Fort Properties, Inc. v. American Master Lease LLC

By Zi Wang

In Fort Properties, Inc. v. American Master Lease LLC, 2012 WL 603969 (Fed. Cir. 2012), the Federal Circuit affirmed the district court’s holding that a method patent for creating real estate investment instrument adapted for performing tax-deferred exchanges is invalid because it is directed at an unpatentable abstract idea, even though the claim language of the patent at issue recited a computer in certain operations.

American Master Lease LLC (“AML”) holds the ‘788 patent at issue.  The ‘788 patent discloses an investment tool designed to enable property owners to buy and sell properties without incurring tax liability pursuant to a tax law provision that exempts certain investment property exchanges when an owner of investment property exchanges one property for another of like kind and certain conditions are met.

Specifically, the claims require the aggregation of a number of properties into a “real estate portfolio.”  The property interests in this portfolio are then divided into shares, called “deedshares”, and are sold to investors much in the same way that a company sells stock.  Each deedshare can be encumbered by its own mortgage debt, which provides flexibility to real estate investors attempting to structure their debts in a way that complies with the exemption provision of tax law.

All claims in the ‘788 patent are method claims.  Claim 1 discloses:

  1. A method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising:

aggregating real property to form a real estate portfolio;

encumbering the property in the real estate portfolio with a master agreements; and

creating a plurality of deedshares by dividing title in the real estate portfolio into a plurality of tenant-in-common deeds of at least one predetermined denomination, each of the plurality of deedshares subject to a provision in the master agreement for reaggregating the plurality of tenant-in-common deeds after a specified interval.

Two of the other independent claims, claims 22 and 32, are nearly identical to claim 1—though claim 32 contains an additional limitation requiring a computer to “generate a plurality of deedshares.”  The only other independent claim, claim 11, discloses a method of transferring ownership of deedshares in a manner consistent with the tax law provision discussed above.

Fort Properties, Inc. brought action against AML and moved for summary judgment of invalidity in the district court.  The district court invalidated all claims in the ‘788 patent for failing to claim patent-eligible subject matter under 35 U.S.C. § 101.  In reaching its decision, the district court relied on In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) and applied the machine-or-transformation test.  The court held that the patent failed both prongs of the test and accordingly invalidated the whole patent.  AML appealed the decision to the Federal Circuit.

In its opinion, The Federal Circuit cited to four seminal Supreme Court cases that deal with the question of when an invention qualifies as a patent-eligible process as opposed to an abstract idea, namely, Bilski v. Kappos, 130 S.Ct. 3218 (2010); Diamond v. Diehr, 450 U.S. 175 (1985); Parker v. Flook, 437 U.S. 584 (1978); and Gottschalk v. Benson, 409 U.S. 63 (1972).  The Federal Circuit analogized the invention in the ‘788 patent to the invention in Bilski, which is an investment tool not requiring the use of a computer.

AML argued that claims 1-31 constitute a patentable process and not an abstract idea because they require a series of steps to take place in the real world that involve real property, deeds, and contracts.  More specifically, AML contended that the deeds remove the invention from the realm of the abstract because they are physical legal documents signifying real property ownership.  Fort Properties, on the other hand, argued that the claimed method of aggregating property, making it subject to an agreement, and then issuing ownership interests to multiple parties consists entirely of mental processes and abstract intellectual concepts.  Fort Properties pointed out that the Bilski invention’s intertwinement with deeds, contracts, and real property does not transform the abstract method into a patentable process.

The Federal Circuit sided with Fort Properties and drew extensive similarities between the invention at issue and the Bilski invention.  The Federal Circuit further stated that its reasoning is in accord with its own precedent in In re Comiskey, 554 F.3d 967 (Fed. Cir. 2009), and in In re Schrader, 22 F.3d 290 (Fed. Cir. 1994).

