231-1. The “Physicality” of Processing Paper Checks does not Save Solutran’s Claims from § 101 Challenge
The Federal Circuit recently reversed the District of Minnesota’s denial of summary judgment and held claims related to paper check processing were invalid under 35 U.S.C. § 101. Despite the claims being directed to processing “physical” checks, the Court held that “the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.” The Court also reasserted that novelty and/or non-obviousness does not obviate ineligibility under § 101. See Solutran, Inc. v. Elavon, Inc., Nos. 2019-1345, 2019-1460, 2019 U.S. App. LEXIS 22516 (Fed. Cir. July 30, 2019) (Before Chen, Hughes, and Stoll, Circuit Judges) (Opinion for the Court, Chen, Circuit Judge).
Solutran, Inc. (Solutran) is the assignee of U.S. Patent No. 8,311,945, (the ’945 Patent), which is related to “a system and method for processing paper checks.” According to the ’945 Patent, previous methods for processing checks involved the payee’s bank receiving the check for processing before transporting the check to the payor’s bank for finalizing the transfer. The ’945 Patent touted an improved method to process the checks, where the checks were turned into a digital file by passing the check through a point-of-sale terminal at the merchant’s location. The terminal could include a magnetic ink character recognition (MICR) reader to capture the account number, routing number, and the check number. This digital file could then be sent electronically to the payor’s bank for immediate transfer. The’945 Patent also described scanning the checks in the “back office,” where an image of the check could be stored with the MICR data. In general, the patent is related to:
A system and method of electronically processing checks in which (1) “data from the checks is captured at the point of purchase,” (2) “this data is used to promptly process a deposit to the merchant’s account,” (3) the paper checks are moved elsewhere “for scanning and image capture,” and (4) “the image of the check is matched up to the data file.”
Solutran sued U.S. Bancorp and affiliate Elavon, Inc. (collectively, U.S. Bank) in the U.S. District Court for the District of Minnesota, alleging infringement of certain claims of the ’945 Patent. U.S. Bank filed a motion for summary judgment asserting the claims did not recite patent-eligible subject matter under § 101 because they were directed to the “abstract idea of delaying and outsourcing the scanning of paper checks.”
The district court disagreed and, relying on a previous CBM review by the Patent Trial and Appeal Board (PTAB), found the claims to be patent-eligible. The district court relied on the PTAB’s finding that the claims were not “directed to” an abstract idea. The PTAB’s decision, which was released only two months after Alice Corp. Pty. Ltd. v. CLS Bank International, 573 U.S. 208 (2014) was decided, concluded that “the basic, core concept of independent claim 1 is a method of processing paper checks, which is more akin to a physical process than an abstract idea.” Because the process improved upon the techniques for processing “physical checks,” it was not an abstract idea. In the alternative, reasoned the district court, the claims “describe a new combination of steps, in an ordered sequence, that was never found before in the prior art and has been found to be a non-obvious improvement over the prior art by both the USPTO examiner and the PTAB’s three-judge panel,” and therefore pass step two of Alice. U.S. Bank appealed the § 101 decision, and Solutran appealed on an issue of willful infringement.
The Federal Circuit proceeded to analyze the eligibility of the ’945 Patent claims under the two-step framework defined in Alice Corp. For step one, the Court found that the claims were “directed to the abstract idea of abstract idea of crediting a merchant’s account as early as possible while electronically processing a check.” The Court compared a series of recent cases finding claims to be “directed to” abstract ideas. Similar to Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014), the combination of steps here recite “an abstraction—an idea, having no particular concrete or tangible form.”
Outside of the timing similarities of Ultramercial, the elements of the claims recite “[t]he concept of data collection, recognition, and storage[, which is] is undisputedly well-known.” “[T]he claims recite basic steps of electronic check processing. In its background, the ’945 patent explains that ‘there has been an industry transition to the electronic processing of checks, including the recordation of the data… presented by the check into a digital format which can then be transferred electronically.’” (internal punctuation omitted). It was common to capture the MICR data at a point-of-sale device, and storing the images of the checks was well known. The Court also analogized the present claims to those in Alice and Bilski v. Kappos, 561 U.S. 593 (2010), holding “[t]he desire to credit a merchant’s account as soon as possible is an equally long-standing commercial practice.”
Solutran argues that the patent articulated two benefits: “(1) ‘improved funds availability’ because the merchant’s account is credited before the check is scanned or verified; and (2) relieving merchants of the task, cost, and risk of scanning and destroying paper checks by out-
sourcing those tasks.” The Court noted, however, that the claims did not improve upon the technical nature of the computing elements completing the processes. Indeed, the claims were written at a “high level of generality,” and the specification conceded that the steps “are conventional processes for processing checks electronically.”
