Wednesday, January 20, 2016

CAFC: a § 101 analysis may sometimes be undertaken without resolving fact issues.

In this case, the appellant MORTGAGE GRADER, INC., lost at the CAFC
on summary judgment as to 35 USC 101. The issues:

Mortgage Grader appeals the district court’s denial of its
motion to strike Defendants-Appellees First Choice Loan
Services, Inc. and NYLX, Inc.’s (“Appellees”) patentineligibility
defense. Appellees raised patent ineligibility
as a defense in their answer, then dropped it in their
initial invalidity contentions, only to add it back in their
final invalidity contentions. See Mortgage Grader, Inc. v.
Costco Wholesale Corp., 2014 WL 10763261, at *6 (C.D.
Cal. Oct. 27, 2014) (“Mortgage Grader I”). Second, Mortgage
Grader appeals the district court’s grant of Appellees’
motion for summary judgment that the asserted
claims are patent-ineligible. See Mortgage Grader, Inc. v.
Costco Wholesale Corp., 89 F. Supp. 3d 1055, 1065 (C.D.
Cal. 2015) (“Mortgage Grader II”). Mortgage Grader
contends that the district court improperly resolved
factual disputes against it and erred in its application of
35 U.S.C. § 101 (“§ 101”).

One issue pertained to the use of "standing patent rules."

Standing Patent Rules (“S.P.R.s”) would
apply to this case. Judge Guilford developed his S.P.R.s
“based largely on information obtained from over 100
patent practitioners and professors, a review of all the
other local patent rules, and a review of related literature.”
J.A. 64. The S.P.R.s are intended “to reduce transaction
costs and increase procedural predictability,” while
also being as “outcome neutral and as concise as possible.”

The CAFC observed:

Judge Guilford’s Standing Patent Rules are similar to
the Patent Local Rules adopted by the Northern District
of California and many other districts. Like Patent Local
Rules, the S.P.R.s “are essentially a series of case management
orders that fall within a district court’s broad
power to control its docket and enforce its order.” Keranos,
LLC v. Silicon Storage Tech., Inc., 797 F.3d 1025,
1035 (Fed. Cir. 2015). District courts have inherent
power to manage their own docket, see, e.g., Ryan v.
Gonzales, 133 S. Ct. 696, 708 (2013); Ethicon, Inc. v.
Quigg, 849 F.2d 1422, 1426 (Fed. Cir. 1988), and are
authorized to “consider and take appropriate action” to
facilitate the “just, speedy, and inexpensive disposition” of
all matters before them. Fed. R. Civ. P. 16; see also Fed.
R. Civ. P. 1. Judge Guilford’s creation and adoption of his
S.P.R.s fall squarely within this broad authority.

Here, the issue was the intervening decision in Alice:

In applying S.P.R. 4.2.2, the district court found that
generally a party cannot claim diligence when it includes
a defense in its answer, fails to include the defense in
initial invalidity contentions, and many months later
adds the defense to its final contentions. See Mortgage
Grader I, 2014 WL 10763261, at *6. While the court
acknowledged that “an argument can be made that Alice
is only a modest advance,” it concluded that “Alice did
provide significant additional clarity on the effect, or lack
of effect, of requiring the use of a computer in the claims.”
Id. at *7. Ultimately, the court concluded that, “[i]n
short, Alice represents a big enough change to justify
including a new § 101 argument in Defendants’ Final
Invalidity Contentions.” Id.

Mortgage Grader argues that the district court abused
its discretion by failing to strike Appellees’ § 101 defense
from their final invalidity contentions. Mortgage Grader’s
primary basis for this argument is its claim that the
Supreme Court’s decision in Alice neither created a new
defense nor changed the law. On these grounds, Mortgage
Grader claims the decision in Alice cannot be a basis
for finding good cause to amend invalidity contentions.
We find no abuse of discretion in the court’s ruling.


Ultramercial III demonstrates that a § 101 defense
previously lacking in merit may be meritorious after
Alice. This scenario is most likely to occur with respect to
patent claims that involve implementations of economic
arrangements using generic computer technology, as the
claims do here.

