. at 2357, 2360.
6 Id. at 2360.
7 Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 2013 BL 164761, 107 U.S.P.Q.2d 1193 (Fed. Cir. 2013) (86 PTCJ 455, 6/28/13).
8See Content Extraction & Transmission LLC v. Wells Fargo Bank, N.A., 776 F.3d 1343, 113 U.S.P.Q.2d 1354 (Fed. Cir. 2014) (89 PTCJ 523, 1/2/15); OIP Techs., Inc. v. Amazon-.com, Inc., 788 F.3d 1359, 115 U.S.P.Q.2d 1090 (Fed. Cir., 2015)(90 PTCJ 2386, 6/19/15); Internet Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 115 U.S.P.Q.2d 1414 (Fed. Cir. 2015)(90 PTCJ 2463, 6/26/15); buySAFE, Inc. v. Google, Inc., 765F.3d 1350, 1355, 2014 BL 242935, 112 U.S.P.Q.2d 1093 (Fed. Cir. 2014) (88 PTCJ 1180, 9/12/14).
9 See Sample Docket Control Order for Patent Cases Assigned to Judge Rodney Gilstrap and Judge Roy Payne.
10 Clear with Computers, LLC v. Volvo Construction Equipment North America, LLC, Order on Volvo's Motion to Dismiss, No. 6:14-cv-89 (E.D. Tex. Mar. 3, 2015) (holding that the challenged claims of the patent were in valid under § 101).
11 Advanced Marketing Systems, LLC v. CVS Pharmacy, Inc., No. 6:15-cv-134, Order Denying Stay (Aug. 19, 2015).
12 Id.
13See OIP Techs., Inc. v. Amazon.com, Inc., supra note 8 (Mayer, J., concurring); Ultramercial, LLC v. Hulu, LLC, 772 F.3d 709, 112 U.S.P.Q.2d 1750 (Fed. Cir. 2014) (89 PTCJ 166, 11/21/14) (Mayer, J., concurring) (Ultramercial III); I/P Engine, Inc. v. AOL, Inc., 576 Fed. Appx. 982, 2014 BL 226689 (Fed. Cir. 2014) (88 PTCJ 1044, 8/22/14) (Mayer, J., concurring).
14 Ultramercial III, 772 F.3d at 719 (Mayer, J., concurring)(internal citations omitted).
15 Id. at 718–19.
16 Id. at 718.
17 Deep Dive: Why We Need Venue Reform to Restore Fairness to Patent Litigation, Daniel Nazer, Electronic Frontier Foundation, Aug. 17, 2015.
18 Id.
19 Id.
20 Versata Dev. Grp., Inc. v. SAP Am., Inc., 793 F.3d 1306, 115 U.S.P.Q.2d 1681 (Fed. Cir. 2015) (90 PTCJ 2626, 7/17/15).
21 Daniel F. Klodowski, Claim and Case Disposition, AIABlog (Aug. 1, 2015).
22 VirtualAgility, Inc. v. Salesforce.com, Inc., 759 F.3d 1307, 111 U.S.P.Q.2d 1763 (Fed. Cir. July 10, 2014) (88 PTCJ 750, 7/18/14).
Reproduced with permission from BNA's Patent, Trademark & Copyright Journal, Vol. 90, No. 3292, 09/25/2015. Copyright © 2015 The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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