Federal Circuit Review - Nautilus, Limelight, and Alice (July 2014)

by Knobbe Martens
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Supreme Court Sets New Indefiniteness Standard

In Nautilus, Inc. v. Biosig Instruments, Inc., Appeal No. 13-169, the Supreme Court vacated and remanded Federal Circuit’s reversal of summary judgment because the Federal Circuit’s definiteness standard was too lenient.

Biosig filed a patent infringement suit claiming Nautilus’ exercise machines infringed its patent. Biosig’s patent claims a heart rate monitor that includes a “live” electrode and “common” electrode “mounted . . . in spaced relationship with each other.” The district court granted Nautilus’ motion for summary judgment on the basis the claim term “in spaced relationship with each other” failed the definiteness requirement of 35 U.S.C. § 112, second paragraph.  The Federal Circuit reversed and remanded, finding a patent claim meets the definiteness threshold so long as the claim is “amenable to construction” and the claim is not “insolubly ambiguous.” 

The Supreme Court held the Federal Circuit’s test does not satisfy the statute’s definiteness requirement and can leave courts without a reliable compass. The Court held a patent is invalid for indefiniteness if its claims, read in light of the specification and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention. The Court emphasized this standard not only takes into account the inherent limitations of language, but also requires a patent must be precise enough to afford clear notice of what is claimed. The Court vacated and remanded to the Federal Circuit for reconsideration under the proper standard.

Supreme Court Says Induced Infringement Requires Direct Infringement

In Limelight Networks, Inc. v. Akamai Technologies, Inc., Appeal No. 12-786, the Supreme Court reversed and remanded the Federal Circuit’s decision finding induced infringement under 35 U.S.C. § 271(b).

Akamai is the exclusive licensee of a patent claiming a method of designating content components to be stored on distributed web servers. Limelight performs some of the claimed method steps, but its customers perform the “tagging” step.  The jury found Limelight liable for infringement, but the district court granted judgment as a matter of law that there is no direct infringement. Subsequently, a Federal Circuit panel affirmed, holding that, absent an agency relationship or a contractual obligation with its customers, Limelight is not liable when its customers perform one of the steps. After en banc review, however, the Federal Circuit reversed the panel’s decision, holding a defendant who performed some steps and encouraged others to perform the rest could be liable for inducement even if no one was liable for direct infringement. 

The Supreme Court reversed and stated that “liability for inducement must be predicated on direct infringement.” The Court explained the Federal Circuit’s analysis “fundamentally misunderstands what it means to infringe a method patent” and would deprive § 271(b) of ascertainable standards. In addition, the Court concluded § 271(f)(1) reinforces the Court’s interpretation of § 271(b) because Congress acted in § 271(f)(1) to impose liability for an activity that does not constitute direct infringement. Relying on this example, the Court stated it “should not create liability . . . where Congress has elected not to extend that concept” for § 271(b). 

The Court also rejected Akamai’s arguments based on tort law for imposing liability on a defendant who harms another through a third party. The Court emphasized “no direct infringement was committed” and there is no tort case supporting imposing liability when a plaintiff’s legal rights are not violated. Similarly, the Court rejected Akamai’s analogy of § 271(b) to the aiding and abetting statute, 18 U.S.C. § 2, because the Court does not believe Congress had the aiding and abetting doctrine in mind when it enacted the Patent Act of 1952. The Court acknowledged the concern that a would-be infringer may evade liability by dividing performance of a method patent’s steps, but it concluded this concern does not justify fundamentally altering the rules of inducement liability.

Supreme Court Finds Patent Invalid as Directed to an Abstract Idea

In Alice Corp. v. CLS Bank International, Appeal No. 13-298, the Supreme Court unanimously affirmed the Federal Circuit and held all claims drawn to patent-ineligible subject matter under 35 U.S.C . § 101. 

Alice owns several patents that disclose a scheme for mitigating “settlement risk” between two parties by using a computer system as a third-party intermediary. The patents in suit claim (1) a method for exchanging financial obligations, (2) a computer system configured to carry out the method, and (3) a computer-readable medium containing program code for performing the method. Following the precedent of Bilski v. Kappos, 561 U. S. 593 (2010), the district court held all of the claims ineligible for patent protection under 35 U. S. C. §101 because they are directed to an abstract idea. The en banc Federal Circuit affirmed. 

The Supreme Court affirmed, holding that, because the claims are drawn to a patent-ineligible abstract idea, they are not patent eligible under § 101.  Following the framework of Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U. S. ___ (2013) and Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. ___ (2012), the Court first determined whether the claims were directed to a patent-ineligible concept and then analyzed whether the claim’s elements, considered both individually and as an ordered combination, transformed the nature of the claim into a patent-eligible application. Specifically, the Court determined the claims at issue are directed to the abstract idea of intermediated settlement, a fundamental economic practice long prevalent in our system of commerce. Turning to the second step of the framework, the Court determined the addition of a computer did not render this abstract idea patent-eligible. Taking the claim elements separately, the function performed by the computer at each step is “purely conventional.” And considered “as an ordered combination,” these computer components “ad[d] nothing . . . that is not already present when the steps are considered separately.” Viewed as a whole, these method claims simply recite the concept of intermediated settlement as performed by a generic computer. The Court observed the method claims “do not, for example, purport to improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” Rather, applying the abstract idea of intermediated settlement using some unspecified, generic computer was not “enough” to transform the abstract idea into a patent-eligible invention. 

Because Alice’s system and media claims added nothing of substance to the underlying abstract idea, they too were patent-ineligible under § 101. The Court reiterated its warning against interpreting § 101 “in ways that make patent eligibility ‘depend simply on the draftsman’s art.’ ” The Court observed that holding the system and media claims patent eligible would have exactly that result.

In the concurring opinion, three justices agreed the claims were drawn to an abstract idea and also took the position business method claims do not qualify as a “process” under § 101.

 

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Knobbe Martens
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