The Federal Circuit, for only the third time since the Supreme Court provided the two-step Alice[1] framework in 2014, found software-based patent claims eligible under step two of the analysis.  Perhaps the initial stages of a patent-eligible trend for narrowly drawn software-based patent claims, that are directed to specific, unconventional technological solutions, are underway.  

On November 1, 2016, the Federal Circuit held that the claims-at-issue in four software-based patents, assigned to Amdocs (Israel) Limited, are directed to patent-eligible subject matter under 35 U.S.C. § 101.  Amdocs (Isr.) Ltd. v. Openet Telecom, Inc., No. 2015-1180, 2016 U.S. App. LEXIS 19593 (Fed. Cir. Nov. 1, 2016).  The court, relying on a detailed examination of a series of relevant prior opinions, reversed the Eastern District of Virginia court’s ruling on a motion for judgment on the pleadings and remanded the case for further proceedings.

The patents-in-suit disclose a software system that monitors activity on computer networks for the purpose of creating accounting records of such activity and is “designed to solve an accounting and billing problem faced by network service providers.”  Amdocs, at *2.  Collectively, the patents disclose a “system, method, and computer program for merging data in a network-based filtering and aggregating platform as well as a related apparatus for enhancing networking accounting data records.” Id.  The written description of the patents describe a system that allows network service providers to “account for and bill for internet protocol (“IP”) network communications” and whose “components are arrayed in a distributed architecture that minimizes the impact on network and system resources.”  Id. at *3, *4.

The court analyzed the eligibility of the claims in three main phases:  restating the now familiar two-step test set forth in Alice; describing the rationale of prior precedent; and analogizing the facts in the present case to the facts contained in the controlling precedent.  The court began with Alice: “[f]irst, we determine whether the claims at issue are directed to one of those patent-ineligible concepts.  If so, we next consider elements of each claim both individually and as an ordered combination to determine whether the additional elements transform the nature of the claim into a patent-eligible application.”  Id. at *9-10 (internal citation and quotations omitted). 

The court then analyzed prior precedent holding patent claims either patent-eligible or patent-ineligible under Alice.  The court discussed three cases in which the claimed inventions qualified as abstract ideas under step one and were found to be § 101 ineligible subject matter under step two:  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) and In re TLI Commc’ns LLC Patent Litig., 823 F.3d 607 (Fed. Cir. 2016).  In Digitech, the court found a claim concerning a process of gathering and combining data “‘[w]ithout additional limitations . . . not patent eligible.’”  Amdocs, 2016 U.S. App. LEXIS 19593, at *16 (quoting Digitech, 758 F.3d at 1351).  In Content Extraction, the court determined that “data collection, recognition, and storage were ‘undisputedly well-known’” and no limitations, when “‘considered alone and in an ordered combination, transformed the claim into a patent-eligible application of an abstract idea.’” Id. at *17-18 (quoting Content Extraction, 776 F.3d at 1347-48).  In In re TLI Commc’ns, the court found that the claims did not recite any limitations that, when considered individually and as an ordered combination, transformed the abstract idea into a patent-eligible claim as the “recited components and functions were well-understood, routine, conventional activities previously known in the industry.”  Id. at * 19-20  (citing In re TLI Commc’ns., 823 F.3d at 613-14). 

The court then contrasted the ineligible claims in the aforementioned cases with two examples in which the court found the claims to be § 101 eligible subject matter under step two:  DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014) and BASCOM Global Internet Servs. v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016).  In DDR Holdings, the patent claims were eligible because they were “focused on a challenge particular to the Internet.”  Amdocs, 2016 U.S. App. LEXIS 19593, at *20 (citing DDR Holdings, 773 F.3d at 1257).  Under step two, the court found that the claims did not describe a mere routine, conventional use of the Internet, but rather, the “‘claimed solution [was] necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.’”  Id. at *21-22 (quoting DDR Holdings, 773 F.3d at 1257).  In BASCOM, the court found the claims “taken individually, recited generic computer, network, and Internet components which were not inventive by themselves.”  Id. at *23 (citing BASCOM, 827 F.3d at 1349-52).  The court, however, found that “‘the ordered combination of these limitations provided the requisite inventive concept’” because of the customizable filtering features of the claimed technology, which was “‘a technical improvement over prior art ways of filtering such content.’”  Id. (quoting BASCOM, 827 F.3d at 1350). 

Building upon this foundational landscape, the court by analogy determined that the claimed invention recited in Amdocs’ patents is more closely aligned to those recited in DDR Holdings and BASCOM than those cited in Digitech, Content Extraction and In re TLI Commc’nsAmdocs, 2016 U.S. App. LEXIS 19593, at *26.  The court theorized that even if it accepted the district court’s determination that the patent claims were directed to abstract ideas (failing Alice step one), the patent claims are nonetheless eligible under Alice step two.  Specifically, in addressing each of the patent claims-at-issue, the court commented that the claims contain a sufficient inventive concept serving as a critical advancement over the prior art as the invention “reduce[s] congestion in network bottlenecks but still allows the data to be accessible from a central location.”  Id. at *28.  The court reasoned that the subject claims concern “an unconventional technological solution (enhancing data in a distributed fashion) to a technological problem (massive record flows which previously required massive databases).”  Id.  Indeed, claims encompassing routine computing steps, like “collection, filtering, aggregating, and completing (including enhancing)” are similarly eligible because they “depend on the system’s unconventional distributed architecture . . . an unconventional solution that was an improvement over the prior art.”  Id. at *36-37.  Summarizing its holding, the court emphasized that the “overall ordered combination of all of the limitations was unconventional” and “produced the advantage over the prior art by solving the technological problem at stake.”  Id. at *39-40.  Finally, the court explained that the subject claims did not preempt an entire concept because they describe “a specific, unconventional technological solution, narrowly drawn to withstand preemption concerns, to a technological problem.”  Id. at *44.     

In his dissent, Judge Reyna agreed with the ineligibility determination reached by the district court, and disagreed with the majority opinion regarding a few of the patent claims-at-issue.  Judge Reyna commented that the majority was correct that the claims directed to the network monitoring system are patent-eligible; but disagreed as to the eligibility of claims that only recite the concept of gathering and combining data because those claims “fail[] to recite any structure or process limiting the claim to a particular means of combining accounting data from different sources.”  Id. at *66 (Reyna, J., dissenting).  Similarly, Judge Reyna found no inventive concept in claims that fail to limit how the user interface is used and simply allow “the user to select the functions or otherwise customize the enhancement.  At best, the user’s presolution customization amounts to insignificant presolution activity.”  Id. at *81.       

While the Federal Circuit conceded that the claims may encompass abstract ideas and, absent more would have qualified as patent-ineligible subject matter under § 101, the claims are, however, patent-eligible because they are directed to a specific, unconventional technological solution that was narrowly drawn to resolve a technological problem, and serve as an improvement over the prior art.  Accordingly, the Federal Circuit reversed the trial court’s decision and remanded the case for further pleadings.