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Fresh From the Bench: Precedential Patent Cases From the Federal Circuit

January 25, 2016


By Peter E. Heuser and Ryan C. Fox-Lee 

Mortgage Grader – In a decision written by Judge Stark of the Delaware District, the Circuit affirms two district court decisions relating to patent ineligibility of online loan-shopping patents. Appellees raised patent ineligibility as a defense in their answer, dropped it in their initial invalidity contentions, and added it back in their final invalidity contentions. Providing an interesting discussion of how Alice changed the section 101 analysis, the panel affirms the grant of summary judgment of invalidity and rules that appellees had good cause to amend their invalidity contentions because Alice had been handed down in the intervening period.

Mortgage Grader argued that the district court improperly resolved material factual disputes in connection with the grant of summary judgment, but the panel holds that numerous cases have recognized that a § 101 analysis may be undertaken without resolving fact issues. Here, the district court did not rely on Appellees' expert declarations, which simply provided non-material historical information that added little if anything to the patent's specification.

Lumen View – The panel affirmsa judgmentof noninfringement, and holds that the court did not err in finding the case exceptional. However, the award is vacated and the case is remanded because the court considered inappropriate factors in its doubling of the lodestar amount (reasonable billing rate multiplied by time reasonably spent) in its award of attorney fees. Specifically, the panel held that deterrence and expedited resolution of the case are not appropriate factors to be considered in calculating an attorney fee award, even where, as here, plaintiff appears to have been engaged in an ongoing predatory strategy of baseless litigation.However, in remanding the case, the panel notes that Rule 11 may be an appropriate avenue to provide additional sanctions against plaintiff, a non-practicing entity.

Pfizer – A divided panel affirms the PTO's calculation of a patent term adjustment even though the adjustment did not consider the delay resulting from an admittedly incomplete restriction requirement generated by the examiner. The majority holds that because section 132 merely requires that an applicant be informed of the broad statutory basis for the rejection of his claims, and this standard was met by the restriction requirement, the grant of summary judgment in favor of the PTO must be affirmed.

Mortgage Grader, Inc. v. First Choice Loan Services Inc.,
Fed. Cir. Case 2015-1415 (January 20, 2016)

Three Mortgage Grader patents relate to "financial transactions including a method for a borrower to evaluate and/or obtain a loan." The following claim is representative:

A computer-implemented system for enabling borrowers to anonymously shop for loan packages offered by a plurality of lenders, the system comprising:

a database that stores loan package data specifying loan packages for home loans offered by the lenders, the loan package data specifying, for each of the loan packages, at least a loan type, an interest rate, and a required borrower credit grading; and

a computer system that provides:

a first interface that allows the lenders to securely upload at least some of the loan package data for their respective loan packages to the database over a computer network; and

a second interface that prompts a borrower to enter personal loan evaluation information, and invokes, on a computer, a borrower grading module which uses at least the entered personal loan evaluation information to calculate a credit grading for the borrower, said credit grading being distinct from a credit score of the borrower, and being based on underwriting criteria used by at least some of said lenders;

wherein the second interface provides functionality for the borrower to search the database to identify a set of loan packages for which the borrower qualifies based on the credit grading, and to compare the loan packages within the set, including loan type and interest rate, while remaining anonymous to each of the lenders and without having to post a request to any of the lenders, said second interface configured to display to the borrower an indication of a total cost of each loan package in the set, said total cost including costs of closing services not provided by corresponding lenders.

Dependent claims recite that "the second interface comprises a set of web pages." Method claims describe a "computer-implemented method" or a "method of assisting a borrower in obtaining a loan."

The § 101 Defense Is Raised in the Answer, Dropped, Then Raised Again

Mortgage Grader added First Choice Loan Services Inc. and Nylx, Inc. to an existing infringement suit. In their answer, Appellees asserted section 101 defenses in their affirmative defenses and counterclaims. In their invalidity contentions required by the district court's Standing Patent Rules, Appellees included the statement: "Defendants do not present any grounds of invalidity based on 35 U.S.C. § 101 of any of the asserted claims at this time. The final claim construction may require such an assertion of invalidity." Later, after the district court issued its claim construction order on April 18, 2014, Appellees served their final invalidity contentions, stating that they now intended to challenge the validity of the patents under the recently-issued Alice decision.

