One of the threshold requirements for obtaining a patent under U.S. law is that the invention is a “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof…” In other words, the subject matter of the invention must be eligible for patenting. Many courts have used this requirement as a threshold test in litigation, with early dismissal of cases that fail the test. A recent Federal Circuit decision suggests such decisions may not withstand scrutiny.

Background

In 2014, the Supreme Court held in Alice Corp. v. CLS Bank that “[l]aws of nature, natural phenomena, and abstract ideas” are not eligible for patent protection. The patentability analysis thus turns on whether one is seeking to patent the “building blocks of human ingenuity” versus “integrat[ing] the building blocks into something more.”  The Court translated this concept into a two-step test whereby at step one, it is determined whether the claim is directed to a “patent-ineligible concept” (e.g., an abstract idea) and, at step two, the elements of the claim are analyzed to determine if it contains an “inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.”

The Recent Decision

In Cooperative Entertainment v. Kollective Techology, Inc., the Federal Circuit recently had the opportunity to apply this test in considering an appeal from the Northern District of California.

The plaintiff sued for infringement of a patent (U.S. Patent No. 9,432,452) relating to systems and methods of structuring a peer-to-peer (P2P) dynamic network for distributing large files, namely videos and video games. P2P, or peer-to-peer technology, has existed for decades and reached the public consciousness with the proliferation of file sharing sites like Napster in the late 1990’s. Basically, the technology enables users to make a portion of their computing resources available directly to other participants in a Content Distribution Network (“CDN”). The ’452 patent claims methods and systems for a network in which “content distribution occurs ‘outside controlled networks and/or [CDN],’s, i.e., outside a ‘static network of controlled systems.’”

The Northern District of California, applying the Alice test, dismissed plaintiff’s complaint because the ‘452 patent “merely implement[ed] the abstract idea of preparing and transmitting data over a computer network with generic computer components using conventional technology.” It did so after undertaking a thorough analysis of the complaint, the patent and the prosecution history. The plaintiff appealed on the ground that Claim 1 of the patent contained several inventive concepts which constituted specific improvements in the distribution of data compared to the prior art.

In reversing the district court, the Federal Circuit did not address the first step of the Alice test because the “claims contain[ed] alleged inventive concepts not limited to the abstract idea, which defeat Kollective’s Rule 12 motion.”  Indeed,the Court found that the two inventive concepts in Claim 1, namely the use of “trace routes” in content segmentation and “peer nodes [] distributed outside controlling networks and/or content distribution networks,” were sufficiently plead to defeat a motion to dismiss.

The court also noted that “[p]atent eligibility is ultimately a question of law …review[ed] de novo … [but] it may depend on underlying issues of fact.” Weighing the allegations in favor of the patentee—as required at the Rule 12 stage—the court held that it was not deciding “today that the claims are patent eligible under § 101” but rather that “there are plausible factual allegations that the claims include inventive concepts.” The Court emphasized that, “[a]t a minimum,” the district court should have denied the motion to dismiss for this reason.

Takeaways

The Federal Circuit’s decision should give some comfort to plaintiffs. District courts may, in the future, be more hesitant to dismiss a case at the pleading stage on ineligibility grounds in view of this decision. However, plaintiffs should still expect significant scrutiny when there are colorable concerns under Section 101 about subject matter eligibility. Plaintiffs may be able to avoid early dismissal by detailed pleading of the purported inventive concepts in such claims.