Mary Siceloff

Patents covering software for use in the financial industry are increasingly being invalidated by the courts. Because of the Supreme Court’s decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), district courts are holding these patents invalid on the grounds that they are unpatentable abstract ideas, and the Federal Circuit Court of Appeals is affirming the district courts’ decisions.

Patents may cover one of four statutory categories of inventions: (1) machines; (2) articles of manufacture; (3) processes; and (4) compositions of matter. 35.U.S.C. §101. These types of inventions are called “patent-eligible subject matter.” The longstanding exceptions to these four categories are: natural phenomena, laws of nature, and abstract ideas. These types of inventions are called “patent-ineligible subject matter.”

In Alice Corp., the Supreme Court established a two-part test to determine the patentability of claims directed to patent-ineligible subject matter. The first step is to decide whether the claims in the patent are directed to patent ineligible subject matter, such as an abstract idea. If so, the second step is to determine whether the elements of the claim transform the abstract idea into a patent-eligible application.

Two recent cases illustrate the trend. In both cases, the claims covered software for use in the financial industry, as was true of the claims invalidated in Alice Corp.

In OIP Technologies, Inc. v. Amazon.com, Inc., 788 F.3d 1359 (Fed. Cir. 2015), the district court for the Northern District of California granted Amazon’s motion to dismiss OIP’s complaint on the grounds that OIP’s patent was directed to a patent-ineligible abstract idea. OIP’s patent covered a method for pricing a product for sale, using “offer-based price optimization.” In affirming the district court’s decision, the Federal Circuit held that the patent was invalid under the Alice Corp. test. The first step of the test was met because the claims were directed to a patent-ineligible abstract idea (offer-based price optimization). The second step of the test was met because the elements of the claims did not transform the claims into a patent-eligible application. The court stated that the claims “merely recite ‘well-understood, routine conventional activities,’ either by requiring conventional computer activities or routine data-gathering.” The court emphasized at 1093, that:

“At best, the claims describe the automation of the fundamental economic concept of offer-based price optimization through the use of generic-computer functions.

But relying on a computer to perform routine tasks more quickly or more accurately is insufficient to render a claim patent eligible.

These processes are well-understood, routine, conventional data-gathering activities that do not make the claims patent eligible.“

In Intellectual Ventures I LLC v. Capital One Bank, 2015 U.S. App. LEXIS 11537, the district court for the Eastern District of Virginia granted the defendant’s motion for summary judgment of invalidity of two patents. One patent covered methods of budgeting, including tracking and comparing a user’s purchase information to their budget. The other patent covered a method in which web page content was customized for the user based on the user’s prior Internet usage. The Federal Circuit affirmed the district court’s grant of summary judgment. As to the budgeting method patent, the court held that budgeting is clearly an abstract idea and that the other elements of the claim were generic computer elements which did not make the claims patentable. The court explained, at *11:

“[T]he budgeting calculations at issue here are unpatentable because they ‘could still be made using a pencil and paper’ with a simple notification device.”

As to the web page patent, the court found that the concept of tailoring information to the user is an “abstract, overly-broad concept, long practiced in our society” and that “merely adding computer functionality to increase the speed or efficiency of the process does confirm patent eligibility . . .”

These two cases are not unusual. In fact, they are becoming routine. Financial industry patents face serious problems. Because of Alice Corp., they are more difficult to obtain than patents for other types of inventions and they are much less likely to survive challenge.

By: Intellectual Property Group

Michael Jordan is considered by many to be the greatest basketball player of all time. Beyond his five MVP trophies and six NBA championship rings, however Jordan also was the one of the most widely marketed athletic personalities in history. His name and image ultimately became iconic when Nike developed a new type of basketball shoe named “Air Jordan,” marked with the “Jumpman” logo – a silhouetted image of Jordan in mid-flight on his way to delivering a one-handed slam dunk.

Jordan’s fame knows almost no boundaries. He and former Houston Rockets star Yao Ming are the most popular international basketball stars in China, where Jordan is known as “Qiaodan.” Not surprisingly, and in the marked absence of any “Air Ming” footwear, Air Qiaodan sneakers have become popular in China. “Air Qiaodan” products are not endorsed or backed by Michael Jordan, rather they are manufactured and distributed by Qiaodan Sports Co. Beyond merely using Jordan’s Chinese name, Qiaodan’s products carry a logo closely resembling the “Jumpman” used on Nike’s “Air Jordan” products.

Believing that Qiaodan’s actions were causing confusion among Chinese consumers by misleading them into believing that Qiaodan Sports Co. was affiliated with His Airness, Jordan sought to cancel Qiaodan’s trademark. The Chinese lower courts refused to cancel Qiaodan’s trademarks, and the case was appealed to the Beijing Higher People’s Court. The Beijing Higher People’s Court has now ruled against Jordan.

