Feature

Proving Patent Eligibility Using Preemption: How the Federal Circuit’s Decision in McRO v. Bandai Expands the Boundaries for Patent-Eligible Inventions

Richard M. Marsh Jr. & Braden M. Katterheinrich

Published in Landslide Vol. 9 No. 5, ©2017 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

The Supreme Court’s ruling in Alice v. CLS Bank1 cemented a two-step test for determining patent eligibility under 35 U.S.C. § 101 in a decision that emphasized preemption as the primary policy driving this doctrine. At the same time, the Supreme Court’s decision left open many questions for the Federal Circuit to resolve, including the precise role of preemption in the § 101 analysis. Despite the Supreme Court’s emphasis on preemption, many Federal Circuit decisions applying Alice did not explicitly discuss § 101 in terms of preemption, and those that did address preemption interpreted this issue as one that can only indicate patent ineligibility. This changed with the Federal Circuit’s decision in McRO v. Bandai,2 which explicitly and substantively analyzed the role of preemption in patent eligibility determinations under § 101. The Federal Circuit’s ruling in McRO, which upheld the claims over a § 101 challenge, articulates an approach to preemption that appears to create more space for patent-eligible inventions. In fact, subsequent cases from the Federal Circuit appear to follow McRO’s legal framework for preemption, suggesting that McRO may have a significant and lasting effect and that preemption will remain a key factor in future cases of patent eligibility.

Alice, § 101, and Preemption

The Supreme Court has interpreted 35 U.S.C. § 101 as containing implicit exceptions to patent eligibility, holding that laws of nature, natural phenomenon, and abstract ideas are simply not eligible for patent protection. The Supreme Court stated that these exceptions are “basic tools of scientific and technological work” and that “[m]onopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it, thereby thwarting the primary object of the patent laws.”3 The Supreme Court also explained that it has “described the concern that drives this exclusionary principle as one of pre-emption.”4 At the same time, the Supreme Court recognized the need to retain the positive benefits that a preemption-based patent system provides to promote progress, because “all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract idea.”5

In an attempt to strike the correct balance between improper preemption and progress, the Supreme Court identified a two-step analysis that first asks whether the claims at issue are “directed to” one of the patent-ineligible concepts, such as an abstract idea. If so, the second step asks whether the patent claims “integrate” those concepts “into something more” that would “pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws.”6

Turning to the facts of the case, the Supreme Court held that the claims at issue were “directed to” the “abstract idea of intermediated settlement.”7 Citing a study from 1896, the Supreme Court concluded that the concept of intermediated settlement is “a fundamental economic practice long prevalent in our system of commerce” and that the claims at issue were directed to that abstract idea.8 Turning to step two of the analysis, the Supreme Court held that those patent claims “fail to transform that abstract idea into a patent-eligible invention” because they “merely require generic computer implementation.”9 In other words, according to the Supreme Court, reciting “some unspecified, generic computer” is “not enough to transform an abstract idea into a patent-eligible invention.”10 Accordingly, the Supreme Court held that those claims did not pass § 101.

Post-Alice, Pre-McRO

Despite the Supreme Court’s articulation of a specific test, Alice left several important issues unaddressed. For example, the Supreme Court expressly declined to define what constitutes an “abstract idea.”11 In addition, the Supreme Court provided little guidance about how to determine when claims are “directed to” an abstract idea or whether the claims include “something more” that would transform the discovery into a patent-eligible invention.12

This ambiguity has caused courts and the patent office to struggle to find a consistent approach to patent eligibility under § 101. Part of the confusion stems from the Supreme Court’s use of preemption to justify its holding. Specifically, the Supreme Court’s concern with preempting the use of an abstract idea “in all fields” does not seem to justify its ultimate holding.13 The claims in Alice required a computer, which means that those claims did not literally preempt the use of intermediated settlement “in all fields.” For example, the claims in Alice did not cover the activities of those precomputing individuals who practiced intermediated settlement in 1896. Likewise, individuals were free to use that abstract idea in any approach lacking a computer. Thus, the Supreme Court’s ruling itself suggests something more—a policy decision that the ability to use conventional tools (or at least generic computers) to implement abstract ideas should also be “free to all men and reserved exclusively to none.”14

As a result of these uncertainties, the Supreme Court’s two-step framework has been used frequently—and many would argue inconsistently—by district courts and by the patent office to address patent eligibility, more often than not to find patent ineligibility. Of particular note is the analytical struggle at step one of the Alice test: identifying an “abstract idea” and determining whether a claim is “directed to” that abstract idea. In wrestling with this step of the Alice test, courts and examiners have largely ignored preemption—or have interpreted it as only an indicator of ineligibility.

