The Supreme Court's Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014), decision changed the scope of patent subject matter eligibility under § 101. In particular, the patent litigation fora has seen a significant increase in the number of motions to dismiss under 35 United States Code (U.S.C.) § 101 since the Supreme Court's decision.
In the United States, patent-eligible subject matter includes four statutory categories as defined by 35 U.S.C. § 101. Specifically, these four categories include "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof."
The US Supreme Court in Alice further expanded on the analysis for determining patent eligibility under 35 U.S.C. § 101. As a result, the Supreme Court's Alice decision undoubtedly changed the game of patent practice by ultimately limiting the scope of patent subject matter eligibility under § 101.
In Alice, the Supreme Court reiterated a test by which patent claims that may arguably involve patent-ineligible concepts (i.e., "abstract ideas," "laws of nature," or "natural phenomena") will be found invalid under 35 U.S.C § 101 for attempting to claim patent-ineligible subject matter. Since the Supreme Court's decision in Alice, the patent litigation fora has surprisingly seen a significant increase in the number of preclaim construction motions—specifically motions to dismiss based on patent subject matter eligibility under 35 U.S.C. § 101—filed during the pleadings stage as well as a rise in the success rates of these motions in the district courts.
This article examines district court trends subsequent to the Alice decision to observe its direct impact on patent litigation.
The Alice Test
The US Supreme Court's decision in Alice provided district courts with a substantive legal test to assist in determining whether or not claims at issue involve patent-eligible subject matter under § 101. Specifically, Alice applied the two-prong test from Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1290 (2012), to determine patent subject matter eligibility. First, the trial court is required to "determine whether the claims at issue are directed to a patent-ineligible concept."1 Patent-ineligible concepts include laws of nature, natural phenomena, and abstract ideas.2
If the claims at issue are found to be a patent-ineligible concept, the court must then apply the second part of the Alice test—whether or not the claims at issue pertain to "an inventive concept" to "transform the nature of the claim into a patent-eligible application."3Alice further reiterated the Supreme Court's previous definition in Mayo of an "inventive concept" as an "element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself."4 In determining whether or not the claims involve an "inventive concept," the court is to "consider the elements of each claim both individually and as an ordered combination to determine whether the additional elements transform the nature of the claim into a patent-eligible application."5
Alice made it clear that the two-prong test applies to all questions of patent eligibility under 35 U.S.C. § 101.
In Alice, the Supreme Court considered whether a computerized method for mitigating settlement risk in financial transactions was patent-eligible subject matter under § 101. The Supreme Court found the claims at issue invalid because (1) the claims at issue were "directed to the abstract ideas of intermediated settlement," and (2) the claims at issue did not rise to the level of an "inventive concept" to transform the abstract idea into a patent-eligible application.6 Similarly, in the past 23 months following the Alice decision on June 19, 2014, its impact has been felt across the patent community, specifically, with respect to motions to dismiss based on patent-eligible subject matter.
For example, in Preservation Wellness Techs. LLC v. Allscripts Healthcare Sols., No. 2:15-CV-1559-WCB, 2016 U.S. Dist. LEXIS 61841 (E.D. Tex. May 9, 2016), the district court granted the accused infringer's Fed. R. Civ. P. 12(b)(6) motion to dismiss based on a finding that the claims at issue were invalid under 35 U.S.C. § 101. The patent-in-suit was directed to a "secure system for maintaining patient medical records, providing patients with remote access to their personal records, and providing patient health and treatment records to the patients' medical professionals by use of a network, such as a local network a wide area network, or a global computer network."7
Applying the Alice test, the district court first found that the claims at issue were directed to an abstract idea of the "concept of record access and management."8 Furthermore, the district court found that the claims lacked an inventive concept since the patent "merely instruct[ed] the practitioner to implement the abstract idea with routine, conventional activities," which was insufficient to convert the patent-ineligible abstract idea into a patent-eligible subject matter.9 Typically, Alice challenges are made to patents directed toward software inventions or business methods.
Rising Motions to Dismiss Based on Patent-Eligible Subject Matter
While the increased number of postclaim construction determinations of patent-eligible subject matter based on § 101 under Alice may not be startling to some, what is notably surprising is the swift rise in the frequency of dispositive motions at the pleading stage similar to that in Preservation Wellness Techs. Over the past 4 years, the number of Fed. R. Civ. P. 12(b)(6) motions to dismiss for failure to state a claim—based on the patent-eligible subject matter—has increased dramatically nationwide.
In the 30 months prior to Alice, only a total of 20 decisions were issued by district courts involving motions to dismiss based on patent subject matter eligibility under 35 U.S.C. § 101. However, since the Supreme Court's Alice decision on June 19, 2014, through July 31, 2018, district courts have issued a total of 365 decisions on these types of motions. This is a 1,725 percent increase in the total number of motions-to-dismiss filed since Alice. By a mere glance of the statistical data, one can see the rising number of motions to dismiss based on invalidation of claims directed to patent-ineligible concepts is the direct result of the Supreme Court's Alice decision in mid-2014. In addition to the fact that in the 2.5 years prior to Alice, district courts decided only 20 decisions on these motions, the total number of these motions experienced a downward trend each year leading up to Alice. In 2013, district courts saw a decrease of 30 percent in the total number of these motions filed compared to 2012.10 Similarly, in the first half of 2014, district courts saw a decrease of 57 percent in the total number of these motions filed compared to 2013.11
This sharp decline came to an abrupt halt in the months following Alice. During the remainder of 2014 after the Alice decision, district courts had already decided a total of 12 motions to dismiss—over half of the total motions that the court previously decided in the 2.5 years before Alice. This resulted in the district courts experiencing a 300 percent increase in the number of motions filed post-Alice during the remainder of 2014 alone, in comparison to the initial half of 2014.
