Back in 2009, the Federal Home Loan Mortgage Corp. turned to a seldom-invoked patent law provision in hopes of knocking out infringement claims brought by a nonpracticing entity called Graff/Ross Holdings. Graff/Ross claimed its patents covered technology used in Freddie Mac’s electronic fixed-income bond auctions. But Matthew Moore of Latham & Watkins argued that the patents violated §101 of the Patent Act, which holds that laws of nature and abstract ideas can’t be patented.
Section 101 wasn’t really part of the standard patent defense arsenal back then, but three years later Moore’s approach is looking awfully prescient. Late last month a U.S. district judge in Washington, D.C., finally dismissed the case against Freddie Mac, ruling that the the Graff/Ross patents do little more than use a computer to perform a mathematical computation. Two weeks earlier, a judge in San Francisco rejected infringement claims that OIP Technologies Inc. brought against another Moore client, Amazon Inc. The judge favored Latham’s §101 arguments, concluding that OIP’s patent “teaches nothing more than the calculation of a demand curve based on consumer response to different price points.”
According to Edward Reines of Weil, Gotshal & Manges, the wins for Amazon and Freddie Mac are part of a “definite trend.” Reines also spoke of two more recent decisions tossing cases on §101 grounds. On Sept. 18 a judge in Los Angeles dismissed infringement claims against the world’s largest vacation rentals business, Wyndham Exchange & Rentals, ruling that the patents at issue are invalid because they cover the basic idea of coordinating time share rentals. (Akin Gump Strauss Hauer & Feld represents Wyndham.) Similarly, on Aug. 16 U.S. District Judge Sue Robinson in Delaware gutted a litigation campaign CyberFone Systems LLC brought against 175 different defendants making 970 different products in the telecom industry. Siding with defendants including T-Mobile and AT&T, Robinson ruled that CyberFone’s patent process “represent[s] nothing more than a disembodied concept of data storing and storage and, therefore, the court finds the abstract nature of this patented process to be manifestly apparent.”
In the Amazon case, Latham got a ruling on its motion to dismiss just six months after the case was brought. Wyndham’s lawyers at Akin Gump were able to bring that case to a close in four months.
“It’s a great defense to raise early,” Moore said. “For defendants, this is a chance to get dispositive result before having to spend millions of dollars on discovery.” The §101 defense is also “fun to raise,” Moore said. In the Amazon case, to make the point that OIP’s patent covers that age-old idea of supply and demand, he quoted from Adam Smith’s treatise The Wealth of Nations in his motion to dismiss.
What makes these rulings especially notable is that they’re occurring in the absence of clear guidance from the U.S. Court of Appeals for the Federal Circuit or the U.S. Supreme Court. When the U.S. Supreme Court agreed to hear Bilski v. Kappos in 2009, many observers expected the court to crack down on method patents in general, and software patents in particular, by placing them outside the reach of §101. Instead, the court punted. While it knocked out the patent at issue (for a method of hedging risk in the commodities market), the court issued a narrow 5-4 decision in 2010 that simply held that there is no definitive test for determining what is patentable.
Federal Circuit decisions interpreting Bilski haven’t been a model of clarity. For instance, in Bancorp Services v. Sun Life, a three-judge panel gave §101 some oomph, ruling that “using a computer to accelerate an ineligible mental process does not make that process patent-eligible.” But in CLS Bank v. Alice, a different panel mystified some observers by affirming the validity of a patent that takes the age-old concept of “financial intermediation” and adds a computer. And in a case called Ultramercial v. WildTangent, a Federal Circuit panel resurrected Ultramercial’s patent covering a process of watching copyrighted content on the web. Latham represents defendant WildTangent in its ongoing appeal.
Whether the §101 defense really takes off will depend on what the Federal Circuit does next. In May, the U.S. Supreme Court ordered a rehearing in the Ultramercial case. Meanwhile, Bancorp and Alice Corp. have both asked for en banc review of their respective cases.
Latham’s Moore conceded that “there’s some uncertainty” about the scope of §101. But he said most Federal Circuit judges appear to favor giving §101 more teeth. “The clear message to the district courts is that this is a viable defense,” he said.
Jan Wolfe is a reporter with The Litigation Daily, a Recorder affiliate.