The court noted that “’Jordan’ is not the only possible reference for ‘Qiaodan’ in the trademark under dispute.” The court also commented that “’Jordan’ is a common surname used by Americans.” Explaining its decision regarding Qiaodan’s use of the Jumpman logo, the court reasoned that the logo is in the shape of a person with no facial features, so therefore it is difficult for consumers to identify the Jumpman as Michael Jordan. The court therefore concluded that there was insufficient evidence to prove the Qiaodan trademark referred to Michael Jordan or otherwise caused confusion among consumers.

While the Higher People’s Court’s ruling seems to be the outcome of a decision in search of an analysis, it should come as no surprise. China frequently reinforces its reputation of being a sanctuary for producers of counterfeit goods by failing to enforce international intellectual property rights.

Pending before the 9th Circuit is a case which may change the landscape for online copyright protection. The case, Lenz v. Universal, may make it more difficult for copyright owners to protect against infringement in today’s environment of hyper infringement. Defenders of Lenz argue that this case represents the quest for a legitimate balance between overzealous copyright enforcement and legitimate, non-infringing use.

The facts of Lenz are fairly simple. Lenz posted to YouTube a very short video of her young child dancing to a Prince song playing in the background. At the time, Universal Music Publishing was managing Prince’s music publishing. An attorney at Universal manually reviewed the posting but acknowledged that he did not consider whether the Lenz video was fair use. Universal sent a DMCA takedown notice to YouTube and YouTube removed access to the video. Most normal takedown situations end there; however, Lenz was upset and, after trying and failing to remedy the situation herself, sought the aid of attorneys at the Electronic Frontier Foundation.

The DMCA was enacted in 1999 as an attempt by Congress to stem the tide of rampant online copyright infringement. The DMCA offered copyright owners a streamlined process for taking down from the Internet allegedly infringing material and online service providers had great incentive to follow the process laid out in the DMCA; to not do so opened one up to potential secondary liability for their users’ activities. Congress included a requirement that the allegation of infringement in a takedown notice include a statement that the sender had a good faith belief that the posting of the allegedly infringing content was not authorized by law. Specifically, Section 512(c)(3)(A)(v) requires a takedown notice to include “[a] statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.”

Congress also included in the statute a prohibition against making a misrepresentation in a takedown notice. Section 512(f) provides:

(f) Misrepresentations — Any person who knowingly materially misrepresents under this section—

(1) that material or activity is infringing, or

(2) that material or activity was removed or disabled by mistake or misidentification, shall be liable for any damages, including costs and attorneys’ fees, incurred by the alleged infringer, by any copyright owner or copyright owner’s authorized licensee, or by a service provider, who is injured by such misrepresentation, as the result of the service provider relying upon such misrepresentation in removing or disabling access to the material or activity claimed to be infringing, or in replacing the removed material or ceasing to disable access to it.

Lenz contends that Universal violated Section 512(f) when it failed to consider fair use prior to sending the takedown notice. The court made clear earlier in the case that fair use is a use authorized by law and a copyright owner must consider fair use before proceeding with a takedown notice under the DMCA. Universal acknowledged that while it considered other factors that are relevant to a fair use analysis, it did not engage in a fair use analysis per se. Is this sufficient to impose Section 512(f) liability on Universal? Lenz argues that it is. Lenz argues that her post was clearly fair use and that Universal’s failure to consider fair use was willful blindness. Universal argues that it is not. Universal argues that its failure to engage in a fair use analysis when it was unaware that such analysis was required is not a “knowing” misrepresentation and points to 9th Circuit precedent which holds that the good faith requirement in § 512(c)(3)(A)(v) is to be evaluated according to a subjective standard.

Whether or not Universal’s lack of actual knowledge that it should perform an initial fair use assessment before sending a takedown notice allows it to escape liability under Section 512(f) is just one issue at the center of the appeal. Another issue being pressed by Universal is whether, and to what degree, a copyright owner must engage in a fair use analysis before sending a takedown notice. The determination of this issue will have ramifications on the ability of all content owners to police online infringement.

At oral argument before the 9th Circuit on July 7, 2015, Universal argued that the DMCA takedown system “simply can’t function” if owners need to engage in a fact intensive fair use analysis prior to sending a takedown notice. “Is that an argument you should be making to Congress?” U.S. Circuit Judge Mary H. Murguia asked. “The plain text, a reading of it, says that fair use should, or could be, and likely needs to be, considered.”

