I. PROCEDURAL BACKGROUND

This case was an appeal to the Federal Circuit from a decision by the Patent Trial and Appeal Board (PTAB) holding that the challenged claims of Appellant’s U.S. Patent No. 6,826,548 (the ‘548 patent) were directed to ineligible subject matter under 35 U.S.C. §101. The PTAB had conducted a covered business method (CBM) review, a proceeding created by the Leahy-Smith America Invents Act (AIA) for the post-grant review of patents “that claim a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.”

The ‘548 patent is directed to the processing of mail items that are undeliverable due to an inaccurate or obsolete address for the intended recipient. According to its specification,”[e]ven with the availability of address updating services to aid in researching for the correct address,” the process of handling returned mail “[wa]s substantially a manual one subject to human error and delays.”

The claimed invention teaches encoding information, including the name and address of the intended recipient and the sender’s request for a corrected address, on mail items in the form of a two-dimensional barcode. Undeliverable mail items are returned to a processing location, where the barcodes are scanned. If the sender has requested a corrected address, the scanned information is then processed by obtaining corresponding updated address data from a computer database, and the updated information is then electronically provided to the sender. The invention thereby allows returned mail to be processed entirely automatically through the exchange of data files between computers.

After trying unsuccessfully to license the ‘548 patent to the Postal Service, Return Mail filed suit against them in the Claims Court, alleging that they had infringed the patent. The Postal Service countered by filing a petition with the PTO for CBM review of claims 39-44 (the “challenged claims”) of the ‘548 patent. It raised several grounds for unpatentability, including patent-ineligible subject matter under § 101, anticipation under § 102, and obviousness under § 103. In response, Return Mail not only raised patentability arguments, but also contested the Postal Service’s standing under the AIA to petition for CBM review. The Board held that the Postal Service had statutory standing and instituted review of all of the challenged claims under § 101 for ineligible subject matter.

While the Circuit Court’s opinion deals with the procedural issues of standing and estoppel, our discussion will focus only on the §101 issues.

II. THE ALICE TWO-STEP FRAMEWORK

In this appeal, the Federal Circuit applied the two-step framework for determining whether the claims at issue are drawn to a patent-ineligible concept, as explained in the Supreme Court’s opinion in Alice Corp. Pty Ltd. v. CLS Bank Int’l, 134 S.Ct. 2347 (2014):

…we set forth a framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts. First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts….If so, we then ask, “what else is there in the claims before us?” To answer that question, we 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… We have described step two of this analysis as a search for an “`inventive concept'” — i.e., 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.” Id., at 2355.

Justice Thomas’ opinion in Alice also warned, however, against construing this exclusionary principle too broadly, “lest it swallow all of patent law”. Because all inventions draw upon laws of nature or abstract ideas, he cautioned that an invention should not be rendered ineligible simply because it involves an abstract concept. But, apart from his salutary admonitions, Justice Thomas offers very little guidance on applying the Alice two-step analysis, which he conducts on a largely ad hoc basis. Although he explicitly declines “to delimit the precise contours of the ‘abstract ideas’ category”, id., at 23577, he holds the computerized intermediated settlement process before the Court to be abstract because, like the computerized risk hedging system in Bilski v. Kappos, 130 S.Ct. 3218 (2010), it embodies a “practice long prevalent in our system of commerce”, id., at 2356. In so doing, his two-step framework tends to collapse into one step, with the “inventive concept” intruding in the determination of whether the invention is directed to an abstract idea.