For example, the Federal Circuit tangled with the “directed to” inquiry in Enfish v. Microsoft.15 In that case, the Federal Circuit interpreted the first step of the Alice test as “a stage-one filter to claims, considered in light of the specification, based on whether their character as a whole is directed to excluded subject matter.”16 This was an important development that rebuffed a trend of deciding patent eligibility by abstracting the claims into an ineligible abstract idea. In deciding whether the claims in Enfish were “directed to” an abstract idea, the Federal Circuit did not expressly consider the preemptive effect of those claims, but instead looked to whether “the focus of the claims is on the specific asserted improvement in computer capabilities.”17 Specifically, the Federal Circuit found it relevant “to ask whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea, even at the first step of the Alice analysis.”18

Underlying the Federal Circuit’s interpretation is the premise that preempting all uses of an improvement to computer functionality is proper to promote progress. This premise helps explain the Federal Circuit’s rejection of the argument that “the invention’s ability to run on a general-purpose computer dooms the claims.”19 On this point, the Federal Circuit classified its prior decisions invalidating claims under Alice into four general groups: (1) claims that were “simply adding conventional computer components to well-known business practices,” (2) claims that recited the “use of an abstract mathematical formula on any general purpose computer,” (3) claims that “recited a purely conventional computer implementation of a mathematical formula,” and (4) claims that “recited generalized steps to be performed on a computer using conventional computer activity.”20 Those types of claims, the Federal Circuit concluded, are distinct from the claims in Enfish because the Enfish claims were directed to an improvement in the functioning of a computer.21 In other words, from the unsaid perspective of preemption, those groups of ineligible claims preempted the use of “abstract ideas” using conventional tools, reflecting the Supreme Court’s policy decision that restricting claims to implementations using conventional tools would “impede innovation more than it would tend to promote it.”22 In contrast, patent law’s monopoly promotes progress by preempting all uses of technological improvements, such as those presented in Enfish.

Thus, Enfish provides two important developments to the § 101 analysis. First, the Federal Circuit pushed back on the practice, arguably initiated by Alice itself, of oversimplifying the claims when determining patent eligibility. Instead, the court properly focused on the specific limitations in the claims to determine the patent eligibility of those claims. Second, the Federal Circuit made clear that improvements to computer technology are not abstract ideas. As a result, Enfish began to define a safe harbor for computer-implemented inventions, where inventions implemented in software can be patented even when executed with conventional computing tools. Framed in the Supreme Court’s preemption analysis, Enfish stands for the proposition that preempting all uses of technological improvements through patent law promotes progress and that such developments should be patent eligible.

While Enfish discussed how to find patent eligibility without focusing on preemption, other Federal Circuit cases focused on preemption solely in terms of finding patent ineligibility. For example, even though Alice seemed to suggest that a lack of preemption would resolve § 101 concerns and prove patent eligibility, the Federal Circuit in Ariosa Diagnostics v. Sequenom interpreted Alice to reach the opposite conclusion, stating that “the absence of complete preemption does not demonstrate patent eligibility.”23 In other words, even if “the concern that drives [the] exclusionary principle” in § 101 is entirely missing, such that the claims would seem to pose no risk of “improperly tying up the future use of these building blocks of human ingenuity,”24 the Federal Circuit found that those facts alone do not establish patent eligibility.25

Thus, Sequenom and other Federal Circuit cases began to turn preemption into a single-edged sword that cuts only against patent eligibility. Yet this conclusion does not appear to follow the Supreme Court’s decision, and in fact seems to contradict the Supreme Court’s call to “tread carefully” in this area.26 Instead, the Federal Circuit in Sequenom determined that “[w]here a patent’s claims are deemed only to disclose patent ineligible subject matter . . . , preemption concerns are fully addressed and made moot.”27 The logic of that statement seems to be circular in nature, and if followed has the potential to “swallow all of patent law,” as the Supreme Court foresaw.28 Fortunately, the Federal Circuit’s decision in McRO provides traction on this slippery slope and articulates how a lack of preemption can indeed support patent eligibility.

