OIP Technologies, Inc. v. Amazon.com, Inc.

In the wake of the Supreme Court’s decision in Alice addressing patent-eligible subject matter (IP Update, Vol. 17, No. 7), the U.S. Court of Appeals for the Federal Circuit affirmed grant of judgment on the pleadings that a patent on price optimization in e-commerce does not claim eligible subject matter under 35 U.S.C. § 101. In his concurring opinion, Judge Mayer commented that patent eligibility is an issue properly resolved at the pleading stage. OIP Technologies, Inc. v. Amazon.com, Inc., Case No. 12-1696 (Fed. Cir., June 11, 2015) (Hughes, J.) (Mayer, J. concurring).

OIP, the patent owner, filed suit against Amazon alleging infringement of a patent directed to a computer-implemented price optimization method that “help[s] vendors automatically reach better pricing decisions through automatic estimation and measurement of actual demand to select prices.” The patent specification explains that traditional merchandisers manually determine prices, resulting in an imperfect pricing model where the merchandiser often is not charging an optimal price that maximizes profit because the merchandiser is slow to react to changing market conditions. The patent’s computer-implemented methods for “pricing a product for sale” thus sought to automate traditional price-optimization to improve efficiency and reduce costs.

Amazon filed a motion dismiss on the basis that the asserted patent was directed to ineligible subject matter. After the district court granted Amazon’s motion, finding that the asserted claims were invalid because they merely described a general purpose computer implementing the abstract idea of “price optimization,” OIP appealed.

The Federal Circuit, applying U.S. Court of Appeals for the Ninth Circuit law for review of a motion to dismiss, reviewed OIP’s appeal de novo and affirmed the district court.

Following Alice’s two-part test for patent eligibility, the Federal Circuit first determined that the claim method for price optimization was an abstract idea and was therefore a patent-ineligible concept. The Court further noted that the patent claims “merely recite ‘well-understood, routine conventional activit[ies],’ either by requiring conventional computer activities or routing data-gathering steps.” The Court then considered the next step required by Alice, whether the elements of the asserted claim, individually and as an ordered combination, transformed the nature of the claim into patent-eligible subject matter. The Court found that the claim elements, whether considered individually or taken together as an ordered combination, failed to transform the claimed abstract idea for price optimization into a patent-eligible matter.

The Federal Circuit explained that at best “the claims describe automation of the fundamental economic concept of offer-based price optimization through the use of generic-computer functions” and concluded that the mere use of a general purpose computer was insufficient to elevate the patent’s abstract ideas to patentable subject matter.

In a concurrence addressing a purely procedural Judge Mayer addressed OIP’s argument that the district court erred in resolving patent eligibility matter in a Rule 12 motion. Judge Mayer commended the district court for adhering to the Supreme Court’s instruction that patent eligibility is a threshold issue and wrote that “failure to recite statutory subject matter is the sort of ‘basic deficiency,’ that can, and should ‘be exposed at the point of minimum expenditure of time and money by the parties and the court.’”

Practice Note: Judge Mayer’s concurrence might be compared to a procedure recently implemented by District Judge Gilstrap in the U.S. District Court for the Eastern District of Texas requiring defendants to first seek leave from the court before filing an early motion on patent eligibility. Judge Gilstrap’s procedure only permits parties to file dispositive motions under 35 U.S.C. § 101 without leave from the Court following issuance of the court’s claim construction order. Thus, the order encourages defendants to wait until after claim construction to challenge patent eligibility.

Even in jurisdictions having local rules that mandate a threshold for motion, defendants confronted with infringement allegations based on patents that raise § 101 eligible subject matter issues may still want to consider raising the issue at the pleading stage, even if that means seeking leave of court. As noted in Judge Mayer’s concurrence, addressing patentable subject matter at the outset  conserves scarce judicial resources, spares litigants the costs of discovery and claim construction and stems vexatious suits brought by owners of “vague and overbroad” business method patents.