And so, as we follow Alice “down the rabbit hole”, so to speak, we find that the confusion as to what is “abstract” and how that is determined infects many of the decisions that have attempted to apply the two-step test. Following Justice Thomas’ ad hoc approach, they have tended to attach the “abstract idea” label to any automated business process in which the underlying method is found to be “routine”, “well known”, or “conventional”. For example, Credit Acceptance Corp. v. Westlake Services, 859 F.3d 1044 (Fed. Cir. 2017), found a computerized system for generating financing packages for consumer purchases to be “abstract” by analogy to the “long prevalent” financial practices held patent-ineligible in Bilksi and Alice. Id. at 1054. When the Circuit Judges have attempted to go beyond this approach to actually address what “abstract ideas” means, the contradictions have only deepened. Thus, we have Judge Lourie in Ultramercial, Inc. v.HULU, LLC, 772 F.3d. 709 (Fed. Cir. 2014), defining an abstract idea as one “having no particular concrete or tangible form”, which “swallows” not only most business method inventions but most software inventions as well. Id. at 715. In his concurring opinion in the same case, Judge Mayer advocates a per se rule by which any claim directed to a business objective rather than a technological one would be deemed impermissibly abstract. Id. at 721. Perhaps from this extreme vantage we can discern at yearning for the pre-Bilksi “machine-or-transformation” test – or any “bright-line” as opposed to the amorphous Alice two-step.

In Enfish, LLC v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016), Judge Hughes at least recognizes the source of the problem:

The Supreme Court has not established a definitive rule to determine what constitutes an “abstract idea” sufficient to satisfy the first step of the Mayo/Alice inquiry… Rather, both this court and the Supreme Court have found it sufficient to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases. Id. at 1334

The Enfish case dealt with a “self-referential database”, which is about as “abstract” as you can get, at least by the common understanding of that term. But Judge Hughes properly directs his focus to the palpable effect of the improvement represented by this invention, not its inherently intangible characteristics. On that basis, he finds that the software claims at issue do not even fall into the “abstract ideas” category, so that he can forego step two of the Alice inquiry.

…that the improvement is not defined by reference to “physical” components does not doom the claims. To hold otherwise risks resurrecting a bright-line machine-or-transformation test,… or creating a categorical ban on software patents… Much of the advancement made in computer technology consists of improvements to software that, by their very nature, may not be defined by particular physical features but rather by logical structures and processes. We do not see in Bilski or Alice, or our cases, an exclusion to patenting this large field of technological progress. Id. at 1339

III. RETURN MAIL

If we were optimistically expecting further clarification of the Alice framework in the wake of Enfish, we did not get it in the two CBM appeals decided by the Federal Circuit last year – those being Credit Acceptance Corp. and this one, Return Mail. Instead we see the two-step approach morphing into a first step, consisting of over-generalizing and over-simplifying the claims so as to demonstrate their “abstract” and “routine” nature, followed by a second step, in which that same abstract routineness guarantees that no “inventive concept” will be found. Invocations of “existing business practice” coupled with “generic computing technology” is the formulaic rendering of the Alice two-step poised to swallow a large swath of patent law, Justice Thomas’ qualms notwithstanding.

As Judge Hughes observed in Enfish, virtually any claim can be reduced to the level of a bare abstraction if generalized enough. Id. at 1338. And so, in Return Mail, a system for using barcodes to link otherwise non-communicating data sources is characterized as simply the concept of “relaying mailing address data”. Id. at 1368 In the step one discussion, the court notes that “encoding and decoding mail recipient information — including whether the sender wants a corrected address — are processes that can, and have been, performed in the human mind”, Id. at 1368, thereby continuing to conflate abstraction with obviousness and rendering the step two inquiry redundant.

From the haze enveloping the category of “abstract ideas”, the court proceeds to obfuscate the distinction between a claim which is “directed to” an abstract idea and one which merely “involves” such an idea – which all inventions do to some degree, by common acknowledgment. Appellant triggers this discussion by requesting of the court a clarification of this distinction, and proposing “a test for determining whether claims are ‘directed to’ an abstract idea by looking to whether the claims have preempted others from entering the field.” Id. at 1369.