Mortgage Grader moved to strike Appellees' § 101 defense, arguing that Appellees had not shown good cause for injecting the defense back into the case after dropping it. The district court denied the motion and granted Appellees' summary judgment that the asserted claims are directed to the abstract idea of "anonymous loan shopping" and included no "inventive concept."

Good Cause Is Found to Add § 101 Defense Based on Intervening Alice Decision

District Court Standing Rule 4.2.2 requires good cause for amendments to invalidity contentions. The district court concluded that, although finding good cause in such a case is unusual, "Alice represents a big enough change to justify including a new § 101 argument in Defendants' Final Invalidity Contentions."

Mortgage Grader argued to the panel that Alice neither created a new defense nor changed the law and thus cannot be a basis for finding good cause to amend invalidity contentions. But the panel disagrees, noting that in buySAFE, Inc. v. Google, Inc. the Circuit noted that a claim directed to an abstract idea does not move into § 101 eligibility territory by merely requiring generic computer implementation. The panel then turns to the Utramerical cases where the Circuit twice reversed district court findings of ineligibility, including once after a vacation and remand by the Supreme Court under Mayo. However, after a second vacation and remand, this time for further consideration in light of Alice, the Circuit found the claims to be not patent-eligible. The panel argued that the Utramerical cases demonstrate that a § 101 defense previously lacking in merit may be meritorious after Alice. This is particularly likely with patent claims that involve implementations of economic arrangements using generic computer technology.

Mortgage Grader pointed to a non-precedential opinion, Smartflash, as stating that Alice merely clarified § 101 jurisprudence, and argued that the district court did not consider potential prejudice. The panel found the Smartflash decision inapplicable and noted that there was no evidence that Mortgage Grader would have done anything differently in discovery or claim construction had it been given more time to respond to the § 101 defense.

Summary Judgment Under § 101 Was Correct

There are three exceptions to § 101's broad patent-eligibility principles: laws of nature, physical phenomena, and abstract ideas. Under the two-step Mayo test, courts must determine if the claims at issue are directed to a patent-ineligible concept. If so, the next step is to look for an "'inventive concept'—i.e., an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself."

The panel agrees with the district court that the claims are directed to the abstract idea of "anonymous loan shopping," stating that the claim limitations, analyzed individually and as a whole, recite nothing more than the collection of information to generate a "credit grading" and to facilitate anonymous loan shopping. Moreover, the recited steps could all be performed by humans without a computer.

The panel concludes that the claims added only generic computer components such as an "interface," "network," and "database," which are generic computer components that do not satisfy the inventive concept requirement. There is nothing in the claims purporting to improve the functioning of the computer itself or effect an improvement in any other technology or technical field.

Mortgage Grader attempted to argue that the district court improperly resolved material factual disputes in connection with the grant of summary judgment. The panel noted that numerous cases have recognized that a § 101 analysis may sometimes be undertaken without resolving fact issues, in which case the § 101 inquiry may appropriately be resolved on a motion for summary judgment.

Here, despite submission of expert declarations, the district court did not rely on them in its § 101 analysis, looking only to the claims and specifications of the patents. Appellees' experts simply provided non-material historical information that added little if anything to the patent's specification. Mortgage Grader's expert's assertions about conflicts-of-interest and predatory lending merely identified problems that were still possible when practicing the claims. That expert's other opinion, that the patents required a computer, could not provide an inventive concept sufficient to save claims from patent ineligibility.

Lumen View Technology LLC v., Inc.,
Fed. Cir. Case 2015-1275, -1325 (January 22, 2015)

Lumen View's patent is directed to a method for facilitating bilateral and multilateral decision making. The claims are directed to a method of matching parties, involving analyses of preference data from both a first class of parties and a second class of counter-parties. Findthebest ("FTB") operated a specialized search website with a comparison feature entitled "AssistMe" that provided users with personalized product and service recommendations. The AssistMe feature prompted the user with a series of questions about various attributes of the desired product or service, and provided a list of results based on the user's inputted criteria.