The court acknowledged that such a requirement would impose a greater challenge on a copyright owner’s ability to police online infringement. In questioning Lenz’s attorney, the court asked “Doesn’t [the fact that millions of DMCA takedown notices are filed each year, and only a fraction of a percent of them are later disputed by the targeted users] suggest that copyright infringement is rampant all over the Internet and that what you’re asking for here is a clarification or an interpretation of the law that will make it more onerous on the copyright owners to get these takedowns accomplished against people who are truly infringing their copyright?”

In general, any appeal from a civil action involving claims of patent infringement must be made to the Federal Circuit in Washington, D.C. A recent case from the Ninth Circuit, Amity Rubberized Pen Company v. Market Quest Group, illustrates this principle as well as demonstrating the practical measures an appellate court will take to help an appeal survive.

In Amity Rubberized Pen Co., Amity held a patent for a device that dispensed both toothpicks and tablets such as breath mints. In 2006, Amity sued Market Quest Group alleging infringement of its patent and brought various other federal and state law claims. Counsel for Amity withdrew from the case during trial and the court declared a mistrial and ordered that Amity substitute in new counsel. It also awarded Market Quest its attorney’s fees and costs for the mistrial and warned Amity that it would dismiss the case if it failed to pay. Amity did not pay the fees and in 2010, the Court dismissed the case with prejudice.

Approximately three years later, in 2013, Amity filed a new lawsuit against Market Quest alleging similar claims as the previous action, including claims for patent infringement. Market Quest filed a motion to dismiss the lawsuit on the grounds of res judicata, arguing that the present actin was barred by the dismissal with prejudice of similar claims three years earlier. The District Court agreed and dismissed the 2013 lawsuit. Amity appealed this dismissal to the Ninth Circuit Court of Appeals instead of to the Federal Circuit.

The Ninth Circuit concluded that it lacked jurisdiction to hear Amity’s appeal. The Court recognized that generally it had appellate jurisdiction over appeals emanating “from the United States District Courts within the geographical boundaries of the Circuit.” The Court recognized, however, that this jurisdiction was not absolute in that Congress had granted the Federal Circuit “exclusive jurisdiction … of an appeal from a final decision of a district court of the United States … in any civil action arising under … any act of Congress relating to patents.” Although the dismissal was premised on the common law doctrine of res judicata, the Ninth Circuit recognized that “a case arises under the patent laws where `a well pleaded complaint establishes … that federal patent law creates the cause of action.’” Here, Amity had asserted a claim for patent infringement in the 2013 lawsuit against Market Quest thereby triggering the Federal Circuit’s appellate jurisdiction. Given this, the Ninth Circuit lacked the jurisdiction to determine the merits of Amity’s appeal.

However, rather than dismiss the appeal which, depending on certain timing issues would likely have barred Amity from refiling the appeal in the Federal Circuit, the Ninth Circuit decided to order that the appeal be transferred to the Federal Circuit. In reliance on 28 U.S.C. section 1631, the Ninth Circuit concluded that it had the authority to transfer the appeal to a federal court of competent jurisdiction provided: “(1) the Court to which the appeal is to be transferred would have had jurisdiction at the time the appeal was filed; and (2) transfer is `in the interest of justice’.” The Ninth Circuit also recognized that it could order the transfer of the appeal on its own without Amity filing a motion for such transfer.

In applying the two prong test, the Ninth Circuit concluded that the Federal Circuit had original jurisdiction over the appeal at the time it was mistakenly filed in the Ninth Circuit. This was because 28 U.S.C. section 1295 gives the Federal Circuit exclusive appellate jurisdiction over patent infringement claims. The Ninth Circuit then turned to whether a transfer of the appeal would be “in the interest of justice” finding this a more complex issue.

The Ninth Circuit recognized that it had taken a broad view of when a transfer would be appropriate, having previously held a “transfer will be in the interest of justice because normally dismissal of an action that could be brought elsewhere is ‘time consuming and just as defeating’.” The Ninth Circuit had also recognized that transfer is often times a suitable remedy so as not to penalize a party for “an honest procedural mistake.” The Court continued that a transfer should be ordered “where … the plaintiffs appear to have been `unaware of or confused about the proper forum in which to file [their] action’ as well as having held that it was in the interest of justice to transfer a case `when the time period has elapsed to file in the appropriate court’.” Finally, the Ninth Circuit recognized that it had rarely held that it would not be in the interest of justice to order the transfer of a case to another court. Thus, unless the matter to be transferred “is frivolous or was filed in bad faith,” the Ninth Circuit concluded that it would be in the interest of justice to transfer the case to the Federal Circuit rather than dismissing the appeal.

The Amity decision is a reminder to counsel in litigating patent infringement claims that any appeal from an unfavorable ruling must be made to the Federal Circuit. However, at least in the Ninth Circuit, there does not appear to be the likelihood of the severe penalty of dismissal should counsel mistakenly appeal to the wrong court.