On July 27, 2017, the Federal Circuit issued an opinion in Audatex North America, Inc. v. Mitchell International, Inc., upholding the U.S. Patent and Trademark Office Patent Trial and Appeal Board's (PTAB) decision in which all claims of U.S. Patent Nos. 7,912,740 and 8,468,038 were held patent ineligible under 35 U.S.C. § 101 and invalid as obvious under 35 U.S.C. § 103.

Audatex initially sued Mitchell for infringement of the '740 and '038 patents.  Mitchell then filed petitions requesting CBM review of the patents.  The PTAB issued final written decisions in the CBMs holding that all challenged claims were found to be drawn to a patent ineligible abstract idea.  A summary of one of the decisions can be found here.

Upon instituting both CBM proceedings, the Board held all claims ineligible under § 101 and invalid as obvious under § 103.  Audatex filed a motion to amend, cancelling claims 1–29 of the '740 patent and proposing substitute claims 30–58.  It similarly moved to amend the '038 patent, cancelling claims 1–31 and proposing substitute claims 32–62.

Claims 30 and 37 of the '740 patent are representative and are reproduced below.

30.  A method for obtaining an automobile insurance claim valuation report of a damaged vehicle in association with the processing of an insurance claim, comprising:
    transmitting a uniform resource locator over an electronic communication network from a client computer;
    connecting with a web site that corresponds to the uniform resource locator, the web site provides a plurality of web pages that allows an operator to input data relating to an insurance claim for the damaged vehicle, the insurance claim being a request to recover market value or repair cost in association with an insurance policy;
    entering data relating to the insurance claim;
    providing a parts list and calculated estimate data through the web site; processing the entered data to generate a valuation report for the damaged vehicle, the valuation report provides a market value for the damaged vehicle, before the damaged vehicle was damaged, based on factors including mileage, condition, and geographic location; and,
    transmitting the valuation report to the client computer over the electronic communication network through the web site.

37.  The method of claim 30, further comprising transmitting the valuation report from a valuation server to a web server before transmitting the valuation report to the client computer, the valuation report being generated by the valuation server with a database of vehicle values that is called by a first active server page, the parts list and calculated estimate data being provided by a program called by a second active server page.

Turning to the patents at issue, the '038 patent is a continuation of the '740 patent.  Entitled "system and method for processing work products for vehicles via the world wide web," these patents relate to systems for entering data associated with an insurance claim for damaged vehicles.  The systems process these data into a valuation report transmitted via the Internet, allowing insurance claims adjusters to access a vehicle valuation database more readily.

According to Audatex, the substituted claims solve problems associated with utilizing data from constantly changing databases for multiple customers through the use of Active Server Page ("ASP") files.  Claim 37, for example, employs two such ASP files:  the first for calling a database of vehicle values; the second to call a program for providing vehicle parts lists and calculated estimate data.  These ASP calls allow the valuation server to generate valuation reports that adjusters use for their calculations.  The proposed claims thus describe methods and systems for obtaining automobile insurance claim valuation reports by combining calls to multiple databases that provide customized insurance estimate tools for insurance adjusters based on their specific needs.

After considering these amendments, the Board maintained its ineligibility and obviousness grounds for the proposed claims.  Audatex appealed on both grounds.

Patent Eligibility

The Federal Circuit followed the two-step process under Alice to determine patent eligibility, where step one analyzes for an "abstract idea", and step two analyzes for an "inventive concept".

Turning to step one, Audatex argued that the proposed claims are not abstract, but rather are directed to specific improvements of computer-related technology.  It contended that the claims provide "a very specific way of generating a valuation report, including a special-purpose valuation server that processes the data and generates the valuation report with a database of vehicles values."  It emphasized that the system employs a first ASP to call this database and requires a second ASP to call the parts lists and calculated estimate data.  It concluded that these features, combined with other elements such as an electronic network, a client computer, and a web server that allows for the input of data relating to an insurance claim and transmission of a valuation report, render the claims non-abstract.

The Federal Circuit, however, found that the proposed claims are directed to the abstract idea of "providing a vehicle valuation through the collection and use of vehicle information."  Here, the Federal Circuit noted that the proposed claims recite nothing more than the collection of information to generate a valuation report for a damaged vehicle with the aid of well-known technology.

The claims were found to embody an abstract idea that merely uses a computer and generic components as tools to collect these data and generate reports.

Regarding step two, the Federal Circuit found that the proposed claims neither improve the technological infrastructure nor provide solutions to challenges particular to the Internet.  Rather, the claims simply add computer functionality and recite use of the Internet to increase the speed and efficiency of an abstract process.

Audatex relied heavily on the two ASPs recited in the claims.  But Audatex itself conceded that it did not invent ASPs, and the claims do not recite them in a manner that produces "a result that overrides the routine and conventional" use of these known features.  Thus, the Federal Circuit concluded that when viewed as an ordered combination, the proposed claims recite no more than the sort of "perfectly conventional" generic computer components employed in a customary manner that the Court has held insufficient to transform the abstract idea into a patent-eligible invention.

As a result, the Federal Circuit concluded that the proposed claims recite patent-ineligible subject matter under § 101.  The Federal Circuit did not reach the obviousness grounds of Audatex's appeal.

The Federal Circuit's analysis is short and concise, and simply rejected or disagreed with the position taken by Audatex.

Looking at the substitute claims, one issue to consider is whether the claims recite how the functions are performed.  In situations where the functional terms are generic and the claim lacks details of how to carry out the specific function, courts are more likely to find the claims patent-ineligible.  Here, the claims recite "transmitting," "connecting," "entering," "providing," and "transmitting," but none of the method steps really recite how to perform those functions.  Without such details, courts generally will determine that the claim is directed to the benefit of the invention rather than the invention itself.  The invention needs to be recited in the claims, and the invention is how you achieve the benefit.  Thus, with broadly recited functions as seen here, the claims are more likely to be considered patent-ineligible.

Audatex North America, Inc. v. Mitchell International, Inc. (Fed. Cir. 2017)
Nonprecedential disposition
Panel: Chief Judge Prost and Circuit Judges O'Malley and Chen
Opinion by Chief Judge Prost