The district court granted FTB's motion for judgment on the pleadings under Federal Rule 12(c), holding that the claims were directed to an abstract idea and therefore invalid. The court then granted FTB's motion for an award of attorney fees, ruling that the case was exceptional under the totality of the circumstances test outlined in Octane Fitness. The court held that the suit was frivolous and objectively unreasonable because the bilateral matching method of the patent requires the preference data of two or more parties, and the most basic pre-suit investigation would have shown that the accused AssistMe feature only used the preference data of one party.

In its decision awarding the fees, the district court expounded upon several factors that supported enhancing the lodestar amount. The court stressed the need to deter plaintiff's predatory strategy, the plaintiff's desire to extract a nuisance settlement, the plaintiff's threats to make the litigation expensive, and the frivolous nature of the plaintiff's claims. Although these factors were already discussed in the court's finding of exceptionality, the court specifically noted that in rare cases, the lodestar will be insufficient to deter baseless litigation. In this case, the court noted that the lodestar was uncharacteristically low due to the court's expeditious resolution of the case. As a result, the court found that, here, the lodestar amount alone would be insufficient to deter similar misconduct by Lumen in the future, justifying an enhancement of the lodestar amount. The court accordingly awarded fees, with an enhancement by a multiplier of two.

The Panel Affirms the Determination that the Case Was Exceptional

We review all aspects of a district court's § 285 determination for an abuse of discretion. Highmark. The only constraint the statute imposes on district courts' discretion to award attorney's fees in patent litigation is that the power is reserved for exceptional cases. Octane Fitness.

An "exceptional" case is "one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Octane Fitness. District courts may determine whether a case is exceptional in the case-by-case exercise of their discretion, considering the totality of the circumstances.

We decline to find an abuse of discretion by the district court in finding the case to be exceptional under § 285 and in deciding to award attorney fees. Even if Lumen View's litigation conduct was not quite sanctionable, the court reasonably determined that the case was exceptional. See Octane Fitness ("A district court may award fees in the rare case in which a party's unreasonable conduct—while not necessarily independently sanctionable—is nonetheless so 'exceptional' as to justify an award of fees."). The allegations of infringement were ill-supported, particularly in light of the parties' communications and the proposed claim constructions, and thus the lawsuit appears to have been baseless. Claim construction was unnecessary before finding noninfringement in this case, especially because Lumen View conceded that the claims require preference data from multiple parties.

The District Court Failed to Provide an Adequate Justification for Enhancement of Lodestar

In calculating an attorney fee award, courts usually apply the lodestar method, which provides a presumptively reasonable fee by multiplying a reasonable hourly rate by the reasonable number of hours required to litigate a comparable case. In rare and exceptional cases, a district court may enhance the lodestar amount based on various factors, provided they are not adequately taken into account by the lodestar calculation.

We agree with Lumen View that the district court failed to provide a proper rationale to justify enhancing the attorney fee award by a multiplier of two. If it had adopted Lumen View's proposed schedule, the court stated, FTB would have reasonably incurred "significantly greater" attorney fees. That analysis, however, appears to align more with the "results obtained" rationale disfavored by Supreme Court precedent, rather than being a justification for enhancing the lodestar determination.

The district court further reasoned that the calculated lodestar amount would be insufficient to deter an ongoing predatory strategy of baseless litigation, and thus the deterrent aspect of awarding fees would not be well served by a relatively low amount. But deterrence is not generally a factor to be considered in determining a reasonable attorney fee under § 285. Although deterrence may be a consideration when determining whether to award attorney fees, it is not an appropriate consideration in determining the amount of a reasonable attorney fee, which is principally based on the lodestar method. Unlike sanctions that are explicitly tied to an amount that suffices to deter repetition of conduct, such as Fed. R. Civ. P. 11(c)(4), § 285 only specifies "reasonable attorney fees" once an exceptional case is found. And the lodestar method, yielding a presumptively reasonable attorney fee amount, focuses on the counsel retained by the prevailing party: higher standing attorneys are theoretically reflected by higher rates charged, and more complex issues are reflected by more hours worked.

