September/October 2015
IP Litigator
By Brandon S. Bludau; Elliot C. Cook; Darren M. Jiron
Authored by Brandon S. Bludau, Elliot C. Cook, and Darren M. Jiron
District court rulings on Section 101 motions regularly make headlines. While each decision deserves individualized attention, broader emerging trends also are important for patent litigators to understand. These trends, which illustrate how Section 101 is being applied in practice by district courts, can be spotted through review of the decisions in the aggregate.
Since the Supreme Court's Alice1 decision on June 19, 2014, through August 10, 2015, district courts have issued 104 decisions on Section 101 motions. The motions include early dispositive motions (under Federal Rules of Civil Procedure Rule 12(b)(6) and Rule 12(c)) as well as summary judgment motions. Several big-picture conclusions can be drawn from the decisions on these motions. For example, the number of district court decisions applying Section 101 is increasing, but not as dramatically as some may think. The win rate on these motions (68 percent) is relatively high, although this may be due in part to litigants challenging patents vulnerable to Section 101 attacks (e.g., certain financial services or business method patents). For accused infringers seeking to mount a Section 101 challenge, certain jurisdictions are generally favorable for such challenges (e.g., the District of Delaware and the Northern District of California). For patentees seeking to thwart a Section 101 attack, the Eastern District of Texas is by far the most favorable jurisdiction. These conclusions and their relationship to the underlying data are discussed below.
The heightened emphasis on Section 101 in patent litigation, following Alice, has led to a perception that Section 101 motions are becoming more prevalent. This perception rings true to many patent litigators, given that the cost of preparing such a motion often is less than that of other dispositive motions (e.g., summary judgment motions addressing validity or infringement). Further, because some courts have been receptive to early dispositive motions based on Section 101, that is, Rule 12(b)(6) or Rule 12(c) motions filed before claim construction or significant fact discovery, they can offer an effective way to potentially end a case without incurring significant litigation costs. Nevertheless, as the data indicate, while there has been an increase in decisions on Section 101 motions after Alice, the increase has not been as dramatic as some may think. Exhibit 1 shows the number of motions decided per month, from July 1, 2014 (shortly after Alice issued) until the end of July 2015. The data include decisions on both summary judgment motions and early dispositive motions. Motions granted, or granted in part (i.e., finding at least some claims invalid) are shown in gray, and complete denials are shown in black. While the frequency of both types of decisions has risen during this period, and is currently trending upward for both types, the trend lines have been irregular over time. Interestingly, the grant rate and denial rate generally rise and fall together.
Another common perception among patent litigators is that courts are becoming more inclined to invalidate claims under
Section 101. This belief may arise in part from the nature of news reports in the legal industry, which are more likely to focus on case-dispositive events (e.g., grants of Section 101 motions) than other events that affect a case but do not resolve it (e.g., denials of such motions). Further, this perception may be driven by the fact that the number of Section 101 decisions has increased over the past year.
As Exhibit 2 indicates, win rates on Section 101 motions are relatively high, at 68 percent overall. This is based on both summary judgment and early dispositive motion decisions. The "denied without prejudice" category includes decisions in which the court declined to rule on the merits of the motion—often because claim construction or certain discovery (e.g., expert discovery) had not yet occurred. This category includes decisions on both summary judgment and early dispositive motions, although most have been early dispositive motions.
The relatively high win rate on Section 101 motions may be elevated by the fact that patent litigators are challenging patents that are more vulnerable to Section 101 attacks than other patents. Indeed, most of the patents found invalid in these decisions have related to financial services or business methods. Examples include patents for providing notifications related to financial transactions,2 remotely supervising
pharmacy functions,3 processing financial quotes between buyers and sellers,4 anonymous loan shopping,5 techniques for negotiating product or service upgrades,6 automatically determining automobile loan and lease payments,7 depositing pennies into a savings account based on rounding up financial transaction amounts,8 converting loyalty award credits from one vendor to another,9 and reducing interest payments on a mortgage.10
It is important to note that patents in various other fields, including many software-based patents, were upheld by courts. Examples of patents that survived Section 101 challenges include those directed to sorting and displaying data objects using query dialog boxes,11 software for remotely controlling moveable barriers,12 controlling access to digital content on a data carrier using distinct memories, data types, and use rules,13 techniques for encoding and decoding data,14 remotely monitoring data associated with an Internet session,15 and software for designing sheet metal forming tools.16
Accordingly, the relatively high win rates on Section 101 motions should be interpreted cautiously. While the win rates are quite high for patents in the financial services and business method fields, patents in various other fields often are withstanding Section 101 challenges. For patents in these other fields, patent-eligibility usually is not the decisive issue in litigation.
Rule 12(b)(6) and Rule 12(c) motions generally are decided based on the pleadings alone and without any additional evidence. Further, the standard for prevailing on an early dispositive motion is relatively high.17 Thus, one may expect the win rate on such motions under Section 101 to be significantly lower than the overall win rate on Section 101 motions (which includes summary judgment motions). The win rate for early dispositive motions, however, is essentially identical to the overall win rate, both at 68 percent. The win rates for early Section 101 motions are indicated in Exhibit 3.
