Should a District Court decide the question of patent-eligible subject matter under Section 101 as a “threshold issue” at the outset of the case – i.e., without the benefit of expert testimony and/or claims construction?
_________________On November 14, the Federal Circuit issued its third opinion on the question of whether the claims in Ultramercial v. Hulu & Wild Tangent describe patent–eligible subject matter under 35 USC 101. In the first two decisions, the panel consisting of Chief Judge Rader and Judges Lourie and O’Malley, reversed the District Court’s granting of defendants’ Rule 12(b)(6) motion to dismiss based solely on the pleadings, i.e., prior to any discovery, expert testimony or formal claim construction.
In the latest decision (“Ultramercial-3”), the panel reached the opposite conclusion and affirmed the dismissal. This apparent turnaround was based on two intervening events: (1) the Supreme Court’s Alice decision in June; and (2) the fact that Chief Judge Rader was no longer on the court, and his place on the panel was taken by Judge Mayer. Much has, and will be, written about the first of these factors, so I would like to focus on the second, and in particular, the diametrically opposed views of Judges Rader and Mayer on a very important procedural issue; namely, whether the lack of patent-eligible subject matter should be a basis for dismissing a case at the outset based only on the “intrinsic” evidence, i.e., the patent itself and its prosecution history in the USPTO, without any discovery, expert testimony and/or claim construction. Notwithstanding the importance of the substantive Alice holding re how to distinguish a claim to an abstract idea from one that has a practical application, the procedural question is at the heart of the reversal of the CAFC’s holding in Ultramercial-3. The two judges’ opposing perspectives can most clearly be seen by comparing Judge Rader’s opinion of the court in Ultramercial-2 with Judge Mayer’s concurrence in Ultramercial-3.
In Ultramercial-2, Judge Rader cited the following three reasons why, “it will be rare that a patent infringement case will be dismissed at the pleading stage for lack of patentable subject matter”:
- The normal burden of proof on a 12(b)(6) motion. “Dismissal is appropriate only if the well-pleaded factual allegations in the complaint, construed in the light most favorable to the plaintiff, suffice to establish the defense.”
- The statutory presumption of validity and the resulting clear-and-convincing evidentiary standard for an affirmative defense based on invalidity.
- The likelihood that the 101 analysis, while ultimately a legal determination, will often be, “rife with underlying factual issues” as to the meaning of claim terms that require interpretation via expert testimony.
Judge Rader argues that the combined effect of these considerations is that Rule 12(b)(6),
“requires courts to accept the well-pleaded factual allegations as true and to require the accused infringer to establish that the only plausible reading of the claims is that, by clear and convincing evidence, they cover ineligible subject matter” (emphasis added).
In stark contrast, Judge Mayer cites the following three “salutary effects” justifying a District Court’s determination as to the presence or absence of patent-eligible subject matter at the outset of the litigation:
- Conservation of scarce judicial resources, where claim construction is not required –
“[T]he asserted claims disclosed no more than ‘an abstract idea garnished with accessories’ and there was no reasonable construction that would bring [them] within patentable subject matter” (quoting the District Court opinion; emphasis added).
- Bulwark against vexatious infringement suits (aka “the scourge of meritless infringement claims”) –
“Those who own vague and overbroad business method patents will often file ‘nearly identical patent infringement complaints against a plethora of diverse defendants” and then ‘demand . . . a quick settlement at a price far lower than the cost to defend the litigation’ . . .
Addressing section 101 will thwart attempts – some of which bear the indicia of extortion . . .” (emphasis added).
- Protection of the public by early resolution of eligibility, thereby —
“clearing the patent thicket, weeding out those patents that stifle innovation and transgress the public domain.”
Judge Mayer’s position is based on two fundamental premises.
First, he believes that there should be no presumption of validity, and thus no clear and convincing evidentiary standard, in connection with a Rule 12(b)(6) motion to dismiss for invalidity under 101, because “the PTO has not properly considered the issue” of what constitutes patentable subject matter,
“Because the PTO has, for many years applied an insufficiently rigorous subject matter eligibility standard, no presumption of eligibility should attach when assessing whether claims meet the demands of section 101.”
Second, he argues that the question of patent eligible subject matter is not merely a matter of statutory interpretation – it is a constitutional issue (as previously argued in his August 15 concurring opinion in I/P engine v. AOL et al and his 2008 dissent in In re Bilski). He therefore concludes that business methods are not “within the technological [i.e., useful], arts” as required by Article 1, section 8, clause 8 of the U.S. Constitution, but rather within the “entrepreneurial arts” and are therefore excluded from patent protection as a class.
One may argue that upon closer inspection, the positions of Judges Rader and Mayer are not really at odds in that Judge Mayer limits his recommendation for early resolution of subject matter eligibility to those cases where, “there is no reasonable construction” of the claims at issue that would pass muster under 101. The practical problem is, how does the court come to that conclusion without hearing from persons of skill in the art as to the meaning of claim terms. (It should be noted that the very same consideration applies to a 12(b)(6) dismissal based on claim indefiniteness under section 112(b), following the Supreme Court’s recent decision in Biosig v. Nautilus.)
So who is right, Rader or Mayer? Well, it depends on how one feels about the cost-benefit tradeoff that underlies the U.S. patent system. If you believe, as many do, that patents stifle innovation, then any attempt to limit the availability and scope of patent protection is a good thing. On the other hand, if you believe that patents encourage individual inventors, operating companies and investors to commit the human and financial resources necessary to create disruptive technologies rather than incremental improvements, then Rader is your guy.