Adjusting the lodestar has been condoned for situations in which the prevailing party's attorney's performance or conduct somehow is not factored into the lodestar calculation. However, factors outside the realm of performance or conduct attributable to the prevailing party's attorney have not been accepted as justifying an enhancement. For example, inferior performance by counsel, unanticipated defense concessions, unexpectedly favorable rulings, an unexpectedly sympathetic jury, or simple luck cannot justify an enhanced award.

As such, we do not find proper support for the district court's decision to enhance the lodestar amount by the specified multiplier as a reasonable fee award. Even armed with the deference accorded to a district court's discretionary determinations, the court may enhance the lodestar only when it "fails to take into account a relevant consideration." Because we conclude that the expedited schedule and the deterrence purpose are unrelated to the suitability of compensation of FTB's attorneys, and hence not relevant to enhancement of the lodestar, we conclude that the court has not properly justified the amount awarded.

We therefore vacate the attorney fee award and remand the case for recalculating a reasonable attorney fee award and determining whether there may be other issues open for consideration relating to attorney conduct. Whether the court wishes to utilize Rule 11 or any other statutory framework is of course up to the district court.

Pfizer, Inc. v. Michelle K. Lee, Fed. Cir. Case 2015-1265
(January 22, 2015)

Statutory Framework for Patent Term Adjustment

A patent has a term of twenty years from the patent application's effective filing date. An issued patent's enforceable life thus depends on the length of the PTO's examination of a patent application. To account for any undue delays in patent examination caused by the PTO, Congress established a system of patent term adjustment to compensate inventors for lost time on their patent term resulting from such delays. The Patent Term Guarantee Act, 35 U.S.C. § 154(b), provides for the restoration of patent term in three circumstances:

(i) an "A-Delay," which awards PTA for delays arising from the USPTO's failure to act by certain examination deadlines; (ii) a "B-Delay," which awards PTA for an application pendency exceeding three years; and (iii) a "C-Delay," which awards PTA for delays due to interferences, secrecy orders, and appeals. The USPTO calculates PTA by adding the A-, B-, and C-Delays, subtracting any overlapping days, and then subtracting any days attributable to applicant delay.

With respect to A Delay, the Act provides for restoration of patent term "if the issue of an original patent is delayed due to the failure of the Patent and Trademark Office to provide at least one of the notifications under section 132 or a notice of allowance under section 151" within the times specified in the statute. 35 U.S.C. § 154(b)(1)(A). Section 132 in turn provides that, if a patent examiner finds that a patent application does not comply with the standards of patentability, the examiner will issue an office action with respect to the application, "stating the reasons for such rejection, or objection or requirement, together with such information and references as may be useful in judging of the propriety of continuing the prosecution of his application." Thus, the Act provides that A Delay will not accrue when the PTO "provides at least one of the notifications under section 132."

When a patent is ready to issue, the PTO determines whether any PTA delay has accrued, and informs the applicant regarding the length of any term to be restored to the issued patent. An applicant can appeal the PTO's determination of PTA by filing an action in the District Court for the E. D. of Virginia. 35 U.S.C. § 154(b)(4). We have jurisdiction over an appeal from a district court's decision relating to PTA.

As Appellants assert, "[t]his appeal presents a pure question of statutory interpretation; no facts are in dispute." On August 10, 2005, the PTO mailed a restriction requirement. Generally, a restriction requirement would be considered an office action under Section 132 because it informs the applicant of reasons why its claims are considered to be directed to separate inventions. The deadline for Wyeth to reply to the restriction requirement was extended automatically for up to six months based on Wyeth's previously filed authorization for extension of time. Accordingly, the deadline for Wyeth to respond was February 10, 2006. On February 6, 2006, Wyeth participated in a telephone interview with the Examiner and explained that the restriction requirement had omitted claims 75, 76, and 103-106 from its categorization of the various claims in the application. During the interview, the Examiner acknowledged that the restriction requirement was not complete; he agreed to withdraw it and issue a corrected restriction requirement. The PTO issued a corrected restriction requirement on February 23, 2006. Appellants were given a new deadline to respond to the corrected restriction requirement, which was also extended automatically to six months. On May 22, 2006, Wyeth filed its response.