Finally, Solutran adopted the district court’s view that the “physicality” of the claims took them beyond an abstract idea. In other words, because the claims were directed to improvement for processing paper checks, this was not an abstract idea. The Court reemphasized the fact that “‘the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.’ In fact, ’[t]he claimed methods in Bilski and Alice also recited actions that occurred in the physical world.” Quoting In re Marco Guldenaar Holding B.V., 911 F.3d 1157, 1161 (Fed. Cir. 2018). The physical nature of processing checks does not “improve upon any underlying technology.”
As for step two of Alice, the Court held that the claims “‘do not, for example, purport to improve the functioning of the computer itself’ or ‘effect an improvement in any other technology or technical field,’” and thus do not recite a transformative, inventive concept. The Court disagreed with the district court’s assertion that novelty or non-obviousness obviates patent ineligibility. “[W]e have previously explained that merely reciting an abstract idea by itself in a claim—even if the idea is novel and non-obvious—is not enough to save it from ineligibility.”
Finally, the Court quickly considered Solutran’s machine-or-transformation test argument and stated that, although the test is a “useful clue” to the second step of Alice, the claims of the ’945 Patent did not pass the test as they merely use a generic computer to perform conventional activities. In so holding, the Court reversed the district court’s holding, finding the claims of the’945 Patent to be patent-ineligible under § 101.
Novelty and/or nonobviousness of claims does not “save” the claims from ineligibility under § 101.
231-2. Federal Circuit Affirms Dismissal of Complaint Where Argument-based Prosecution Estoppel Barred Patentee From Succeeding on its Infringement Claim
The Federal Circuit recently issued an opinion affirming the District Court for the District of Delaware’s dismissal of Amgen Inc. and Amgen Manufacturing Ltd.’s (collectively, “Amgen”) complaint alleging infringement of U.S. Patent 8,273,707 (the “’707 Patent”) for failure to state a claim. The district court held that prosecution history estoppel barred Amgen from succeeding on its infringement claim under the doctrine of equivalents. Amgen Inc. v. Coherus BioSciences, Inc., No. 18-1993, 2019 U.S. App. LEXIS 22394 (Fed Cir. July 29, 2019) (Before Reyna, Hughes, and Stoll, Circuit Judges) (Opinion for the Court, Stoll, Circuit Judge).
The ’707 Patent is directed to methods of purifying proteins using hydrophobic interaction chromatography (“HIC”). Purification from contaminants allows proteins to be therapeutically useful. Claim 1 recites:
A process for purifying a protein on a hydrophobic interaction chromatography column such that the dynamic capacity of the column is increased for the protein comprising
mixing a preparation containing the protein with a combination of a first salt and a second salt,
loading the mixture onto a hydrophobic interaction chromatography column, and eluting the protein,
wherein the first and second salts are selected from the group consisting of citrate and sulfate, citrate and acetate, and sulfate and acetate, respectively, and
wherein the concentration of each of the first salt and the second salt in the mixture is between about 0.1 M and about 1.0.
During prosecution, the examiner repeatedly rejected the claims as obvious in view of U.S. Patent No. 5,231,178 (“Holz”). In response, Amgen distinguished the ’707 Patent based on the particular combination of salts claimed. Amgen argued that Holz did not teach or suggest any combinations of salts or the particular combinations of salts claimed in the ‘707 Patent. Amgen presented additional arguments, including that Holz did not teach dynamic capacity at all while the claimed invention is directed to increasing the dynamic capacity of a HIC column. In her declaration, the inventor explained and highlighted that the particular salt combinations claimed in the ’707 Patent resulted in significant improvements over prior art, including increases in the dynamic capacity.
After Coherus filed an abbreviated Biologic License Application (aBLA”) seeking approval to market a biosimilar version of an Amgen product, and the aBLA revealed that Coherus’s manufacturing process contained steps used to purify a protein using a salt combination, although not the one recited in Amgen’s claims, Amgen sued for patent infringement. The district court granted Coherus’ motion to dismiss, holding, first, that Amgen clearly and unmistakably surrendered salt combinations other than the particular combinations recited in the ’707 Patent during prosecution, and, second, that Amgen had dedicated the particular combination used by Coherus to the public by disclosing but not claiming it. The court thus dismissed Amgen’s complaint for failure to state a claim. The Federal Circuit affirmed.
