Many people understand Muniauction Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008) to stand for the proposition that inventions are per se obvious if they merely involve placing a prior-art system on the Internet.

The case may be more important, however, in validating the opinions of those who believed KSR International Co. v. Teleflex Inc. 127 S. Ct. 1727 (2007) would usher in an era of judicial activism in the obviousness area.

Using Muniauction as a lodestar, judges will likely feel freer to find obvious inventions that seem too simple, without following the rigors of the approach KSR rejected.

Recent History Of The Law On Obviousness

KSR V. Teleflex

The Court of Appeals for the Federal Circuit had, for more than twenty years, applied some form of a test for obviousness known as the "teaching, suggestion, or motivation" or "TSM" test, which required the courts to find some teaching, suggestion or motivation to combine the prior art teachings before invalidating a claim as obvious. See e.g., Lindemann Maschinenfabrik GMBH v. American Hoist and Derrick Company, 730 F.2d 1452 (Fed. Cir. 1984).

In KSR, the Supreme Court rejected the TSM test as too rigid, finding that "neither the particular motivation nor the avowed purpose of the patentee controls." 127 S.Ct at 1741- 42.

It held that "[r]igid preventative rules that deny factfinders recourse to common sense, however, are neither necessary under our case law nor consistent with it." Id., at 1742-43.

The Court also found that a combination that was "obvious to try" is permissible to use for invalidating a claim where "there is a design need or market pressure to solve a problem and there are a finite number of identified, predictable solutions." Id. at 1742.

Leapfrog V. Fisher-Price

Soon after KSR, the Federal Circuit decided Leapfrog Enterprises Inc. v. Fisher-Price Inc., 485 F.3d 1157 (Fed. Cir. 2007). After finding no infringement, the court attacked the issue of obviousness of claim 25 from the patent-at-issue:

An interactive learning device, comprising:

  • a housing including a plurality of switches;
  • a sound production device in communication with the switches and including a processor and a memory;
  • at least one depiction of a sequence of letters, each letter being associable with a switch; and
  • a reader configured to communicate the identity of the depiction to the processor,

wherein selection of a depicted letter activates an associated switch to communicate with the processor, causing the sound production device to generate a signal corresponding to a sound associated with the selected letter, the sound being determined by a position of the letter in the sequence of letters.

The Federal Circuit agreed with the district court that a prior-art Bevan device taught two of the claimed elements, a housing and a speaker (sound-production device) for playing sounds from a phonograph.

That reference apparently also taught elements of the "wherein" clause, specifically that depressing the puzzle pieces in the openings would cause a motor to turn a record so phonographic needles would contact portions of the record storing sounds (such as a letter) associated with the puzzle pieces. Id. at 1161.

The opinion then makes a curious statement:

"Bevan teaches an apparatus that achieves the goals described above of associating letters with their sounds and encouraging children to sound out words phonetically through a similar type of interaction. We therefore see no clear error in the district court's finding that the Bevan device has the same method of operation, viewed as a whole, as claim 25 of Leapfrog's '861 patent." Id.

Examining the goals and "method of operation" is not part of the standard three-part analysis from Graham v. John Deere Co. of Kansas City, 383 U.S. 1, 17-18 (1966), and instead throws the obviousness determination back to one of common sense from a rigorous analysis of the claimed invention.

A second reference, a Texas Instruments SSR, taught other aspects of the invention, namely (1) a hinged plastic housing; (2) switches; (3) a processor; (4) memory, (4) a speaker to produce sounds; and (5) the ability to produce the sounds of letters when selected. Id. at 1161-62.

The Federal Circuit explained, "[T]he SSR provides a roadmap for one of ordinary skill in the art desiring to produce an electronics-based learning toy for children that allows the use of phonetic-based learning methods, including the association of individual letters with their phonemes." Id. at 1162.

The combination of the different Bevan and SSR circuits still lacked the claimed reader, but this proved no obstacle. The Federal Circuit noted that the district court found, with no citation to the record, that "readers" were well known in the art at the time of the invention, so adding readers was obvious because the resulting simplicity increased marketability. Id.

The court then placed an unusual burden on the patentee, namely that the patentee "presents no evidence that the inclusion of a reader in this type of device was uniquely challenging or difficult for one of ordinary skill in the art." Id.

Given the presumption of validity in 35 U.S.C. § 282, patentee should not have to show a combination was challenging at all. The court then affirmed the holding of obviousness after approving, without comment, the district court's conclusion that the secondary considerations did not outweigh the obviousness of the invention.

Muniauction V. Thomson

  1.  The Holding

In Muniauction, unlike KSR and Leapfrog, the trial court had not found the claims obvious, requiring the Federal Circuit to reject the lower court's findings of fact and conclusions of law.

