Can Courts Apply Alice Two-Step For Consistent Jurisprudence?

  1. Amdocs v. Openet: claims found patent eligible by Federal Circuit facially similar to claims held patent ineligible by Supreme Court in Alice
  2. Federal Circuit imports arguably patent eligible limitations from a Markman Hearing into claims that are otherwise arguably prima facie patent ineligible
  3. Reyna Dissent clarifies: the correct inquiry is not whether the specification discloses a patent eligible system, but whether the claims are directed to a patent ineligible concept

In Amdocs (Israel) Limited v. Openet Telecom, Inc., decided on November 1, 2016, a divided Federal Circuit reversed the trial court on § 101 in finding the software patent claims to be patent eligible. In so deciding, the Federal Circuit has added one more arrow to the § 101 quiver of patent eligible software. But how useful is that arrow going to be as a guiding § 101 precedent?

The Amdocs case is the most recent Federal Circuit decision to expose an essential vulnerability in the Alice two-step method for determining patent eligibility, its Achilles Heel. The Alice two-step method, derived from Supreme Court guidance in CLS Bank v. Alice, determines

  • first, whether a claim recites a “patent-ineligible concept” and
  • second, if so, whether it is a “patent-eligible application.”

Post-Alice cases, including Amdocs, suggest the term “patent-eligible concept” to mean an “improvement to a functionality” and the term “patent-eligible application” to mean “the recited generic components operate in an unconventional manner to achieve an improvement in some functionality.”

These interpretations, albeit helpful, remain ambiguous in that they leave practitioners in the dark about what causes an improvement to either rise or not rise to the level of a “patent-eligible concept” or a “patent-eligible application” deserving of patent protection. This ambiguous process opens the door for subjective jurisprudence.

At issue in Amdocs was the patent eligibility of software accounting tools in four patents, the ‘065, ‘510, ‘984 and ‘797 patent. The Federal Circuit began its analysis of the Amdocs claims by first reviewing the post-Alice Federal Circuit case law it deemed probative on the § 101 question – namely, Digitech; Content Extraction; In re TLI Commc’ns; DDR Holdings; and Bascom. Then, applying a sort of “I know it when I see it” logic, the Federal Circuit went on to find patent eligibility under step two of Alice (after assuming arguendo the claims were directed to an abstract idea under step one) because “[i]n this case, the claims are much closer to those in Bascom and DDR Holdings than those in Digitech, Content Extraction, and In re TLI Commc’ns.” Op. at 21.

Claim 1 of the Amdocs ‘065 patent recites, among other things, “computer code for using the accounting information with which the first network accounting record is correlated to enhance the first network accounting record.” Id. at 20. The Federal Circuit approved the lower court’s construction of the term “enhance” to mean “to apply a number of field enhancements in a distributed fashion” and the lower courts explanation that “[i]n this context, ‘distributed’ means that the network usage records are processed close to their sources before being transmitted to a centralized manager.” Id. at 22. On this construction, the Federal Circuit went on to explain that “the claim’s enhancing limitation necessarily requires that these generic components operate in an unconventional manner to achieve an improvement in computer functionality.” Id. at 23. The court found important that “[a] field enhancement specifies how the data obtained from the trigger of the enhancement procedure is processed before it is placed in a single field in the central database 175.” Id. This persuaded the court that Claim 1 involves limitations that when considered individually and as an ordered combination recite an inventive concept through the system’s distributed architecture. As explained by the court, “… this enhancing limitation necessarily involves the arguably generic gatherers, network devices, and other components working in an unconventional distributed fashion to solve a particular technological problem.” Op. at 23-24. On preemption, the Federal Circuit opined that the claim is not so broadly described as to cause concerns. “It is narrowly circumscribed to the particular system outlined. As in Bascom, this is a technical improvement over prior art technologies and served to improve the performance of the system itself.” Op. at 25.

The Federal Circuit found the claims of the ‘510, 984 and ‘797 patents also patent eligible for similar reasons.

In parsing the post-Alice case law, the Federal Circuit may not have seen the Alice forest for the trees. Software claims directed to correlating accounting records between two networks found patent eligible by the Federal Circuit in Amdocs are facially similar to the claims held patent ineligible by the Supreme Court in Alice.

Comparison of Claims in Amdocs and Alice

Claim 1 of  Alice ‘720 Patent Claim 1 of Amdocs ‘065 Patent
1. A data processing system to enable the exchange of an obligation between parties, the system comprising: 1. A computer program product embodied on a computer readable storage medium for processing network accounting information comprising:
a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and a computer, coupled to said data storage unit, that is configured to computer code for receiving from a first source a first network accounting record;
(a) receive a transaction
(b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; computer code for correlating the first network accounting record with accounting information available from a second source; and
and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable , time invariant obligation placed on said exchange institution computer code for using the accounting information with which the first network accounting record is correlated to enhance [construed to mean: apply a number of field enhancements in a distributed fashion]* the first network accounting record

* As construed by the lower court

Supreme Court precedent cautions that the method steps employing technical formulae must be “new” under § 101 (e.g., not an expression of a law of nature as in Einstein’s theory of relativity) and patent eligibly “useful” (e.g., technical formulae (not common knowledge) that improve a function). If the claims of Alice and Amdocs are alike, it is hard to justify, as the Court did in Amdocs, that the claims satisfy step two of Alice because “these generic components operate in an unconventional manner to achieve an improvement in computer functionality” (Op. at 23.) when the Supreme Court found facially similar claims in Alice to be common knowledge and so not patent eligible.

In that case, the Federal Circuit decision does not appear to square with Alice.

At the same time, the Markman Hearing construction of the term “enhancement” to mean “apply a number of field enhancements in a distributed fashion” may have snatched the claims of Amdocs from the jaws of patent ineligibility defeat by introducing a computer improving feature into the claim arguably not found in the claims in Alice (i.e., ‘distributed’ means that the network usage records are processed close to their sources before being transmitted to a centralized manager. Op at 22.)

The foregoing provides practitioners with two take-aways. The first is that the claims in Amdocs either lie on the edge of patent eligibility or are patent ineligible, as the claims in Alice were found to be by the Supreme Court.

The second is that the limitation on the term “enhancement” that was introduced during the Markman Hearing is what likely tipped the scales toward patent eligibility in this case. Whether or not the decision in Amdocs withstands an appellate challenge, Amdocs shows how introducing patent eligible limitations into a claim at a Markman Hearing may turn a prima facie patent ineligible claim into patent eligible subject matter.

Judge Reyna dissented on the grounds that the majority imported teachings of the specification not recited in the claims. “The inquiry is not whether the specifications disclose a patent eligible system, but whether the claims are directed to a patent ineligible concept.” See Dissent at 12. Judge Reyna’s comments are a recurring criticism of many § 101 decisions.

The parties may be planning on petitioning for en banc review by the Federal Circuit. Should it continue further, a higher appeal of the Amdocs decision would provide the Supreme Court with an excellent opportunity to fine tune the framework of Alice, particularly with respect to what makes a concept a “patent-ineligible concept” and when do recitations “transform the claim into a patent-eligible application.”

It may also create one more opportunity for the Court to reconsider the alternative tests proffered by the patent community for determining patent eligibility such as the physical or virtual links test.

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About Paul R. Juhasz