“Prosecution history estoppel applies as part of an infringement analysis to prevent a patentee from using the doctrine of equivalents to recapture subject matter surrendered from the literal scope of a claim during prosecution.” Argument-based estoppel, at issue in this appeal, can occur “by surrendering claim scope through argument to the patent examiner” and exists where prosecution history shows “a clear and unmistakable surrender of subject matter.” Here, Amgen clearly and unmistakably surrendered unclaimed salt combinations during prosecution. In its initial response, Amgen distinguished the prior art on the basis that the prior art did not teach or suggest the “particular combinations of salts” recited in the ’707 Patent. Furthermore, both in its response and accompanying Declaration, Amgen repeatedly discussed the particular combination of salts claimed without mentioning any others. Amgen’s response concluded by specifically emphasizing that “[u]se of this particular combination of salts greatly improves the cost-effectiveness of commercial manufacturing.” A competitor would reasonably believe that Amgen surrendered unclaimed salt combinations.
The fact that Amgen asserted three separate bases for distinguishing the prior art during prosecution, only one of which is relevant here, does not obviate the Court’s conclusion. “[W]here a patent applicant sets forth multiple bases to distinguish between its invention and the cited prior art, the separate arguments [can] create separate estoppels as long as the prior art was not distinguished based on the combination of these various grounds.” Here, Amgen did not rely on a combination of the asserted grounds to distinguish the prior art.
Similarly, the fact that Amgen’s response to the examiner, which resulted in the allowance of the claims, did not contain the “particular combinations” argument is inapposite. No requirement exists that argument-based estoppel apply only to arguments made in the submission immediately preceding allowance. In fact, “[c]lear assertions made during prosecution in support of patentability, whether or not actually required to secure allowance of the claim, may also create an estoppel.” Here, Amgen repeatedly emphasized the particular combination of salts claimed and cannot now recapture the surrendered subject matter. Because prosecution estoppel bars Amgen from succeeding on its infringement claim under the doctrine of equivalents, its complaint must be dismissed.
Where a patentee asserts multiple bases for distinguishing the prior art during prosecution, each separate argument can create a separate prosecution estoppel if it shows a clear and unmistakable surrender of subject matter and as long as the prior art was not distinguished based on the combination of these various grounds. Furthermore, the argument made in support of patentability need not actually be required to secure allowance of a claim to create estoppel.
231-3. Retroactive Application of IPR Proceedings Is Not Unconstitutional and Celgene’s Patents are Obvious
The Federal Circuit affirmed a PTAB determination that all of the claims of U.S. Patent No. 6,045,501 and most of the claims of U.S. Patent No. 6,315,720 were obvious, necessarily finding that the IPR of these patents was not unconstitutional, despite the fact that the patents issued prior to the statutory authorization of the review process invalidating the patents. See Celgene Corp. v. Peter, Nos. 2018-1167, 2018-1168, 2018-1169, 2018-1171, 2019 U.S. App. LEXIS 22517 (Fed. Cir. July 30, 2019) (Before Prost, Chief Judge, Bryson and Reyna, Circuit Judges) (Opinion for the Court, Prost, Chief Judge).
At issue were patents directed to the safe distribution of thalidomide, a teratogen known to cause birth defects. On appeal, for the ’501 Patent, Celgene argued that the Board erred by: 1) determining the prior art contained a “computer readable storage medium”; 2) finding it would have been obvious to counsel male patients about the risks of teratogenic drugs; and 3) making certain conclusions about secondary considerations (objective indications of nonobviousness).
Celgene’s argument that the term “computer readable storage medium” was not found in the prior art required that its construction of the term be adopted, requiring that the storage medium be centralized (“a centralized database that includes all registration information regarding the claimed prescribers, pharmacies, and patients”). The Board rejected Celgene’s arguments because the claims didn’t require that the storage medium be centralized, and the specification and the prosecution history failed to further limit the claims. The Court agreed and further rejected Celgene’s argument that the use of “a” or “an” in the claims required a single, centralized storage medium; the use of “a” or “an” in an open-ended “comprising” claim connotes “one or more.”
The Court further rejected Celgene’s argument that it was nonobvious to counsel males regarding use of teratogens because it was unclear to person of skill that there were effects on male sperm that could cause birth defects. The Board rejected Celgene’s argument that a study on rabbits showing effects could not be extrapolated to human men, which Peter’s expert relied on for his opinion that counseling men would have been obvious. The Court agreed, finding that the rabbit study provided substantial evidence for the expert opinion.