Procedural Background

On October 5, 2012, Appellants brought an action in the E. D. of Virginia seeking a judgment correcting the PTO's Award of A Delay to account for the 197-day period from August 10, 2005, the date on which the PTO mailed the first restriction requirement, to February 23, 2006, the date on which the PTO mailed the corrected restriction requirement. The parties cross-moved for summary judgment on the issue of whether the PTO should have granted additional A Delay for the 197 day period in question. The district court granted the PTO's motion for summary judgment and denied Appellants' motion.

The District Court Properly Granted Summary
Judgment in Favor of the PTO

The Act provides that A Delay will stop accruing when the PTO "provide[s] at least one of the notifications under Section 132." Thus, under the statute's plain meaning, the issue of whether the PTO provided a notification under Section 132 is dispositive of this case. In Chester v. Miller, we held that "Section 132 is violated when a rejection is so uninformative that it prevents the applicant from recognizing and seeking to counter the grounds for rejection." 906 F.2d 1574 (Fed. Cir. 1990). Chester concerned whether an examiner's rejection on the basis of anticipation under Section 102 satisfied the notice requirements of Section 132. We noted that, to make a successful rejection under Section 132, the PTO does not have to explicitly preempt every possible response to a section 102 rejection. Instead, Section 132 merely requires that an applicant "at least be informed of the broad statutory basis for the rejection of his claims, so that he may determine what the issues are on which he can or should produce evidence." Applying these principles, we found the rejection in Chester sufficient to satisfy the requirements of Section 132.

Here, Appellants argue that the PTO's original restriction requirement failed to satisfy the notice requirement of Section 132 because it failed to classify six dependent claims into the examiner's defined invention groups, and thus failed to place the applicants on notice of the restriction requirement as to those dependent claims. Appellants next argue that the initial restriction requirement was not valid because the examiner treated it as though it had been withdrawn. Appellants argue that the initial restriction requirement should accordingly be treated as a non-event for purposes of determining whether Section 132 was satisfied, and, hence, whether A Delay should have ceased accruing under the Act.

We find Appellants' arguments unpersuasive. As in Chester, the examiner's initial restriction requirement satisfied the statutory notice requirement because it informed the applicant of "the broad statutory basis for the rejection of his claims." Here, the examiner's detailed descriptions of the 21 distinct invention groups outlined in the examiner's initial restriction requirement were clear, providing sufficient information to which the applicants could have responded. Indeed, the applicants never challenged the content of the invention groups defined by the examiner. And, significantly, the examiner's defined invention groups remained identical between the two restriction requirements. Viewed as a whole, the restriction requirement provided adequate grounds on which the applicants could recognize and seek to counter the grounds for rejection. Therefore, because the examiner clearly defined to the applicants the invention groups available for election and further prosecution, the applicants were placed on sufficient notice of the reasons for the examiner's restriction requirement.

For the foregoing reasons, we find that the district court did not err in granting summary judgment in favor of the PTO on the issue of whether the PTO properly calculated the length of PTA for the '768 patent.

Judge Newman's Dissent

The panel majority's ruling on patent term adjustment is in conflict with the Patent Act, for the PTO's admittedly incomplete restriction requirement during patent examination contributed to the delay in issuance of the patent.

The panel majority reasons that Wyeth could have or should have filed a speculative response to the flawed restriction requirement, on the premise that Wyeth should have guessed as to which of the 21 groups the examiner would have chosen for each of the six claims that the examiner erroneously omitted from the restriction requirement. On the premise that Wyeth might have guessed correctly and that the examiner might have proceeded with the prosecution without correcting his error, my colleagues refuse to include the period of actual delay in the adjustment of the patent term. The delay occurred, and it cannot be disputed that the applicant and the examiner acted appropriately to cure the examiner's error.

I respectfully dissent.


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