McRO

The patents at issue in McRO relate to “automating part of a preexisting 3-D animation method.”29 Before those patents, artists seeking to create 3-D animations of a character’s facial expressions and synchronize those expressions to the actual speech had to manually alter the animations, relying in large part on their own judgment. The aim of the patents was “to automate a 3-D animator’s tasks,” and the patents described various rules that enabled computers to “achiev[e] results similar to those previously achieved manually by animators.”30 The claims of the patents recite “a first set of rules” and how those rules are used to generate 3-D animations. The district court held that the claims were ineligible, because they “purport to cover all such rules” for automating animation and thus preempted the field of using rules for this particular application.31

The Federal Circuit disagreed with the district court’s overly general analysis of the claims, stating: “We have previously cautioned that courts must be careful to avoid oversimplifying the claims by looking at them generally and failing to account for the specific requirements of the claims.”32 Instead, the Federal Circuit determined that “the claims are limited to rules with specific characteristics.”33 In other words, even though the rules were broadly and categorically claimed, they were still “limited to rules with certain common characteristics, i.e., a genus.”34 Acknowledging that “genus claims create a greater risk of preemption,” the Federal Circuit explained that “this does not mean they are unpatentable.”35

Turning to analyze preemption specifically, the Federal Circuit first reviewed earlier cases, including several Supreme Court cases predating Alice, and concluded that “[t]he abstract idea exception has been applied to prevent patenting of claims that abstractly cover results where ‘it matters not by what process or machinery the result is accomplished.’”36 Then, building on Enfish, the court stated that step one of the Alice analysis “look[s] to whether the claims in these patents focus on a specific means or method that improves the relevant technology or are instead directed to a result or effect that itself is the abstract idea and merely invoke generic processes and machinery.”37 On that point, the Federal Circuit held that the claims at issue “prevent preemption of all processes for achieving automated lip-synchronization of 3-D characters,” specifically citing McRO’s evidence of an alternative technical process for automating lip synchronization and facial expressions.38

At the same time, the Federal Circuit in McRO had to contend with Sequenom and other Federal Circuit cases holding that “the absence of complete preemption does not demonstrate patent eligibility.”39 Accordingly, the court in McRO went on to address a “narrower concern,” namely “whether the claimed genus of rules preempts all techniques for automating 3-D animation that rely on rules.”40 Thus, even after identifying a technical solution to a technical problem, the court in McRO felt that it needed to consider the preemptive effect of that technical solution. On this question, the Federal Circuit found that the claimed rules required a “specific structure” that would not preempt the use of all rules for automating 3-D animation, and specifically noted that there “has been no showing that any rules-based lip-synchronization process must use rules with the specifically claimed characteristics.”41 To the contrary, the court noted evidence cited by amicus that “the interaction between vocalization and facial expression is very complex,” indicating that “alternative rules-based methods of animating lip synchronization and facial expressions” could be developed.42

That the court felt the need to address that “narrower concern” seems odd, because Enfish and even Alice itself seemed to make clear that improvements to technological processes are patent eligible, i.e., that total preemption of those improvements serves society and promotes progress. The short explanation could be that the court wanted to be sure that the claimed rules were not broad enough to encompass all computer-based processes. If that were true, then the claims in McRO would be tantamount to claiming the use of conventional computers to implement an abstract idea—a notion expressly rejected in Alice. Finding that other computer-based approaches were feasible, the court was able to satisfy its concern that the claims did not unduly preempt all means to achieve rule-based, 3-D computer animation.

As part of its analysis, the Federal Circuit also rejected the argument that the claims “simply use a computer as a tool to automate conventional activity,” noting how “the incorporation of the claimed rules, not the use of the computer” improves the animation process.43 This, according to the Federal Circuit, makes McRO different than Flook,44 Bilski,45 and Alice, “where the claimed computer-automated process and the prior method were carried out in the same way.”46 The Federal Circuit also rejected the argument that the claims are ineligible because they do not create a tangible result, i.e., that they merely organize existing data into a new form or carry out a fundamental economic practice. On this point, the Federal Circuit stated: “While the result may not be tangible, there is nothing that requires a method [to] ‘be tied to a machine or transform an article’ to be patentable.”47 Instead, the court reemphasized, the “concern underlying the exceptions to § 101 is not tangibility, but preemption.”48

Thus, McRO presents several important developments for the § 101 analysis. Of greatest import, McRO provides that preemption can be used to demonstrate patent eligibility, and not just ineligibility, and does so despite earlier cases tying preemption exclusively to ineligibility. Under McRO, patent eligibility can be shown with evidence demonstrating the possibility for others to achieve the goal of the patent using alternative technical means. In other words, the Supreme Court’s Alice analysis uses preemption to prevent patenting the use of conventional tools to implement abstract ideas, while McRO relies on preemption to uphold “broad” patent claims, so long as those claims do not preempt all technological means for accomplishing a particular goal.