The Board also concluded that the secondary consideration of long-felt but unmet need, industry praise, and unexpected results did not outweigh the showing of obviousness, which the Court found was supported by substantial evidence because it is not proper to reweigh evidence on appeal and the context, improving safety, counseled against upsetting the Board’s determination that there were sufficient existing methods of administering dangerous drugs that showed no long-felt, unmet need.
Regarding the ’720 Patent, Celgene challenged the Board’s determination that: 1) there was a motivation to improve the existing distribution methods of potentially hazardous drugs; and 2) a person of skill in the art would have been motivated to develop the claimed invention. The Court agreed with the Board’s rationale that because of the serious concerns of distributing a drug like thalidomide, there was motivation to always work to improve distribution, regardless of whether there had been accidents, which Celgene’s own filings supported. Next, the Court agreed with the Board that the prior art showed “affirmative risk assessment,” as required by the claims, because each of the primary references showed this element and it would have been obvious to modify their teachings to “require issuance of an approval code prior to dispensing the drug” as shown in a secondary reference. The Court also rejected Celgene’s arguments that the claims included limitations not found in the claims or in their constructions.
Finally, the Court examined the Constitutionality of retroactive applications of IPRs to pre-AIA patents (arguably a taking of property violating the Fifth Amendment), which the Court reached despite the fact that Celgene did not raise the issue before the Board because of exceptional circumstances. The Court focused on “whether IPRs differ from the pre-AIA review mechanism significantly enough, substantively or procedurally, to effectuate a taking,” concluding that the differences between pre and post-AIA review mechanisms were not sufficient to constitute a taking. It relied on several factors, including that similar administrative review processes have been available for decades and that district court review of patents has always been available. The Court rejected Celgene’s arguments pointing out the differences between IPRs and reexaminations, including the adjudicative nature of IPRs, instead focusing on the similarities, including the substantive grounds subject to review, the same preponderance of the evidence standard of proof, and the same broadest reasonable interpretation standard (which has subsequently changed). The Court further rejected Celgene’s argument that outcomes from IPRs show, statistically, that they are different from pre-AIA review processes, because Celgene could not show that its (or any) patents would have “fared any better in the preexisting reexamination procedures.”
While the Court found that IPR proceedings relating to pre-AIA patents were not unconstitutional, it remains to be seen whether a challenge to an en banc Federal Circuit or to the Supreme Court would reach a similar result, at least because those bodies may find that the acknowledged differences between pre- and post-AIA administrative review proceedings are more significant than this Federal Circuit panel. Further, other avenues remain open to challenging the constitutionality of IPR proceedings, including that PTAB judges are not Article III judges, which is expected to be decided by the Federal Circuit later this year.
231-4. Final Decision on Invalidity Triggers Estoppel of Parallel Inter Partes Reexamination, Even If Other Issues Have Been Remanded
The Federal Circuit recently affirmed in part, vacated in part, and remanded a decision from the Patent Trial and Appeal Board (“Board”) related to three inter partes reexaminations maintained by Apple Inc. (“Apple”) with respect to U.S. Patent Nos. 7,418,594 (“the ’504 patent”) and 7,921,211 (“the ’211 patent”) owned by VirnetX Inc. (“VirnetX”). See VirnetX Inc. v. Apple Inc., Nos. 2017-1591, 2017-1592, 2017-1593, 2019 U.S. App. LEXIS 22912 (Fed. Cir. Aug. 1, 2019) (Before Prost, Chief Judge, Moore, and Reyna, Circuit Judges) (Opinion for the Court, Prost, Chief Judge) (Dissent-in-part, Reyna, Circuit Judge). The Court vacated and remanded with instructions to terminate a series of reexamination proceedings with respect to a set of claims in the patents at issue that were estopped by 35 U.S.C. § 317(b) but affirmed the Board’s unpatentability decision on all remaining claims not subject to estoppel.
The patents at issue described systems and methods for establishing a secure communication link between a first computer and a second computer over a computer network via a domain name service (“DNS”) system. In 2010, VirnetX sued Apple for infringement of asserted claims of the ’504 and ’211 patents, among others. Shortly thereafter, in 2011, Apple filed requests for inter partes reexamination of the ’504 and ’211 patents with the Patent and Trademark Office (“PTO”). In the reexaminations, Apple challenged all claims of the asserted patents as anticipated or obvious in light of the prior art. In 2012, the district court action proceeded to trial, where a jury found that all asserted claims were infringed and not invalid, awarding VirnetX $368 million in damages. Apple appealed, and in 2014 the Federal Circuit affirmed the jury’s finding of no invalidity on VirnetX’s asserted claims, but reversed the infringement finding with respect to the ’504 and ’211 patents and remanded for further proceedings. Apple did not request a rehearing on the Federal Circuit’s decision at that time, nor did they seek review from the Supreme Court within the allotted time.
