Aatrix Software, Inc. v. Green Shades Software, Inc. (Fed. Cir. 2018)

By Michael Borella --

Aatrix brought an infringement action against Green Shades in the Middle District of Florida, alleging infringement of U.S. Patent Nos. 7,171,615 and 8,984,393.  Green Shades filed a 12(b)(6) motion to dismiss on the grounds that all asserted claims were not eligible for patent under 35 U.S.C. § 101.

The patents in suit are directed to "designing, creating, and importing data into a viewable form on a computer so that a user can manipulate the form data and create viewable forms and reports."  In particular, a "form file is created using in-house form development tools and is designed to model the physical characteristics of an existing form, including the calculations and rule conditions required to fill in the form."  A data file "allows data from third-party applications to be seamlessly imported into the form file program to populate the form fields."  A "viewer generates a report by merging the data in the [data] file with the fields in the form file, performing calculations on the data, and allowing the user to review and change the field values."

Claim 1 of the '615 patent recites:

1.  A data processing system for designing, creating, and importing data into, a viewable form viewable by the user of the data processing system, comprising:
    (a) a form file that models the physical representation of an original paper form and establishes the calculations and rule conditions required to fill in the viewable form;
    (b) a form file creation program that imports a background image from an original form, allows a user to adjust and test-print the background image and compare the alignment of the original form to the background test-print, and creates the form file;
    (c) a data file containing data from a user application for populating the viewable form; and
    (d) a form viewer program operating on the form file and the data file, to perform calculations, allow the user of the data processing system to review and change the data, and create viewable forms and reports.

The Supreme Court's Alice Corp. v. CLS Bank Int'l case set forth a two-part test to determine whether claims are directed to patent-eligible subject matter under § 101.  One must first decide whether the claim at hand is directed to a judicially-excluded law of nature, a natural phenomenon, or an abstract idea.  If so, then one must further decide whether any element or combination of elements in the claim is sufficient to ensure that the claim amounts to significantly more than the judicial exclusion.  But generic computer implementation of an otherwise abstract process does not qualify as "significantly more."  On the other hand, a claimed improvement to a computer or technological process is typically patent-eligible.

Aatrix argued that Green Shades' motion should be denied so that the District Court could carry out claim construction.  The District Court ultimately granted the motion, and concluded that claim 1 of the '615 patent was "not directed to any tangible embodiment and therefore not directed to eligible subject matter."  This latter point was not argued by the parties.  The District Court also held that the Alice test rendered the remaining claims abstract, without an inventive concept, and therefore invalid as well.

Aatrix moved for the District Court to reconsider the judgment, as well as for leave to amend its complaint.  Particularly, Aatrix wished to file a second amended complaint that provided evidence that would preclude a § 101 dismissal on the pleadings.  The District Court denied this request, merely stating that "[u]pon consideration of the filings and the relevant case law, the [district court] sees no reason to reconsider its prior determination."  Aatrix appealed.

The majority opinion began by noting that the Federal Circuit has held that patent eligibility under § 101 can be determined on the pleadings, but that "[t]his is true only when there are no factual allegations that, taken as true, prevent resolving the eligibility question as a matter of law."  On the other hand, "[i]f there are claim construction disputes . . . either the court must proceed by adopting the non-moving party's constructions . . . or the court must resolve the disputes to whatever extent is needed to conduct the § 101 analysis, which may well be less than a full, formal claim construction."

Here, the Federal Circuit found that the District Court erred in its determination that claim 1 is not directed to a tangible embodiment.  While the case law has long held that claims directed to nothing more than signals or data structures do not fall into any of the four categories of patentable subject matter, Aatrix's system claim "requires a computer operating software, a means for viewing and changing data, and a means for viewing forms and reports."  Thus, the system is tangible.