Post-McRO

In several post-McRO decisions, the Federal Circuit has continued to apply the principles expressed in McRO, though with more emphasis on whether the claims recite a particular technical means to accomplish a specific goal—and less explicit discussion on preemption principles. For example, in Apple v. Ameranth, the Federal Circuit cited McRO as establishing that the “step one inquiry” of Alice is deciding “whether the claims ‘focus on a specific means or method that improves the relevant technology’ or are ‘directed to a result or effect that itself is the abstract idea and merely invoke generic processes and machinery.’”49

Other decisions have also characterized McRO as focusing on whether the claims are directed to a technical means to achieve the end result, rather than primarily on principles of preemption.50 For example, in FairWarning IPv. Iatric Systems, the Federal Circuit analyzed claims that recited a rule-based computer system for detecting fraud and misuse.51 The court held that those claims were patent ineligible and distinguished them from the claims found to be eligible in McRO, on the grounds that the claims in McRO were “not directed to an abstract idea but instead were directed to ‘a specific asserted improvement in computer animation, i.e., the automatic use of rules of a particular type.’”52 Importantly for the Federal Circuit, the “improvement in computer animation” claimed in McRO, while producing a “similar result” to the manual approach to animation, “produced those results in fundamentally different ways.”53 According to the Federal Circuit, FairWarning’s claims, despite the recitation of computer-based rules, “merely implement an old practice in a new environment” with rules that reflect the “same questions (though perhaps phrased with different words) that humans in analogous situations detecting fraud have asked for decades, if not centuries.”54 While not phrased in terms of preemption, this decision reflects the primary concern of preemption: because the rule-based system in FairWarning enveloped the same approach used “for decades, if not centuries,” those claims preempted the use of conventional components to implement an abstract idea and provided no technical means that would allow future innovators to practice that abstract idea using different technical tools.

Curiously, the preemption-driven focus between the results of a patent claim and the technical means for achieving those results was not adopted by the Federal Circuit in Amdocs v. Openet Telecom.55 In that case, the Federal Circuit held that the claims at issue relating to “merging data in a network-based filtering and aggregating platform” and “enhancing network accounting data records” were patent eligible.56 The majority in that case determined that the § 101 analysis should follow the “classic common law methodology” of comparing cases, because “there is no []single, succinct, usable definition or test” for “what an ‘abstract idea’ encompasses.”57 Judge Reyna, who dissented from the majority’s approach and from the patent-eligible holding for some—but not all—of the claims, instead proposed an approach more in line with the preemption-based analysis of McRO. Specifically, Judge Reyna recommended an analysis that focuses on whether a claim “recites specific structure or function for accomplishing the desired goal in a particular way.”58 Under Judge Reyna’s approach, claims that “describe only procedure or structure common to every means of accomplishing a given result” simply provide, in his terms, “[i]llusory limitations” that cannot provide patent eligibility.59 Instead, claims that recite “limitations defining a specific way of arriving at [an abstract end]” will “obviate concerns of pre-emption because they leave room for future inventors to develop new paths to the same end without infringing the patent.”60 Thus, Judge Reyna’s approach reflects the fact that preemption is the concern in the § 101 analysis and continues the logic driving the McRO decision.61

It is also noteworthy that the majority did not reject Judge Reyna’s analytical approach as being wrong or unworkable. In fact, the majority agreed that such an approach may be “one helpful way” of confirming patent eligibility, but disagreed that Judge Reyna’s approach reflects what is “now the law, either in statute or in court decision.”62 Thus, while comparisons to currently decided cases are important to § 101 analyses, especially after Amdocs, the role of preemption as articulated in McRO will likely continue to play a prominent role in those comparisons.

Conclusion

The Federal Circuit’s decision in McRO provides some needed clarity on the issue of preemption and its importance in the § 101 analysis. Under McRO, claims that recite a technical means for accomplishing a particular objective do not present the preemption concerns identified by the Supreme Court in Alice, so long as there exists the possibility of alternative technical means for accomplishing that same objective. This development in patent eligibility requirements could have far-reaching implications. For example, claims reciting particular technological approaches for diagnostic medicine or processing information (perhaps even financial information) may find stronger arguments for patent eligibility under the preemption-based approach articulated in McRO. Furthermore, evidence of alternative ways for achieving the objectives of a patent, particularly if those alternative ways are also technological, can strengthen the case for patent eligibility. As the Federal Circuit continues to strive for “greater certitude” on § 101 “based on experience, not on generalizations,”63 the principle of preemption is likely to remain on the forefront in determining the boundaries of patent eligibility.