In 2015, this increase continued its upward trend rising to a total of 45 motions—a 275 percent increase from the remainder of 2014. In 2016, the upward trend continued to rise to a total of 94 motions—nearly a 109 percent increase from 2015. In 2017, however, the district courts experienced their first slight decrease of nearly 14 percent in the total number of these motions filed compared to that of 2016.12 In the first 7 months of 2018, district courts have already issued 49 decisions on these motions. If this trend continues at its current pace, district courts are destined to issue as many as 84 Alice-related opinions for 2018, which would result in a 4 percent increase from 2017.
The Success Rates Are Following Suit
Not only are accused infringers filing a record number of motions to dismiss before the district courts, the success rates of these motions are mirroring this trend.
PRE-ALICE SUCCESS RATES
20 percent (2 of 10) of the motions were granted
10 percent (1 of 10) were partially granted
43 percent (3 of 7) of the motions were granted
None were partially granted
In the first half of 2014
Not a single motion was either granted or granted in part
All 3 were denied
Pre-Alice from January 1, 2012, to June 18, 2014, the success rate of these motions averaged 30 percent.
POST-ALICE SUCCESS RATES
During the remainder of 2014 following the Alice decision
42 percent (5 of 12) of the motions were granted
25 percent (3 of 12) were partially granted
51 percent (23 of 45) of the motions were granted
18 percent (8 of 45) were partially granted
43 percent (40 of 94) of the motions were granted
9 percent (8 of 94) were partially granted
46 percent (37 of 81) of the motions were granted
15 percent (12 of 81) were partially granted
In the first 7 months of 2018
35 percent (17 of 49) of the motions were granted
20 percent (10 of 49) were partially granted
Post-Alice from June 19, 2014, to July 31, 2018, the average of granting motions to dismiss, in full or in part, by district courts has increased by 28 percent.13
Jurisdiction and Its Potential Impact on Success Rates
Aside from the national trends, the likelihood of success on motions to dismiss based on patent-eligible subject matter may also be dependent on the jurisdiction in which it is filed. Accordingly, the percentage rates of granted motions versus denied motions per jurisdiction are also important factors for an astute litigator to consider. The jurisdiction that was most favorable to accused infringers looking to mount a successful motion to dismiss pre-Alice was the Northern District of California (66.67 percent success rate on 3 motions). While the jurisdictions that were most favorable to patentees seeking to defeat a motion to dismiss pre-Alice included the Central District of California (75 percent denial rate on 4 motions) and the Eastern District of Texas (100 percent denial rate on 4 motions).14
However, the jurisdictions that now appear to be the most favorable to accused infringers post-Alice include the District of Massachusetts (83.33 percent success rate on 6 motions), the Western District of Pennsylvania (80 percent success rate on 5 motions), the Eastern District of Virginia (71.4 percent success rate on 14 motions), the Western District of Washington (71.4 percent success rate on 7 motions), the Northern District of California (62.5 percent success rate on 32 motions), the District of Nevada (62.5 percent success rate on 8 motions), and the Northern District of Illinois (61.5 percent success rate on 13 motions). To the contrary, the jurisdictions that appear to be most favorable to patentees and least favorable to accused infringers post-Alice include the District of New Jersey (75 percent denial rate on 8 motions), the Western District of Texas (50 percent denial rate on 6 motions), the Southern District of California (50 percent denial rate on 6 motions), and the District of Utah (50 percent denial rate on 4 motions).
In light of the accused infringers' continued success, it should come as no surprise that accused infringers are employing patent subject matter eligibility with greater frequency as a defensive tool at the pleading stage. Not only will this defensive tool invalidate an issued patent if successful, it can also provide an effective means of ending litigation without incurring significant litigation costs.15
In view of Alice, parties involved in patent litigation concerning arguably patent-ineligible concepts (i.e., "abstract ideas," "laws of nature," or "natural phenomena") should anticipate an increased likelihood of pleadings-stage motions alleging unpatentable subject matter based on § 101, particularly if this trend continues at its current rate.
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10 In 2013, the district courts only issued a total of 7 decisions related to motions to dismiss under 35 U.S.C. § 101, in comparison to the 10 decisions issued in 2012.
11 In 2014, the district courts only issued a total of 3 decisions related to these motions, in contrast to the 7 decisions issued 1-year prior.
12 In 2017, the district courts issued a total of 81 decisions related to these motions, in contrast to the 94 issued in 2016.
13 Post-Alice from June 19, 2014, to July 31, 2018, the success rate of motions to dismiss under 35 U.S.C § 101 averaged 58 percent in stark comparison to the 30 percent average success rate pre-Alice.
14 Analysis is based on jurisdictions deciding 4 or more motions to dismiss under 35 U.S.C. § 101.
15 According to the most recent survey conducted by the American Intellectual Property Law Association, 2017 Report of the Economic Survey, the median overall litigation expense to defend against a patent infringement claim, where the amount in controversy is under $1 million, is $800,000 through the end of trial, illustrating that the cost of defending increases as amount in controversy increases (i.e., defending against a $1 million–10 million claim is $1.7 million through the end of trial).