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IP Alert: Factual Questions Can Be Relevant to Section 101 Analysis

February 20, 2018

On February 14, 2018, in Aatrix Software v. Green Shades Software, a Federal Circuit panel concluded that in a section 101 analysis, “like many legal questions, there can be subsidiary fact questions which must be resolved en route to the ultimate legal determination.” The court concluded that factual allegations included in Aatrix’s complaint were sufficient to survive Green Shades’s Rule 12(b)(6) motion to dismiss predicated on 35 U.S.C. 101, and remanded the case to the district court. Along the way, the court held that Aatrix’s claims to a “system” could not be declared invalid under section 101 for lack of “tangible” statutory subject matter.

Aatrix sued Green Shades for infringement of two patents that generally are directed to systems and methods for designing, creating, and importing data into a viewable form on a computer. The specification of the patents describes a “data processing system” that has three main components: a “form file,” a “data file,” and a “viewer.” Aatrix claimed a “data processing system” that included these components and a “form file creation program.”

Green Shades moved to dismiss the complaint under Rule 12(b)(6), asserting that all of the claims were ineligible under section 101. The district court granted Green Shades’s motion and held that all the asserted claims were invalid. The court reasoned that the claims had no tangible embodiments or were directed to abstract ideas without inventive concepts. Aatrix then filed a number of motions including a motion for leave to amend the complaint to supply additional allegations and evidence. The district court denied these motions, and Aatrix appealed.

The Federal Circuit determined that patent eligibility can only be determined at the Rule 12(b)(6) stage when there are no factual allegations, taken as true, that prevent resolving the eligibility question as a matter of law. The court found that the district court erred in this determination.

First, the court found that the district court erred when it held that claim 1 was patent-ineligible solely because it is directed to an intangible embodiment. The court explained that claim 1 is a system claim that claims a data processing system that requires computer operating software and elements for viewing data, forms, and reports. Distinguishing Aatrix’s “system” claims from claims to “pure data” or “transitory signals embedded with data,” which have been held patent-ineligible as not falling within the classes of statutory subject matter under section 101, the court noted that Aatrix’s claims required computer software, a means for viewing and changing data, and a means for viewing forms and reports. This was “very much a tangible system,” according to the court. This was so even where the patent included a dependent claim that added client computer and server computer limitations.

Second, the court found that the district court erred in refusing to allow Aatrix to file an amended complaint at this stage, because the proposed amended complaint alleged facts that if taken as true would have precluded a dismissal. Green Shades argued that the claims were “invalid on their face” and that amending the complaint would not alter this status. The Federal Circuit disagreed, determining that the proposed amended complaint contained allegations that taken as true would directly affect the patent eligibility analysis, or at least raise factual disputes.

Specifically, Aatrix’s amended complaint identified certain problems that were present in the prior art, the specific improvements of Aatrix’s invention, and how Aatrix’s patented inventions solved the prior problems. For example, the complaint alleged that the claimed “data file” allowed programs on a computer to better communicate with one another than prior art systems did. According to Aatrix, “[t]his invention increased the efficiencies of computers processing tax forms” and “saved storage space both in the users’ computers’ RAM [memory] . . . and hard disk. . . .” The Federal Circuit reasoned that these allegations point to an improvement in the computer technology itself and that the invention is not directed to generic components performing conventional activities. Taken as true, these allegations would contradict the district court’s finding that the claims are conventional or routine.

Significantly, the court determined that while the section 101 determination of patent eligibility is ultimately a legal question, there are subsidiary fact questions that must be resolved in order to reach a legal determination. For example, the question of whether the claim elements are well-understood, routine, and conventional is a question of fact. The majority found that Aatrix's allegations about the claimed “data file” were sufficient to present the claimed inventions as not being, in fact, well-understood, routine, or conventional. Thus, the court held, the district court had erred in not allowing Aatrix to file an amended complaint.

The panel decision was 2–1. Judge Reyna partially dissented, arguing that the section 101 inquiry is a legal question and that the majority had incorporated a new factual component into the section 101 analysis. He argued that allowing a factual component in section 101 analysis opens the door to the introduction of “an inexhaustible array of extrinsic evidence, such as prior art, publications, other patents, and expert opinion.” The effect of this, he argued, is that a plaintiff, when faced with a 12(b)(6) motion to dismiss, can now simply amend its complaint to allege extrinsic facts to be taken as true. Instead, he argued, the section 101 analysis should be primarily focused on the claims and the written description of the patent, and not the factual allegations of the patent owner.

The court’s decision is significant in a number of respects. The court’s holding that section 101 analysis can implicate factual questions appears to be new, at least by way of the clarity by which the court makes that point. By and large, the majority’s holding is favorable to patent owners, since it seems to point to a path for survival of Rule 12 motions based on patent eligibility in some cases. The decision is also significant in its discussion of “system” claims, in that a claim to a software-implemented “system” is not automatically treated as patent-ineligible. The word "system" in patent claims has been on something of a downward trek in recent years, and this case may auger less-pejorative treatment of the word going forward.

For more information on this ruling, please contact Fitch Even partner Steven G. Parmelee, author of this alert.

—Fitch Even law clerk Zachary Van Engen contributed to this alert.


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