Chief Judge Prost responds to this request by acknowledging that preemption is the “underlying ‘concern that drives’ the §101 analysis”, since “monopolization of ‘the basic tools of scientific and technological work’ would ‘thwart the primary object of the patent laws’ to promote future innovation”. Id. at 1369-1370, quoting Alice, supra at 2354. Judge Prost also acknowledges that “preemption is part and parcel with the §101 inquiry”, and that “lack of preemption concerns” has been often cited by the court “to support a determination that a claim is patent eligible under §101.” But then he concludes with the rather circular argument that “the lack of preemption risk cannot save claims that are deemed to only be directed to patent-ineligible subject matter”. Id. at 1370

So the Return Mail offers no real guidance to patent practitioners as to how the Federal Circuit will interpret either the “precise contours of the ‘abstract ideas’ category” or the precise role that preemption plays in determining whether a claim simply “involves” patent-ineligible subject matter or is “directed to” it. Instead, this case resumes the line of ad hoc decision-making that has unfortunately followed in the wake Justice Thomas’ largely ad hoc analysis in Alice.

IV. CONCLUSION

Summing things up, the Federal Circuit, in tandem with the Supreme Court, seems to be continuing the recoil from State Street Bank v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998), which has been perceived as an overly expansive approach to business methods inventions. (See e.g., Justice Breyer’s concurrence in Bilski, where he remarked that State Street “preceded the granting of patents that ranged from the somewhat ridiculous to the truly absurd”. Id. at 3259) Perhaps the extreme limit of the repudiation of State Street was reached in Judge Mayer’s concurrence in Ultramercial, in which he urges that even “brilliant” and “ground-breaking” innovations be denied patent protection if they fall outside the “technological arena”. Id. at 721

How much further the judicial pendulum will swing this way before it starts back toward a reasonable middle ground is anyone’s guess – though perhaps the Enfish decision is a hopeful sign in that direction. In the meantime, hidebound interpretations of §101 patent eligibility will continue to bedevil patent practitioners and impede progress in business software applications.

Here’s a real nightmare scenario, but one which actually happened to one my clients recently. They’d been manufacturing and selling a product line for almost a decade, but were shocked to learn that one of their competitors had pending patent applications which, if approved, would give them exclusive rights to the product design. “What can we do to prevent these patents from issuing?!” was the client’s somewhat panicked email inquiry to me.

While the patent statutes and rules provide for pre-issuance opposition to the grant of a patent, the protest must either be initiated before the patent application is published or with the express consent of the applicant. This presents something of a quandary, since a patent application is not publically accessible until it’s published, usually 18 months after filing. On the other hand, waiting until after a competitor’s patent issues to challenge its validity is not a good option for many businesses, since post-issuance review often involves lengthy and costly trial litigation.

I advised my client to consider the more cost effective approach of preparing a pre-issuance Third Party Submission under 37 CFR §1290. This provision allows a third party, that is, someone other than the patent applicant, to submit documents to the patent examiner reviewing a pending application. Submissions may include any patents, published patent applications, or other printed publications that are potentially relevant to the examination of the application. Accompanying the submission must be an explanation of how each document relates to the claims made in the patent application. Since the window for making a Third Party Submission can close six months after the application is published, a certain amount of vigilance is required in monitoring the competition’s patent filings.

Printed publications eligible for submission under this procedure include non-patent publications, such as internet web pages. Fortunately for my client, they had a long-standing website that described their product line in some detail. But we also needed to submit evidence that this website was published before the filing date of the competitor’s patent application. For that purpose, we referred to a web archive to retrieve the client’s archived web page predating the application filing. By the way, the most comprehensive web archive goes by the name of the “Wayback Machine”, borrowed from the vintage cartoon series “Mr. Peabody’s Improbable History”.

Thomas Jefferson reputedly once observed that the price of liberty is eternal vigilance. Something like eternal vigilance is also vital to any business that doesn’t want to see its profitable product lines shut down by a competitor’s patent activity. The cost of retaining patent counsel to help monitor the competition’s patent filings can be small compared to the potential downside of remaining oblivious.