While the early motion win rate and overall win rate are similar, there are significant differences in the data for the two categories. For example, early motions result in significantly more denials without prejudice (22 percent compared to 13 percent). This often occurs when a court deems the motion premature because claim construction or other discovery is needed before a ruling on the merits can be made. The Federal Circuit has explained that, while early dispositive motions applying Section 101 are possible, "it will ordinarily be desirable—and often necessary—to resolve claim construction disputes prior to a § 101 analysis, for the determination of patent eligibility requires a full understanding of the basic character of the claimed subject matter."18 Relying on this principle, many courts have denied early Section 101 motions without prejudice to them being reintroduced after claim construction. Whether a patent is amenable to an early patent-eligibility challenge is, of course, a highly patentspecific and case-specific question.
Another difference between the early motion and overall win rates is that there are fewer complete denials of early Section 101 motions than in the overall data (8 percent compared to 13 percent). This may be a consequence of the higher rate of denials without prejudice for early motions, as discussed above. In particular, to the extent courts find that early Section 101 motions are premature, they may deny them without prejudice rather than deny them on the merits.
Also notable is the low rate of mixed results for early Section 101 motions (only 2 percent). This category includes decisions that find some challenged claims invalid, but not other challenged claims. This occurred in only two cases based on early motions. In the first case, the court found that the claims of three asserted patents were invalid under Section 101, but also found that the claims of the fourth asserted patent passed muster under the Alice framework and recited patentable subject matter.19 In the other case, the court found that certain method claims were invalid under Section 101, but deemed it premature to decide whether apparatus claims including means-plus-function elements also were invalid.20
Summary judgment motions based on Section 101 have a similar grant rate (67 percent) compared to early dispositive motions. This is shown in Exhibit 4.
One notable difference between the summary judgment decisions and the early dispositive decisions is that more summary judgment decisions include a complete grant or denial (in total, 86 percent) than do early dispositive decisions (in total, 76 percent). This is not surprising, given that summary judgment motions often
follow claim construction and discovery, and thus there is less need for courts to deny the motions as premature at that stage. The converse of these higher rates of resolutions on the merits, of course, is a lower rate of denials without prejudice (2 percent). A further difference is the higher rate of mixed outcomes for summary judgment motions (12 percent) compared to early motions (2 percent).
Venue is a key consideration for any litigator. In a patent case that has Section 101 as a potential issue, the accused infringer will want to transfer the case (or file a declaratory judgment action) in a jurisdiction with a high win rate on Section 101 motions. For the patentee, filing in a jurisdiction with a low win rate (at least for early dispositive motions, if not also summary judgment) is important.
Exhibit 5 identifies the win rates on early dispositive Section 101 motions by venue. This data includes every jurisdiction where two or more early Section 101 motions have been decided.21 Among these jurisdictions, the number of decided motions ranges from two (the Middle District of Florida and the District of New Jersey) to nine (the District of Delaware and the Eastern District of Texas). For the top two jurisdictions in terms of win rate (the Eastern District of Virginia and the Western District of Texas), there were five decisions and three decisions, respectively.
In cases where an early dispositive challenge based on Section 101 is not attempted, or not determinative of the issue of patent-eligibility, summary judgment win rates by jurisdiction also are important to consider. Exhibit 6 indicates the win rate in each jurisdiction that decided two or more such motions.22
Among these jurisdictions, the number of decided motions ranges from three (the Eastern District of Texas and the Southern District of New York) to nine (the District of Delaware). For the two jurisdictions having the highest win rate (the Northern District of California and the Southern District of New York), there were six decisions and three decisions, respectively.
A comparison of these data to the early dispositive motion win rate data demonstrates that certain jurisdictions generally are favorable for all types of Section 101 challenges, including the Northern District of California, the District of Delaware, the Central District of California, and the Middle District of Florida. By contrast, the Eastern District of Texas generally is unfavorable for such challenges based on the decisions to date.
The issue of patent-eligibility has been important to patent litigators since at least the Supreme Court's Bilski decision in 2010.23 Nevertheless, Alice has pushed the issue to the forefront of many litigation strategies, while also spawning a large body of case law and regular reports in the legal news media. The importance of Section 101 to modern patent litigation, for both patentees and accused infringers, warrants attention to both the individual cases as well as the large scale trends that are shaping how Section 101 is applied by district courts across the country.
The first 104 decisions applying Section 101 after Alice are revealing important trends already. The number of decisions on such motions is climbing, but not skyrocketing. Accordingly, Section 101 is not enveloping all of patent litigation. For certain types of patents (e.g., financial services or business method), Section 101 motions are having significant success. For many other patents (including many software-based patents), however, Section 101 is not the determinative issue in litigation. Another key takeaway is that venue can be an important factor in the viability of a patent-eligibility challenge. Certain venues are proving to be highly favorable for such challenges and others are proving strongly unfavorable. These differences are critical for litigators to bear in mind when deciding where to file a case, whether to file a declaratory judgment action, and whether to seek a change of venue.