Meanwhile, in the parallel PTO reexaminations, the Examiner found all claims of the ’504 and ’211 patents were unpatentable, and VirnetX appealed to the Board. VirnetX petitioned the PTO to terminate Apple’s reexaminations based on the estoppel provision of pre-AIA 35 U.S.C. § 317(b), but the petition was denied. In September 2016, the Board affirmed the Examiner’s findings of unpatentability. Thereafter, VirnetX appealed, arguing that the 2014 Federal Circuit decision was a “final decision” on Apple’s attempt to prove invalidity under § 317(b) and leading to the issues at hand.
With respect to VirnetX’s first argument that Apple was estopped from maintaining its reexaminations under pre-AIA 35 U.S.C. § 317(b), the Court agreed. The sole issue was whether a final decision had been entered against Apple so that it had not sustained its burden of proving invalidity of the asserted claims in litigation, which would trigger estoppel of parallel PTO reexam proceedings on those claims.
The court conducted a statutory interpretation of pre-AIA § 317(b), which requires that the PTO terminate a reexamination once there has been a final decision on the patent challenger’s invalidity case in federal court. The Court first recounted the procedural history of the matter between VirnetX and Apple, noting that in the 2010 patent infringement suit, Apple raised an affirmative defense of invalidity against the asserted claims on multiple grounds and, therefore, had the burden of proving invalidity as to those claims of the ’504 and ’211 patents. Apple’s invalidity defenses were presented to the jury in 2012, and the jury concluded that Apple failed to prove invalidity of the asserted claims of the ’504 and ’211 patents. The district court entered a final judgment on invalidity, which was then affirmed by the Federal Circuit in 2014.
Apple did not dispute that it lost on invalidity but instead argued that there was no final decision based on a hypothetical future appeal. Apple claimed that there was no final decision on validity because Apple could choose to file a petition of certiorari on the other non-validity issues to be decided on remand and, when doing so, Apple may also ask the Supreme Court to consider the issues from the prior appeal, including the validity determination. Therefore, Apple argued that the Supreme Court might elect to examine the validity issues at some point in the future, meaning that there was no “final decision” until all issues with respect to the patents had reached final decision.
The Court disagreed with Apple, first by citing to Fairchild (Taiwan) Corp. v. Power Integrations, Inc., 854 F.3d 1364 (Fed. Cir. 2017), which held that if a finding of no invalidity has been affirmed on appeal and remand of other issues will not have any effect on validity, the decision is “final” once the 90-day deadline for a certiorari petition on the validity determination has passed. The Court then noted that even if Fairchild didn’t foreclose Apple’s arguments, the plain language and purpose of § 317(b) would teach against Apple’s definition of “final decision.” The Federal Circuit found that the statute only required a final decision on a precise issue, being whether the party “has sustained its burden of proving the invalidity of any patent claim in suit.” The statutory language did not mention resolving the entire case nor did it require resolution of all other issues related to a patent. Additionally, the purpose of the statute was to protect patent holders from duplicative litigation on invalidity, which meant that it was doubtful that Apple’s interpretation lined up with Congressional intent. Therefore, since all appeals as a matter of right were no longer available to Apple, Section 317(b) estoppel applied, and a final judgment had been entered.
VirnetX also challenged the merits of the Board’s decisions on unpatentability, arguing that the ’504 and ’211 patents were not invalid. However, the Court found that VirnetX’s arguments regarding claim construction, substantial evidence, and burden of proof for patentability were unpersuasive, and affirmed the Board’s unpatentability decision on all claims that were not estopped.
In her dissent, Judge Reyna argued that Fairchild was inapplicable because it did not consider the possibility of Supreme Court review on a second appeal, as Apple had argued. Judge Reyna noted that “once Power Integrations prevailed on infringement, the case against it was concluded,” and so potential for further Supreme Court review did not exist in Fairchild, which was not the case with Apple. However, the majority disagreed, arguing that Fairchild was applicable because the estoppel statute was triggered by a final decision on the issue of invalidity, and that the Court’s decision was solely concerned with preventing redundant proceedings before the PTO, which did not interfere with the Supreme Court’s powers to choose to review the case on any issue in the future.
If a finding of no invalidity on a set of claims has been affirmed on appeal and remand of other issues will not have any effect on validity, the decision is final once the deadline for a certiorari petition on the validity determination has passed, and § 317(b) will estop inter partes reexamination on those claims, regardless of possible future appeals where invalidity might be reviewed.