IP Law Daily Invalidity dismissal vacated in lawsuit over patent on data processing system; denial of amendment reversed
Wednesday, February 14, 2018

Invalidity dismissal vacated in lawsuit over patent on data processing system; denial of amendment reversed

By Mark Engstrom, J.D.

A federal district court erred in dismissing a patent infringement suit filed by Aatrix Software against Green Shades Software, the U.S. Court of Appeals for the Federal Circuit has ruled. The district court erroneously found that the representative claim of the patents in suit was patent ineligible because the claim was not directed to a tangible embodiment. The data processing system of that claim was "very much a tangible system," the Federal Circuit concluded, so the lower court should have conducted an Alice analysis. Because it failed to do so, the dismissal of the claim for failure to state a viable cause of action was vacated and remanded. In addition, the lower court abused its discretion by denying Aatrix’s motion to amend, despite the existence of factual allegations—in the proposed amendment—that the claimed combination contained inventive components and "improve[ed] the workings" of a user’s computer. Because inventions directed to improvements to a computer’s functioning and operation were patent eligible, Aatrix could file an amended complaint. The Federal Circuit thus reversed the district court’s denial of Aatrix’s motion to amend. Circuit Judge Jimmie V. Reyna wrote separately to dissent in part (Aatrix Software, Inc. v. Green Shades Software, Inc., February 14, 2018, Moore, K.).

Lawsuit. Aatrix Software sued Green Shades Software for the infringement of U.S. Patent Nos. 7,171,615 and 8,984,393, both of which disclosed a "Method and apparatus for creating and filing forms." Green Shades sought dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure. According to Green Shades, all of the asserted patent claims were patent ineligible under 35 U.S.C. §101.

Patents in suit. Both patents were directed to systems and methods for designing, creating, and importing data into a viewable form on a computer so a user could manipulate the form data and create viewable forms and reports. The preferred embodiment was a data processing system with three main components: a form file, a data file, and a viewer.

District court’s findings. The district court concluded that every asserted claim was patent ineligible. More specifically, it found that claim 1 of the ’615 patent (the representative claim) was not directed to a tangible embodiment, and further found that claim 2 of the ’615 patent was directed to the abstract idea of collecting, organizing, and performing calculations on data to fill out forms—a fundamental human activity that could be performed with a pen and paper—but lacked an inventive concept. Finally, the district court found that claim 22 of the ’615 patent and claims 1, 13, and 17 of the ’393 patent were substantively the same as claim 2 of the ’615 patent, and thus were similarly directed to abstract ideas that lacked an inventive concept.

Federal Circuit decision. To the extent that the district court had found that claim 1 of the ’615 patent was patent ineligible because the claim was not directed to a tangible embodiment, that finding was erroneous, the Federal Circuit concluded. Similarly, the district court erroneously found that Aatrix was not entitled to amend its claim, despite factual allegations—in the proposed amendment—that the claimed combination contained inventive components and improved the workings of the computer.

The Federal Circuit acknowledged that claims to pure data and claims to transitory signals that were embedded with data constituted ineligible subject matter under Section 101. In this case, however, the rationale of the supporting decisions—failure of the claimed matter to come within any of the four statutory categories: process, machine, manufacture, composition of matter—was inapplicable.

Claim 1 disclosed a data processing system that clearly required a computer operating software, a means for viewing and changing data, and a means for viewing forms and reports. In the Federal Circuit’s view, the claimed system was "very much" a tangible one. The district court erred in holding claim 1 patent ineligible, the Federal Circuit explained. In the appellate court’s view, the lower court should have performed an Alice analysis of claim 1.

The district court did perform an Alice analysis of the remaining claims, and it similarly concluded that those claims were patent ineligible. In addition, the district court denied Aatrix’s request to file a second amended complaint. According to the Federal Circuit, that denial was an abuse of discretion because Aatrix had pleaded sufficient factual allegations to preclude dismissal.

The proposed amendment "supplied numerous allegations related to the inventive concepts present in the claimed form file technology," the Federal Circuit explained. The amendment described the development of the patented invention, including problems that were present in the computerized form-file creation of the prior art, and presented specific allegations that were directed to "improvements and problems solved by the Aatrix patented inventions." In addition, the complaint alleged that the claimed invention increased the efficiencies of computers that processed tax forms, saved storage space in a user’s RAM and hard disk, and reduced the risk of "thrashing," a condition that slowed prior-art systems. Finally, the complaint alleged that the claimed software facilitated faster processing speeds.

In the Federal Circuit’s view, Aatrix’s allegations suggested that the claimed invention was directed to an improvement in computer technology itself, and not to generic components that performed conventional activities. Because the Federal Circuit had repeatedly held that inventions directed to improvements in the functioning and operation of a computer were patent eligible, the district court’s finding that the claimed combination was "conventional or routine" was erroneous, and the denial of leave to amend was an abuse of discretion.

The court acknowledged that the determination of patent eligibility under Section 101 was a question of law, but added that "subsidiary fact questions" might need to be resolved before an ultimate legal determination was made. In this case, a subsidiary question—whether the claim elements or the claimed combination were well understood, routine, or conventional—was a question of fact, the court observed, and that question could not be answered adversely to the patentee based on the sources that were properly considered on a motion to dismiss (i.e., the complaint, the patent, and the materials subject to judicial notice).

Aatrix was entitled to file a proposed amendment, the court concluded, and the district court would have to conduct claim construction on remand.

Dissent. Circuit Judge Jimmie V. Reyna agreed with the majority that the district court had erred in concluding that claim 1 of the ’615 patent was directed to an abstract idea because the patent lacked a "tangible embodiment." Judge Reyna disagreed, however, with the majority’s "broad statements on the role of factual evidence in a §101 inquiry" because Federal Circuit precedent clearly indicated that a Section 101 inquiry was a legal question. The majority opinion "attempts to shoehorn a significant factual component into the Alice §101 analysis," Judge Reyna opined. The majority was attempting to expand the circuit’s case law on patent eligibility under Section 101 at the dismissal stage of a proceeding, Judge Reyna added, and that expansion contradicted the court’s previous findings that patent ineligibility under Section 101 was a question of law that could be decided on a motion to dismiss.

The case is No. 2017-1452.

Attorneys: John Bentley Lunseth II (Briggs & Morgan, PA) for Aatrix Software, Inc. Joseph W. Bain (Shutts & Bowen LLP) for Green Shades Software, Inc.

Companies: Aatrix Software, Inc.; Green Shades Software, Inc.

MainStory: TopStory Patent FedCirNews

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