The court then turned to the question of how claim limitations involving computers apply in the § 101 analysis.  The court relied on three of its own 2011 and 2012 cases: Cybersource v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011); Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011); and Dealertrack, Inc. v. Huber, 2012 WL 164439 (Fed. Cir. 2012).  The court opined that the basic character of a process claim drawn to an abstract idea is not changed by claiming only its performance by computers, or by claiming the process embodied in program instructions on a computer readable medium.  Instead, to impart patent-eligibility to an otherwise unpatentable process under the theory that the process is linked to a machine, the use of the machine must impose meaningful limits on the claim’s scope.  As a positive example, the court pointed to the claimed invention in Ultramercial, which “required intricate and complex computer programming” and “specific application to the Internet and a cybermarket environment.”  The addition of the computer to the claims was not merely insignificant post-solution activity; rather, the invention
itself involved “advances in computer technology,” and it was thus sufficient to qualify the claims for patent eligibility under § 101.

The court then held that the computer limitation in the patent at issue is akin to that in Dealertrack, and does not play a significant part in permitting the claimed method to be performed.  The computer limitation here is a broad and general limitation that does not impose meaningful limits on the claim’s scope.  AML simply added a computer limitation to claims covering an abstract concept—that is, the computer limitation is simply insignificant post-solution activity.  Therefore the computer limitation cannot impart patent-eligiblity here.

In this case the Federal Circuit once again took on the task of drawing the line between patentable process claims and patent-ineligible abstract ideas after Supreme Court’s Bilski v. Kappos decision.  Together with patents in Cybersource and Dealertrack, the patent in the present case was struck down for covering unpatentable abstract ideas, recitation to computers notwithstanding.  In the most likely scenario, method patent claims that are otherwise unpatentable under § 101 will not be upheld by the court if the recitation to a computer is simply post-solution activity.  To put it in another way, if a computer merely facilitates practice of an invention, rather than enables it, the recitation to a computer in patent claims is superfluous for § 101 purposes.  On the other hand, if an invention has a complicated-enough interface with computerization that it can be described as an advance in computer technology, then Ultramercial should control and it is possible for the patent to be upheld.

Right Decision; Wrong Reason — The Prometheus Patents Seem to Satisfy § 101

By Robert Lower

The Supreme Court handed down its decision in Mayo v. Prometheus Laboratories March 20, 2012, holding U.S. Patent Nos. 6,355,623 and 6,680,302 invalid for failure to satisfy 35 U.S.C. § 101. Prometheus is the exclusive licensee to these patents, which boil down to a process for calculating a dosing regimen for a drug that threads the needle between an inefficacy and overdose, based on the level of metabolites in patients’ blood. The court referenced the first claim of the ‘623 patent in reaching its opinion:

We claim:

1. A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:

(a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and

(b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder, wherein the level of 6-thioguanine less than about 230 pmol per 8 x 108 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and

wherein the level of 6-thioguanine greater than about 400 pmol per 8 x 108 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.

The U.S. Patent and Trademark Office argued the process satisfies the § 101 threshold requirement for patentability, and urged the court to turn to other sections of the patent act to screen the patents in issue. Nonetheless, the court struck the patents for failure to satisfy § 101, which reads:

“Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” 35 U.S.C. § 101

If stripping Prometheus of these patents is good, it must follow that preventing issuance of others like it in the first place would be better. § 101 is not the best way to accomplish this goal.

So why did the court rule on § 101? Mayo pushed it. Why did Mayo push it? Along with seeking invalidation of these patents, Mayo probably argued § 101 hoping for a blanket ruling that medical treatments cannot be patented, perhaps to protect Mayo’s business interests  (Mayo sought to sell a competing test). While this ruling does not establish a blanket bar against patentability of medical treatments, it certainly does not provide clarity as to what is patentable in the medical arena. It’s not clear why the court ran with Mayo’s § 101 argument instead of looking to other reasons for invalidly.

Had the court invalidated these patents as obvious and/or non-novel under 102 and 103, they could have prevented more patents of this type in the future, without leaving inventors scratching their heads wondering if they should simply direct their talent away from medicine, and towards inventive categories for which the law is predictable.

