Adaptive Streaming, the owner of U.S. Patent No. 7,047,305, sued Netflix in the Central District of California for alleged infringement.  Netflix moved to dismiss the case on the pleadings under Rule 12(b)(6), asserting that the claims did not meet the subject matter eligibility requirements of 35 U.S.C. § 101.  The District Court agreed, and Adaptive appealed.

Representative claim 39 of the '305 patent recites:

A system to broadcast to at least one client device, the system comprising:
    a processor; and
    a broadcasting server coupled to the processor, the broadcasting server including:
    an image retrieval portion to retrieve at least one incoming video signal having a first format;
    a data structure usable to determine parameters for second compression formats for the at least one incoming video signal; and
    at least one transcoding module coupled to the image retrieval portion and which has access to the data structure, the transcoding module being capable to transcode the at least one incoming video signal from the first format into multiple compressed output video signals having respective second compression formats based at least in part on the parameters;
    wherein at least one of the second compression formats is more suitable for the at least one client device than the first format; and
    wherein the multiple compressed output video signals having the at least one second compression format more suitable for the at least one client device can be provided by the broadcasting server, wherein any one of the multiple compressed output video signals can be selected to be presented at the at least one client device.

According to the specification, the claimed invention "provides a technique including a system for capturing audio and video information from a first source and displaying such video and audio information at a second source, where the format of the first source and the format of the second source are different from each other."

In Alice Corp. v. CLS Bank Int'l, the Supreme Court 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 involves 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 elements or combinations of elements that are well-understood, routine, and conventional will not lift the claim over the § 101 hurdle.  While this inquiry is generally carried out as a matter of law, factual issues can come into play when determining whether something is well-understood, routine, and conventional.

Recently, the Federal Circuit provided a major clue as to how to think about patent eligibility in practice.  In Dropbox Inc. v. Synchronoss Techs. Inc., the Court wrote that "an inventive concept exists when a claim recites a specific, discrete implementation of the abstract idea where the particular arrangement of elements is a technical improvement over the prior art."  This suggests that in order for a claim that is otherwise directed to an abstract idea to be successful under § 101, it should have three qualities: specificity, a technical solution that it provides, and some degree of novelty.  More particularly, there should be a nexus between these three factors -- specificity, technical character, and novelty should appear in the same claim element or at least be explicitly linked in some fashion in the recitation of the claim.

Applying the first part of Alice, the District Court found the claims directed to the abstract idea of "collecting information and transcoding it into multiple formats."  The Federal Circuit found no error in this assessment, and noted that the claims and specification "make clear that the focus of the claimed advance is the abstract idea of format conversion" and not "any specific advance in coding or other techniques for implementing that idea; no such specific technique is required."  Further, the specification included, through incorporation by reference, what amounted to an admission that such translation of content was a known communication practice.  Moreover, the Court cited a number of recent cases in which it found other claims encompassing basic communication practices to be abstract.  Based on these observations, the Court concluded that the claims were directed to an abstract idea.

Turning to part two of Alice, the Court noted that the claims recite only generic computer hardware.  The Court put particular weight on there being "no identification in the claims or written description of specific, unconventional encoding, decoding, compression, or broadcasting techniques."

Put in the context of the Dropbox factors, the Court determined that the claims lacked specificity and novelty to an extent that rendered them no more than abstract, regardless of whether they provided a technical solution.

Adaptive argued that the USPTO's finding the claims to be novel and non-obvious cut against the Court's position.  The Court disagreed, observing that "satisfying the requirements of novelty and non-obviousness does not imply eligibility under § 101, including under the second step of the Alice inquiry, because what may be novel and non-obvious may still be abstract."

But this statement reflects the intellectual dishonesty that underlies the current interpretation of Alice -- claim elements that are deemed "conventional" -- i.e., in the prior art -- count against the patentee in the § 101 inquiry.  But arguments that the claimed invention exhibits an overall novelty are given no weight in that analysis.  Until the exact nature of the prior art consideration under § 101 is clarified, this is an area that will continue lack consistency and render patent-eligibility procedurally unclear.

In any event, this apparent hypocrisy did not bother the Federal Circuit, as it affirmed the District Court's invalidity ruling.