Mortgage Grader loses:

Mortgage Grader’s arguments to the contrary are unpersuasive.
First, Mortgage Grader points to this Court’s
statement in a non-precedential opinion, Smartflash LLC
v. Apple Inc., 621 Fed. App’x 995, 1002 (Fed. Cir. 2015),
that “Alice did not create a new § 101 defense, but rather
clarified § 101 jurisprudence.” As we have just explained,
even an “old” § 101 defense may enjoy renewed vigor in
light of Alice. More importantly, our statement in Smartflash
was in an entirely different context: review of denial
of a motion to stay pending Covered Business Method
review, where the alleged infringer waited until four
months after Alice was decided (by which time a jury trial
had been completed) and argued that “the stage of litigation
facing the court is irrelevant to its right to a stay.”
Id. We found no abuse of discretion in the trial court’s
decision to deny a stay in such circumstances. Here, we
conclude similarly that the court did not abuse its discretion
in finding that Appellees acted diligently by adding
the § 101 defense just two months after Alice came down,
satisfying the “good cause” standard imposed by S.P.R.
4.2.2. The standard of review employed in both Smartflash
and here cannot be removed from the results
reached in each case—in neither instance did the district
court abuse the broad discretion afforded it.
Next, Mortgage Grader argues we should

As to the 101 issue:

The district court carefully and correctly applied this
two-step framework to the patents-in-suit.6 Regarding
step 1, we agree with the district court that the asserted
claims are directed to the abstract idea of “anonymous
loan shopping.” Mortgage Grader II, 89 F. Supp. 3d at
1063. The claim limitations, analyzed individually and
“as a whole,” Alice, 134 S. Ct. at 2359, recite nothing more
than the collection of information to generate a “credit
grading” and to facilitate anonymous loan shopping. As
the district court explained, the claims specify that “the
borrower is anonymous to the lender until the borrower
has been informed of the cost of the loan based on the
borrower’s credit grading, and the borrower then chooses
to expose its identity to a lender.” Mortgage Grader II, 89
F. Supp. 3d at 1063. The series of steps covered by the
asserted claims—borrower applies for a loan, a third
party calculates the borrower’s credit grading, lenders
provide loan pricing information to the third party based
on the borrower’s credit grading, and only thereafter (at
the election of the borrower) the borrower discloses its
identity to a lender—could all be performed by humans
without a computer. Cf. CyberSource Corp. v. Retail
Decisions, Inc., 654 F.3d 1366, 1373 (Fed. Cir. 2011)
(“[C]omputational methods which can be performed
entirely in the human mind are the types of methods that
embody the ‘basic tools of scientific and technological
work’ that are free to all men and reserved exclusively to
none.”) (quoting Gottschalk v. Benson, 409 U.S. 63, 67
Because the claims are directed to an abstract idea,
the claims must include an “inventive concept” in order to
be patent-eligible. No such inventive concept is present
here. Instead, the claims “add” only generic computer
components such as an “interface,” “network,” and “database.”
These generic computer components do not satisfy
the inventive concept requirement. See Intellectual
Ventures I LLC v. Capital One Bank (USA), 792 F.3d
1363, 1370 (Fed. Cir. 2015) (“[T]he interactive interface
limitation is a generic computer element.”); buySAFE, 765
F.3d at 1355 (sending information over network is “not
even arguably inventive”); Accenture Global Servs. GmbH
v. Guidewire Software, Inc., 728 F.3d 1336, 1344 (Fed.
Cir. 2013)


Nothing in the asserted claims “purport[s] to improve
the functioning of the computer itself” or “effect an improvement
in any other technology or technical field.”
Alice, 134 S. Ct. at 2359. Nor do the claims solve a problem
unique to the Internet. See DDR Holdings, 773 F.3d
at 1257. In addition, the claims are not adequately tied to
“a particular machine or apparatus.” Bilski v. Kappos,
561 U.S. 593, 601 (2010).

A 101 issue may be resolved on summary judgment

The § 101 inquiry “may contain underlying factual issues.”
Accenture, 728 F.3d at 1341 (emphasis added); see
also Arrhythmia Research Tech., Inc. v. Corazonix Corp.,
958 F.2d 1053, 1055–56 (Fed. Cir. 1992) (“Whether a
claim is directed to statutory subject matter is a question
of law. Although determination of this question may
require findings of underlying facts specific to the particular
subject matter and its mode of claiming, in this case
there were no disputed facts material to the issue.”). But
it is also possible, as numerous cases have recognized,
that a § 101 analysis may sometimes be undertaken
without resolving fact issues. See, e.g., Accenture, 728
F.3d at 1346. In such circumstances, the § 101 inquiry
may appropriately be resolved on a motion for summary


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