Under this ruling, claims like the Prometheus process claims could seemingly be reframed as an apparatus, such as a test kit to fall outside the scope of the court’s ruling.

Cell Phone Network Patent Survives § 112 Attacks in Federal Circuit

By Chris Reaves

HTC Corporation v. IPCom GmbH & Co., KG, No. 2011-1004, Fed. Cir. Jan. 30, 2012

In a recent infringement suit, a patent for a cell phone network mobile station narrowly survived several attempts at invalidation through indefiniteness.  The Federal Circuit applied numerous rules of claim interpretation, especially for means-plus-function claims, and reminded the defense of the importance of addressing all issues at the trial level.  The case serves as a good lesson in “what not to do” for both prosecutors and litigants.

Background

IPCom GmbH & Co., KG owns US Patent No. 6,879,830 (‘830) and other patents, which go to cell phone networks and their methods.  ‘830 in particular discusses an efficient cellular phone network “handover” – the process by which one cell tower takes over a call from another as the phone moves from place to place.

IPCom and the HTC Corporation countersued each other for, respectively, infringement of three of IPCom’s patents, including ‘830, and declaration of non-infringement.  During the trial’s Markman hearing, HTC moved for summary judgment of invalidity of ‘830 claims 1 and 18.  The district court found that the means-plus-function portion of these claims had the required corresponding structure.  However, it also found that the claims included both method steps and an apparatus, making them indefinite under the rule of IPXL Holdings v. Amazon.com.  It therefore invalidated both claims.

On stipulation of the parties, the decision was promptly declared final and certified for appeal under Fed. R. Civ. P. 54(b).  Judges Bryson, Linn, and O’Malley of the Federal Circuit heard the appeal.

IPXL Indefiniteness Does Not Apply to “Preamble-Within-A-Preamble”

Claim 1 of ‘830 recites, in total:

A mobile station for use with a network including a first base station and a second base station that achieves a handover from the first base station to the second base station by:

storing link data for a link in a first base station,

holding in reserve for the link resources of the first base station, and

when the link is to be handed over to the second base station:

initially maintaining a storage of the link data in the first base station,

initially causing the resources of the first base station to remain held in reserve, and

at a later timepoint determined by a fixed period of time predefined at a beginning of the handover, deleting the link data from the first base station and freeing up the resources of the first base station, the mobile station comprising:

an arrangement for reactivating the link with the first base station if the handover is unsuccessful.

Claim 18 and, by stipulation, claim 16 differ only in ways “immaterial to this appeal.”

The district court had construed the claims to state that the mobile station “achieves a handover” which is then described as a series of steps.  Because the claim described the mobile station both in terms of this method and separately in terms of “an arrangement,” the court therefore invalidated it as indefinite.

The Federal Circuit, however, determined that the “that achieves a handover” clause described “network”, not “mobile station.”  First, “[m]odifiers should be placed next to the words they modify”, and the clause was closer to “network.”  Second, the repetition of “mobile station” in the seventh paragraph “would read in a disjointed manner” if the preceding functions also referred to the mobile station.  And third, the specification confirmed that the base stations of the network, not the mobile station, perform the functions in the handover.

HTC and the district court both tried to overcome this language by pointing to the prosecution history, but the Federal Circuit recalled Phillips v. AWH for the principle that prosecution “often lacks the clarity of the specification and thus is less useful for claim construction purposes.”  Although the applicants had referred to the “claimed process” of claim 1 during prosecution, the Federal Circuit found this insufficient to overcome the “plain language of the claims and the specification” that showed the mobile station was an apparatus.  A single reference to “steps” was similarly unpersuasive.

As the claims did not claim both the apparatus and the process, the Federal Circuit ruled that they did not violate the rule of IPXL.  They were instead merely in a “preamble-within-a-preamble” form, which was “unconventional” but valid under Microprocessor Enhancement Corp. v. Texas Instruments.

