Fraud-Detection Patent Claimed Patent-Ineligible Subject Matter

In FairWarning IP, LLC v. Iatric Systems, Inc., Appeal No. 2015-1985, the Federal Circuit affirmed the district court’s holding that FairWarning’s patent claimed patent-ineligible subject matter under 35 U.S.C. § 101.

FairWarning sued Iatric Systems asserting its patent titled “System and Method of Fraud and Misuse Detection.” Specifically, the patent describes ways to detect fraud and misuse by identifying unusual patterns in users’ access of sensitive data, and recites the application of rules to detect improper access of patient-projected health information using audit log data.  Following the two-step test for patent eligibility identified in Alice, the district court determined that the patent: (1) was directed to an abstract idea, and (2) contained nothing to transform the abstract idea into a patentable concept.

In affirming step 1, the Federal Circuit stated that the claims are a combination of: (1) analyzing information (mental process within the abstract idea category), and (2) presenting results (ancillary part of such an analysis).  The Federal Circuit differentiated the instant case from the patent‑eligible claims of McRO v. Bandai, which also claimed application of rules, by noting that it was the incorporation of the claimed rules, and not incorporation of the computer as with the patent here, that caused a technological improvement.  The Federal Circuit further held that, under step 2 of Alice, FairWarning’s patent did not recite anything to transform the abstract idea into a patentable concept.  Although FairWarning argued that the patent described compilation and combination of disparate information sources and therefore solved technical problems per DDR Holdings, the Federal Circuit rejected this argument, explaining that merely selecting information for collection and analysis was not significant and did not differentiate the claimed process from the category of abstract ideas.

Prosecution and Specification Disclaimer Narrowed Claim Scope

In Poly-America, L.P. v. API Industries, Inc., Appeal No. 2016-1200, the Federal Circuit affirmed a narrow claim construction based on a “clear and unequivocal” disavowal of claim scope in the specification and prosecution history.

Poly-America sued API for infringing its drawstring trash bag patent.  The entry of judgment turned, in part, on the construction of the term “short seal.”  The accused device had short seals that did not extend inwards.  The patent claim did not specify whether the short seals of the bag extended inwards.  The district court construed the term to require inward extending seals based on the specification and prosecution history.  The district court entered judgment in favor of API.

The Federal Circuit affirmed, explaining that the inventor clearly, unequivocally, and intentionally limited the claimed invention to inwardly extending short seals.  Every embodiment described in the specification had the limitation.  Additionally, every section of the specification indicated the importance of inwardly extending short seals.  The Federal Circuit reasoned that those two facts together justified the district court’s construal of “short seal.”   The Federal Circuit additionally reasoned that the district court’s claim construction was strengthened by Poly-America’s disavowed non-inwardly extending short seals in the prosecution history of the patent.

The Federal Circuit May Not Review an Unappealed Claim Construction

In Apple Inc. v. Samsung Electronics Co., Ltd. [En Banc Opinion], Appeal Nos. 2015-1171, 2015-1195, 2015-1994, the Federal Circuit vacated the panel decision, reinstated Apple’s $120 million jury verdict, and remanded the willfulness issue for consideration under the Halo standard.

At the district court, a jury awarded Apple nearly $120 million for Samsung’s infringement of three patents.  The district court denied Samsung’s JMOL motions.  The original panel reversed the denials of JMOL.  Apple petitioned for rehearing en banc, arguing that the panel relied on extra-record evidence and exceeded their appellate function.  The Federal Circuit granted the petition and issued its en banc opinion without additional briefing or argument from the parties.

Sitting en banc, the Federal Circuit vacated the portions of the panel decision reversing the three JMOL denials.  The Court’s purpose in granting Apple’s rehearing petition was “to affirm our understanding of the appellate function as limited to deciding the issues raised on appeal by the parties” while applying deference to factual findings.  The panel had impermissibly relied on non-record sources to modify an unappealed claim construction.  The record before the jury also contained substantial evidence to support its factual findings of non-obviousness under that construction.  The Court also vacated the district court’s grant of JMOL of no willful infringement, and remanded for consideration under Halo.

Each of the three original panelists individually dissented.  The dissenters argued that the majority raised the bar for proving obviousness and misapplied and weakened the substantial-evidence standard.