As the body of case law applying Alice and Section 101 continues to grow, these trends may crystalize or change. While it is impossible to predict how the law will change in the future, it is important for litigators to understand the current driving forces of patent-eligibility and how they can be harnessed. If understood and correctly used, the current trends regarding Section 101 can prove quite advantageous.
Endnotes
1 Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014).
2 Joao Bock Transaction Sys., LLC v. Fidelity Nat'l Info. Servs., Inc., No. 3:13-cv-223, 2015 WL 4743669 (M.D. Fla. Aug. 10, 2015).
3 Becton, Dickinson & Co. v. Baxter Int'l, Inc., No: 1:14-cv-222, slip op. (W.D. Tex. Aug. 3, 2015).
4 Source Search Techs., LLC v. Kayak Software Corp., No. 11-3388, 2015 WL 3980628 (D.N.J. July 1, 2015).
5 Mortg. Grader, Inc. v. Costco Wholesale Corp., No. 13-00043, 2015 WL 778125 (C.D. Cal. Jan. 12, 2015).
6 Tenon & Groove, LLC v. Plusgrade L.P., No. 12-1118, 2015 WL 82531 (D. Del. Jan. 6, 2015).
7 AutoAlert, LLC v. Dominion Dealer Solutions, LLC, No. 12-1661, 2014 WL 10247202 (C.D. Cal. Dec. 23, 2014).
8 Every Penny Counts, Inc. v. Wells Fargo Bank, N.A., No. 8:11-cv-2826, 2014 WL 4540319 (M.D. Fla. Sep. 11, 2014).
9 Loyalty Conversion Sys. Corp. v. Am. Airlines, Inc., No. 2:13-cv-655, 2014 WL 4364848 (E.D. Tex. Sep. 3, 2014).
10 CMG Fin. Servs., Inc. v. Pacific Trust Bank, F.S.B., 50 F. Supp. 3d 1306 (C.D. Cal. 2014).
11 Execware, LLC v. BJ's Wholesale Club, Inc., No. 14-233, 2015 WL 4275314 (D. Del. July 15, 2015).
12 Chamberlain Grp. v. Linear LLC, No. 14-cv-05197, 2015 WL 4111456 (N.D. Ill. July 7, 2015).
13 Smartflash LLC v. Apple, Inc., No. 6:13-cv-447, 2015 WL 661174 (E.D. Tex. Feb. 13, 2015).
14 Cal. Inst. of Tech. v. Hughes Commc'ns Inc., No. 2:13-cv-07245, 2014 WL 5661290 (C.D. Cal. Nov. 3, 2014).
15 Helios Software, LLC v. SpectorSoft Corp., No. 12-081, 2014 WL 4796111 (D. Del. Sep. 18, 2014).
16 Autoform Eng'g GMBH v. Eng'g Tech. Assocs., No. 10-14141, 2014 WL 4385855 (E.D. Mich. Sep. 5, 2014).
17 See, e.g., Mack v. Midland Credit Mgmt., Inc., No. 4:14-cv-265, 2015 WL 140034, at *2 (E.D. Tex. Jan. 7, 2015) ("A claim will survive if it 'may be supported by showing any set of facts consistent with the allegations in the complaint.' "); Intellectual Ventures I LLC et al. v. Mfrs. & Traders Trust Co., No. 13-1274 at 3 (D. Del. Dec. 18, 2014) ("The court's determination [under Rule 12(b)(6)] is not whether the non-moving party 'will ultimately prevail' but whether that party is 'entitled to offer evidence to support the claims.' ") (quoted sources omitted).
18 Bancorp Servs., LLC v. Sun Life Assur. Co. of Can. (U.S.), 687 F.3d 1266, 1273 (Fed. Cir. 2012).
19 Intellectual Ventures I LLC et al. v. Mfrs. & Traders Trust Co., No. 13-1274, slip op. at 18-19 (D. Del. Dec. 18, 2014).
20 Potter Voice Techs. LLC v. Apple Inc., No. 13-1710, slip op. at 10-12 (N.D. Cal. June 11, 2015).
21 The venues with only one ruling on an early dispositive Section 101 motion, which are not included in Exhibit 5, include: the Eastern District of California, Southern District of California, District of Colorado, Court of Federal Claims, District of Maryland, Southern District of New York, Southern District of Texas, and Western District of Washington.
22 The venues with only one ruling on a summary judgment Section 101 motion, which are not included in Exhibit 6, include: the Northern District of Illinois, Western District of Texas, District of New Jersey, District of Oregon, Western District of Wisconsin, Middle District of Pennsylvania, District of New Hampshire, District of Utah, and Eastern District of Michigan.
23 Bilski v. Kappos, 130 S. Ct. 3218 (2010).
Reprinted with permission from the IP Litigator, published by Wolters Kluwer. 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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