The District Court also erred in denying Aatrix the opportunity to amend its complaint.  The District Court did so without explanation.  But the Federal Circuit viewed the second amended complaint as including factual allegations that "if accepted as true, establish that the claimed combination contains inventive components and improves the workings of the computer."  Notably, the second amended complaint included specific allegations regarding the technical improvements of, and problems solved by, the claimed inventions.  If accepted as true, they would "contradict the district court's conclusion that the claimed combination was conventional or routine."  As a consequence, the District Court's dismissal was an abuse of discretion, and premature.

For these reasons, the dismissal of the case was vacated, and the matter was remanded to the District Court for further proceedings.

Judge Reyna concurred in part and dissented in part.  He agreed that the District Court erred in its characterization of claim 1 being directed to an intangible embodiment, and believed that this conclusion led the District Court to improperly deny Aatrix's motion to file a second amended complaint.  He took issue, however, with "with the majority's broad statements on the role of factual evidence in a § 101 inquiry," noting that this determination is a matter of law.

Specifically, he wrote:

[T]he majority opinion attempts to shift the character of the § 101 inquiry from a legal question to a predominately factual inquiry.  The risk of this approach is that it opens the door in both steps of the Alice inquiry for the introduction of an inexhaustible array of extrinsic evidence, such as prior art, publications, other patents, and expert opinion.  Similarly, the majority opinion strongly suggests that the district court must require claim construction where the meaning of a claim term is placed in controversy, even where, as here, proposed claim constructions are not presented to the court.  One effect of this approach is that a plaintiff facing a 12(b)(6) motion may simply amend its complaint to allege extrinsic facts that, once alleged, must be taken as true, regardless of its consistency with the intrinsic record.

Judge Reyna also pointed out that the new allegations and evidence from the second amended complaint were not before the Court, as "[t]here was no motion to dismiss filed challenging the Second Amended Complaint."  He noted that "[a]s an appellate court, we should not pass judgment on matters not addressed by the district court."

Following so quickly on the heels of the Berkheimer v. HP case, the Federal Circuit once again used its remand power to address a § 101 dispute where there may be a matter of material fact as to whether a claimed invention is a technical improvement over conventional art.  While Berkheimer took place at the summary judgment stage, this case was decided on the pleadings.  If the opinions in these cases stand, it may become significantly more difficult for a challenger to invalidate claims under § 101.  The patentee need only explain how the specification describes that the claimed invention is a technical improvement over existing systems.  This will mean that far fewer § 101 cases are dismissed on the pleadings, and more will go to trial.

On the other hand, the disagreement between the majority opinion and Judge Reyna point to a split in the Federal Circuit case law, with authority supporting both positions.  This tees up the issue of whether a § 101 analysis involves underlying issues of fact for en banc review.

But lifting our heads up out of the details of the case law for a moment, how can the determination of whether an invention involves significantly more than well-known, conventional, and routine features be anything less than a factual inquiry in at least some situations?  What is well-known, conventional, and routine is defined by the prior art, and whether an invention is a technical improvement over this art should not be subject to sweeping and conclusory statements.

Aatrix Software, Inc. v. Green Shades Software, Inc. (Fed. Cir. 2018)
Panel: Circuit Judges Moore, Reyna, and Taranto
Opinion by Circuit Judge Moore; opinion concurring-in-part and dissenting-in-part by Circuit Judge Reyna

Comments

[Atari Man]

"[H]ow can the determination of whether an invention involves significantly more than well-known, conventional, and routine features be anything less than a factual inquiry in at least some situations? What is well-known, conventional, and routine is defined by the prior art, and whether an invention is a technical improvement over this art should not be subject to sweeping and conclusory statements."

Please stop making sense when it comes to 101, making sense goes against supreme court precedent.

/end sarcasm/

Seriously, it took them a while, but maybe the CAFC has finally found a way to limit the effect of Alice. Or maybe there are enough other judges on the CAFC who've drunk the Kool-Aid to say en banc that 101 doesn't involve any factual inquiries, and the district courts and the PTAB are free to continue unabated to invalidate patents under the charade of 101.

[Jack Russo]

Query: CAFC as intentional instigators of legislative solutions through more impossible to harmonize “precedential” opinions?