General Structure for Means-Plus-Function Claims May Be Implied, Not Explicit

The court then examined HTC’s alternate argument that the claims were indefinite under § 112 ¶ 6.  The parties had agreed that the “arrangement for reactivating” in all three claims was a means-plus-function limitation, which requires disclosure of a corresponding structure in the specification.  But the district court found, and the Federal Circuit agreed, that no literal disclosure was necessary, because a person skilled in the art “would understand that the mobile device would have to contain a processor and transceiver.”  Expert testimony, including the deposition of HTC’s own expert, supported this assessment.

The Federal Circuit also noted that a detailed hardware configuration was not necessary; “reference to such general-purpose processors will suffice” to make the claim definite if the description also discloses an algorithm that “describe[s] a means for achieving [the reactivating] outcome, not merely the outcome itself.”  At the trial level, HTC had argued exclusively that the hardware disclosure was insufficient with or without algorithms, and did not contend in the alternate that the disclosed algorithms were inadequate, even when IPCom argued in briefs that they were.  Therefore, the Federal Circuit did not let HTC raise the argument on appeal, finding no reason not to apply the general appellate policy against considering issues not raised at trial.

With no other cause to invalidate, the panel reversed, declaring all claims valid.

Post-Case Analysis

The Federal Circuit creates little new law here, but reminds us of some existing principles for both prosecutors and litigators.  Prosecutors are reminded of the importance of clarity in drafting.  Although IPCom’s claims survived their second interpretation, clearer attachment of nouns to modifiers would have avoided the initial invalidation.  Simple use of commas or semi-colons to break up the clauses, and then leading each clause with its own element, can be an invaluable rule of thumb.  For instance, opening with “A mobile station for use with a network, the network including…” would have made it undeniable what the following paragraphs referred to.

Similarly, although the courts will treat a structure as implicitly disclosed when it is “understood” by those skilled in the art, it is better to be explicit.  What is “understood” can vary from expert to expert, and had HTC’s own expert not admitted to the validity of IPCom’s position, the patent might well have failed on this point.  Also, this rule has less benefit when the structure is not a processor or similar; that is, one that must be thoroughly defined on its own terms instead of in the context of algorithms.

Means-plus-function claims are especially vulnerable to a few mistakes that IPCom nearly stumbled over.  Prosecutors should always remember to check their claims for IPXL-style indefiniteness, as the drafter is already thinking in terms of the corresponding process and may forget to make the distinction.  Double-checking for the appropriate structure for each function – including the algorithm, if software is involved – is also vital.

Finally, in all cases, proofreading is key.  A second pair of eyes to check for these and other mistakes during drafting can save your client from both a higher risk of invalidity and unnecessary legal fees the first time he tries to enforce.

Litigators, meanwhile, are reminded of the importance of attacking the opponent from every reasonable angle; in this case, to challenge the structure disclosure on both hardware and software.  It is sometimes splitting hairs to say what specific sub-(sub-sub-)issues a party has failed to address, and HTC might have argued that, by bringing up structure disclosure at all, they preserved all aspects of it for appeal.  But at minimum, once IPCom reminded HTC of the algorithm issue in its own briefs, HTC needed to respond.  Leaving that argument unchallenged cost them dearly.

The opinion is available at: http://www.cafc.uscourts.gov/images/stories/opinions-orders/11-1004.pdf

Oral arguments may be heard at: http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2011-1004.mp3

Federal Circuit Confirms Expansive View of Patent Eligibility

In Ultramercial LLC v. Hulu LLC, 657 F.3d 1323 (Fed. Cir. 2011), Ultramercial LLC’s patent claims a method “for distribution of products over the Internet via a facilitator”. As part of the claim, the facilitating web server offers a “sponsor message” to a potential viewer, who, if he views the sponsor message, is then allowed access to a desired “media product”. The claim also recites limitations related to interactions with the sponsors both before and after delivery of the sponsor message. Continue reading