Amdocs (Israel) Ltd. v. Openet Telecom, Inc., No. 15-1180 (Fed. Cir. Nov. 1, 2016) is the latest in a series of recent decisions in which the U.S. Court of Appeals for the Federal Circuit has reversed a district court’s finding of patent ineligibility under 35 U.S.C. § 101. In Amdocs, the Federal Circuit addressed the application of the judicially created “abstract idea” exception to patent eligibility under the two-step framework set forth by the U.S. Supreme Court in Alice Corp. v. CLS Bank International 134 S. Ct. 2347 (2014) (following Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)).

The district court in Amdocs invalidated the four patents asserted by Plaintiff-Appellant Amdocs (Israel) Ltd. as patent ineligible under § 101 using the two-step Alice/Mayo framework: US Patent Nos. 7,631,065 (“’065 patent”); 7,412,510 (“’510 patent”); 6,947,984 (“’984 patent”); and 6,836,797 (“’797 patent”). As discussed by the Federal Circuit, all four patents relate to “parts of a system designed to solve an accounting and billing problem faced by network service providers,” namely “congestion in network bottlenecks” and “massive record flows…which required huge databases” in “prior art systems that stored information in one location.” This solution is accomplished using components “that are arrayed in a distributed architecture that minimizes the impact on network resources” by “collecting and processing data close to its source”, with “distributed data gathering, filtering, and enhancements that enable load distribution” while allowing “data to reside close to the information sources, thereby reducing congestion in network bottlenecks, while still allowing data to be accessible from a central location”. Claim 1 of the ’065 patent was presented by the court as a representative claim:

A computer program product embodied on a computer readable storage medium for processing network accounting information comprising:

computer code for receiving from a first source a first network accounting record;

computer code for correlating the first network accounting record with accounting information available from a second source; and

computer code for using the accounting information with which the first network accounting record is correlated to enhance the first network accounting record.

In analyzing the claim, the Federal Circuit relied on its claim construction from a previous appeal in the case. In particular, the court relied on the construction of the term “enhance” as meaning “to apply a number of field enhancements in a distributed fashion”, and as being dependent upon the invention’s distributed architecture, noting the district court’s explanation that “distributed” meant that the network usage records are processed close to their sources before being transmitted to a centralized manager, and approving the district court’s reading of “in a distributed fashion” and “close to the source” into the term “enhance”. Furthermore, the “enhance” limitation was also characterized as depending on generic components (“network devices” and “gatherers”) working in a distribute manner to enhance data collected from a single source, which conventionally may not contain all the information needed for billing and accounting, by “combining IP session data from multiple sources” to create “meaningful session records” for a network service provider.

In reviewing the district court’s finding of patent ineligibility, the Federal Circuit recognized that there is no “single, universal definition of an ‘abstract idea,’” noting the difficulty in fashioning a workable definition that can “be applied to as-yet-unknown cases with as-yet-unknown inventions.” Instead, the court adopted a common law approach to determine whether the asserted patent claims covered an abstract idea under the two-step Alice/Mayo framework. This approach compared the claims asserted in the present case with “eligible and ineligible claims of a similar nature from past cases.” The Federal Circuit in this case compared the asserted claims to the ineligible claims from Digitech (directed to the abstract idea of “organizing information through mathematical correlations”), Content Extraction (directed to the abstract idea of “1) collecting data, 2) recognizing certain data within the collected data set, and 3) storing that recognized data in a memory”), and In re TLI Commc’ns (directed to the abstract idea of “classifying and storing digital images in an organized manner”)in addition to the eligible claims from DDR Holdings and BASCOM. See Digitech Image Techs., LLC v. Elecs. for Imaging, Inc., 758 F.3d 1344 (Fed. Cir. 2014); Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat’l Ass’n, 776 F.3d 1343 (Fed. Cir. 2014); In re TLI Commc’ns LLC Patent Litig., 823 F.3d 607 (Fed. Cir. 2016); DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014); BASCOM Clob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016).

After applying this common law approach, the Federal Circuit concluded that the claims were “much closer to those in BASCOM and DDR Holdings than those in Digitech, Content Extraction, and In re TLI Commc’ns.” Like the claims in BASCOM and DDR Holdings, the court felt that the claims “solve[d] a technology-based problem” and served “to improve the performance of the system itself” by providing an inventive concept “with conventional, generic components, combined in an unconventional manner”, i.e., “the use of distributed architecture.” Unlike the ineligible claims of the other three prior cases examined by the court, the claims were characterized as “narrowly drawn to not preempt any and all generic enhancement of data in a similar system.” Therefore, the court reversed the district court and found that the claims of all four patents were patent eligible under § 101 and not directed to abstract ideas.

According to the court, even if each of the asserted claims were directed to an abstract idea under step one of the Alice/Mayo framework, as was found by the district court, the enhancement limitations of the claims would make them eligible under step two. Although it is not clear from the opinion whether the claims would also be considered eligible under step one, the court noted that recent cases “suggest that there is considerable overlap between step one and step two, and in some situations this analysis could be accomplished without going beyond step one.”

The Dissent

In his dissent, Judge Reyna criticized the majority for “[d]eclining to engage in the step 1 inquiry,” which he believes is contrary to the Supreme Court’s direction in Alice, while ignoring and undermining the Court’s previous post-Alice holdings. Judge Reyna also disagreed with the majority’s reliance on the specification “to import innovative limitations into the claims at issue,” noting that the majority’s eligibility determination for each of the four patents at issue rests on the use of a “distribution architecture” that does not appear in all of the claims. According to Judge Reyna, reading this limitation into the claims “contravenes the fundamental principal that the section 101 inquiry is about whether the claims are directed to a patent-eligible invention, not whether the specification is so directed.”

Practice Tips

This case offers a number of practice tips to patent practitioners prosecuting software related applications before the U.S. Patent and Trademark Office (USPTO). First, practitioners should compare and contrast the pending claims in an application to the claims found to be patent eligible and ineligible under section 101 in prior decisions by the Federal Circuit, and highlight similarities. In particular with regard to this decision, inventions benefitting from a distributed architecture should stress those features, as they have now resulted in multiple patents being found to have patent eligible claims In addition to the prior Federal Circuit decisions, practitioners should also review the USPTO’s guidance to examiners on subject matter eligibility based on recent Federal Circuit decisions—see memoranda published to the USPTO’s website on May 16, 2016 July 14, 2016; and November 2, 2016*. Also, when it is appropriate to do so in responses to Office Actions, practitioners should try to point to how the subject matter of the claims operate to improve the functionality of a computing device. Finally, when drafting the specification of a patent application, practitioners should include language explaining how the technology solves a technological problem and/or improves a computing device.

* The November 2, 2016 Memorandum indicated that the Amdocs decision will be discussed in a forthcoming update to the eligibility guidance.