Endnotes

1. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).

2. McRO, Inc. v. Bandai Namco Games Am. Inc., 837 F.3d 1299 (Fed. Cir. 2016).

3. Alice, 134 S. Ct. at 2354 (citation omitted).

4. Id. at 2354, 2358 (noting “the pre-emption concern that undergirds our § 101 jurisprudence”).

5. Id. at 2354.

6. Id. at 2354–55.

7. Id. at 2355.

8. Id. at 2356.

9. Id. at 2357.

10. Id. at 2360 (citation omitted, emphasis in original).

11. Id. at 2357.

12. See Amdocs (Isr.) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288, 1293 (Fed. Cir. 2016).

13. Alice, 134 S. Ct. at 2354 (citing Bilski v. Kappos, 561 U.S. 593, 611–12 (2010)).

14. Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948).

15. 822 F.3d 1327 (Fed. Cir. 2016).

16. Id. at 1335 (citation omitted).

17. Id. at 1335–36.

18. Id. at 1335.

19. Id. at 1338.

20. Id.

21. Id.

22. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2354 (2014).

23. Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1379 (Fed. Cir. 2015).

24. Alice, 134 S. Ct. at 2354.

25. Ariosa, 788 F.3d at 1379.

26. Alice, 134 S. Ct. at 2354.

27. Ariosa, 788 F.3d at 1379.

28. Alice, 134 S. Ct. at 2354.

29. McRO, Inc. v. Bandai Namco Games Am Inc., 837 F.3d 1299, 1303 (Fed. Cir. 2016).

30. Id. at 1307.

31. Id. at 1309.

32. Id. at 1313 (citation omitted).

33. Id.

34. Id.

35. Id. at 1314.

36. Id. (quoting O’Reilly v. Morse, 56 U.S. (15 How.) 62, 113 (1854)).

37. Id.

38. Id. at 1315.

39. Id.

40. Id.

41. Id.

42. Id.

43. Id. at 1314.

44. Parker v. Flook, 437 U.S. 584 (1978).

45. Bilski v. Kappos, 561 U.S. 593 (2010).

46. McRO, 837 F.3d at 1314.

47. Id. at 1315 (citing Bilski v. Kappos, 561 U.S. at 603)).

48. Id.

49. Apple, Inc. v. Ameranth, Inc., 842 F.3d 1229, 1241 (Fed. Cir. 2016) (quoting McRO, 837 F.3d at 1314); see also id. at 1244 (finding that a disputed claim fails § 101 because it “does not attempt to claim any method for achieving that result” (citing McRO, 837 F.3d at 1314)).

50. See, e.g., Intellectual Ventures I LLC v. Symantec Corp., 838 F.3d 1307, 1314 n.5 (Fed. Cir. 2016) (describing the claims in McRO as “focused on a specific asserted improvement in computer animation, i.e., the automatic use of rules of a particular type”); cf. Trading Techs. Int’l, Inc. v. CQG, Inc., No. 2016-1616, 2017 U.S. App. LEXIS 834, at *8 (Fed. Cir. Jan. 18, 2017) (nonprecedential) (“Similarly, ‘claimed process[es] us[ing] a combined order of specific rules’ that improved on existing technological processes were deemed patent-eligible in McRO.” (alterations in original)).

51. 839 F.3d 1089, 1092 (Fed. Cir. 2016).

52. Id. at 1094 (citing McRO, 837 F.3d at 1314).

53. Id.

54. Id. at 1094–95.

55. Amdocs (Isr.) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288 (Fed. Cir. 2016).

56. Id. at 1291.

57. Id. at 1294.

58. Id. at 1310 (Reyna, J., dissenting); see also id. at 1310–11 (“In McRO, we held that the claims at issue were eligible under Alice step one because they were directed to ‘a specific asserted improvement in computer animation, i.e., the automatic use of rules of a particular type.’”).

59. Id. at 1311.

60. Id. at 1315.

61. See id. at 1311 (“Put another way, limitations that simply ‘comprise the abstract concept’ are not inventive.”).

62. Id. at 1295 (majority opinion).

63. Id. at 1295 n.4.

Richard M. Marsh Jr. is a partner at Faegre Baker Daniels in Denver, Colorado. He specializes in strategic patent analysis and post-grant patent proceedings.

Braden M. Katterheinrich is an associate at Faegre Baker Daniels in Minneapolis, Minnesota. As former in-house counsel, Braden specializes in helping clients develop and carry out IP and agreement strategies.