Claim 1 of the patent-in-suit recites an electronic auctioning process in "an electronic auction system including an issuer's computer ... and at least one bidder's computer ... located remotely from said issuer's computer," and includes the following steps:

  • inputting data associated with at least one bid for at least one fixed income financial instrument into said bidder's computer ...;
  • automatically computing at least one interest cost value ...;
  • submitting said bid by transmitting at least some of said inputted data from said bidder's computer over said at least one electronic network; and
  • communicating ... said submitted bid to said issuer's computer ...,

wherein at least one of the inputting step, the automatically computing step, the submitting step, the communicating step and the displaying step is performed using a Web browser.

The principal prior art was a Parity(R) system (Old Parity) that the patentee previously sold. The jury found that the defendants had not carried their burden on invalidity, and the trial judge agreed in denying a JMOL motion.

Plaintiff presented ample evidence to defeat defendants' attempts to show by clear and convincing evidence that there were no differences between Old Parity and the claims of the '099 Patent.

In fact, as this court had already recognized, the Patent Office determined that Old Parity, at least, did not perform the step of automatically computing at least one interest cost value. Muniauction Inc. v. Thomson Corp. 502 F. Supp. 2d 477, 491 (W.D. Pa. 2007).

The district court also explained,

"We further note that plaintiff presented sufficient evidence of secondary considerations to shed light on the circumstances surrounding the origin of the patented subject matter. Plaintiff presented evidence of skepticism, legally appropriate praise, copying and commercial success. This evidence supports the jury's conclusion that the claims of the '099 Patent were not obvious."

Id.

The Federal Circuit, however, found that both the district court and the United States Patent and Trademark Office erred.

Although Plaintiff's expert had testified on direct examination that the step of "automatically computing at least one interest cost value," did not occur in the system, on cross-examination, he justified his conclusion because of the absence of "an automatically computing calculator" in the Parity(R) system.

The expert also testified that Parity(R) "did automatically compute a true interest cost" in the sense that bidders did not have to compute bids by hand and that Parity(R) re-did some of the computation done by the bidder's software during bid preparation. Muniauction, 532 F.3d. at 1325.

To a casual reader, nothing in the testimony the Federal Circuit quoted appears to disclose the step of "automatically computing" an interest value, except for the curious statement that the prior-art system performed the computation because the bidders did not have to do so by hand.

Moreover, the opinion's indication that the prior-art system recomputed some of the bidder's computation suggests, again to the casual reader, that the computation was not "automatic."

In addition, the Court takes the expert to task for noting the absence of an automatic calculator in the prior art, but that is what the claims seems to require, and although the opinion explains that computation could occur in the prior-art systems either in the bidder's or issuer's computers, nothing suggested such computation was automatic.

Thus, it appears plausible, at least, that there may have substantial evidence to support the jury's finding that the defendant had not shown the claims to have been invalid by clear and convincing evidence.

Nevertheless, the Federal Circuit found that, contrary to the district court and the Patent office, the only element of claim 1 absent from the prior-art system was a Web browser.

The Federal Circuit then found the use of Web browsers to be well known. Citing KSR and Leapfrog, the court determined that claim 1 was obvious as a matter of law. 532 F.3d. at 1327.

In doing so, the court noted that the absence of any description in the patent of how to implement the browser suggested that adapting the prior-art auction system to a Web browser was obvious. Id.

Although the district court identified "skepticism, legally appropriate praise, copying, and commercial success as secondary considerations showing nonobviousness," 502 F. Supp. 2d at 491, the Federal Circuit was not impressed.

It dismissed the praise and skepticism as focusing on a maturity-by-maturity bidding that was not coextensive with claim 1. As to the other considerations, the Federal Circuit merely held that "the evidence is simply inadequate to overcome a final conclusion that independent claims 1 and 31 are obvious as a matter of law." 532 F.3d. at 1328.

  1. The Impact

Perhaps there was no substantial evidence to support the jury's findings, but that is difficult to discern from the opinion, which, for what it is worth, has a great deal more discussion than the district court opinion.

Because Muniauction involved a rejection of the district court's findings of fact, it appears that KSR has emboldened courts to impose their own opinions on this issue.

This activism is even clearer in the summary dismissal of secondary considerations in Muniauction and Leapfrog. Many are not discussed at all, and the two the court does discuss in Muniauction are dismissed because they involved "maturity-by-maturity bidding."

Such bidding was apparently new, but it is unclear whether the use of the Internet and Web browser may have helped enable such bidding. There is no discussion.

Conclusion

Muniauction provides some support for the predictions of those who saw KSR as freeing judges to act on their gut feelings in finding certain inventions, especially those involving business methods, obvious.

Judges may feel they understand business method inventions because they concern often matters familiar to everyday life, unlike certain biotechnology or complex technology inventions.

Freed of the rigors of using a TSM or related test, a judge had little to stop the application of "common sense," tempered by a hindsight look at the origins of the invention.

If so, then the future for business method inventions looks bleak. Already under siege on other fronts, business method patents may not be able to withstand this latest assault.

This article appeared in IP Law 360