As we reported earlier today, this morning a panel of the Federal Circuit issued a precedential opinion in Ericsson Inc. v. TCL Communication Technology Holdings Ltd. In this case, the panel reached three important conclusions regarding procedural and substantive matters related to allegations of patent eligibility under 35 U.S.C. § 101.
First, the court concluded that, “[u]nder Fifth Circuit law,” the district court’s denial of summary judgment, affirmatively concluding the claims are not directed to an abstract idea, “effectively serves as a grant of summary judgment for [the patent owner], which is appealable.” This conclusion allowed the Federal Circuit to reach the question of patent eligibility despite the matter not coming up at trial or in any post-trial briefing at the district court.
Second, the court concluded that, “[e]ven if the district court had not effectively granted summary judgment to [the patent owner], both Federal Circuit and Fifth Circuit law make clear that we have the discretion to hear issues that have been waived.” Thus, the court decided to exercise its discretion to reach the matter of patent eligibility even if the matter had been waived by the accused infringer and even though the patent owner had no need to introduce evidence related to the question of patent eligibility at the trial because the defense was not raised at the trial.
Third, the court concluded that, on the merits of the question of patent eligibility, “claims 1 and 5 of the ’510 patent are directed to the abstract idea of controlling access to resources, and do not recite an inventive concept sufficient to transform that idea into patent-eligible subject matter.” The court, in other words, invalidated the claims as ineligible for patenting despite the underlying factual questions normally presented by the required analysis and despite the lack of any notice to the patent owner that it should present relevant evidence at the trial because the defense of ineligibility was not presented at the trial. As a result, the Federal Circuit vacated the district court’s damages verdict.
Judge Newman issued a strong dissent. She took the position that the majority’s opinion defies both Fifth Circuit and Federal Circuit law. In her analysis, she first concluded that the “Fifth Circuit is explicit that an ‘interlocutory order denying summary judgment is not to be reviewed,’ even after ‘full trial on the merits’ and even for ‘purely legal issues,’ unless ‘it is sufficiently preserved in a Rule 50 motion.’” She noted that this is important because the majority decided the § 101 issue even though there was “no record, no evidence, no witnesses, no expertise, no argument, and no district court decision.” Second, she also found that the “majority ignores the pre-trial findings of the district court, rejects the estopped findings of the Patent Trial and Appeal Board in the related IPR proceeding, and discards the guidance of precedent, to hold the subject matter of claims 1 and 5 ineligible for patenting.”
Consistent with Judge Newman’s dissent, the Federal Circuit’s holding is both significant and problematic. It is significant because it opens the door to the Federal Circuit to decide important issues, including but not limited to § 101 patent eligibility, that were raised in denied summary judgment motions and not raised during trial or in post-trial motions, so long as the court concludes that the district court resolved only a question of law without any underlying factual disputes. But it is this last qualification that highlights a problem with the court’s analysis, particularly in the context of patent eligibility. The second part of the patent eligibility analysis often depends at least in part upon fact-finding, and any factual dispute may not have been created at the trial in this case because the accused infringer decided to drop the issue of patent eligibility after the denial of its motion for summary judgment. It would seem that the appropriate remedy for the appellate court in this case, assuming the district court’s legal reasoning regarding the first part of the patent eligibility test was incorrect (as the panel majority held), is to vacate the denial of summary judgment (which depended on that incorrect legal reasoning) and remand the case to the district court for an analysis of the second part of the patent eligibility test, which the Federal Circuit has repeatedly held to include factual determinations, to allow for any necessary fact-finding.
In this regard—reaching eligibility despite the underlying factual components of the patent eligibility test—the panel seems to have confused the relevant analysis. The panel pointed out that “[t]he district court did not conclude that there were issues of fact precluding judgment,” and that “[o]nce the district court held that the ’510 patent was not directed to an abstract idea at step one, there was no set of facts that TCL could have adduced at trial to change that conclusion.” (Later the panel similarly highlighted that, “[a]s discussed above, the district court did not deny summary judgment of ineligibility on the basis of additional facts that needed to be, or even could be, presented at trial.”) That all may be true, but it is not as relevant as the question whether, had Ericsson (the patent owner here) known that the district court’s analysis would be reviewed and overruled on appeal (which seems unlikely given that the matter was dropped by the accused infringer after the denial of its motion for summary judgment), there was any set of facts that Ericsson could have adduced at trial relevant to the relevant question at step two of the patent eligibility test, whether the claims at issue include an inventive concept. If so, then the case should have been remanded for Ericsson to introduce relevant evidence and for appropriate fact-finding by the district court or a jury.
Moreover, by reaching and deciding the second part of the eligibility test despite its underlying factual components, this panel of the Federal Circuit seems to take a different course as compared to relatively recent decisions by other panels of the court. For example, in Birkheimer, another panel vacated a district court’s grant of summary judgment of patent ineligibility, finding disputed questions of fact underlying the second part of the two-part test for patent eligibility. In particular, the panel decided that summary judgment of ineligibility was inappropriate given fact questions created by the relevant patent’s specification related to whether the claims described well-understood, routine, and conventional activities. Similarly, in Aatrix, another panel vacated a district court’s dismissal under Federal Rule of Civil Procedure 12(b)(6) for patent ineligibility based on factual allegations regarding inventiveness that the panel decided must be taken as true at the early stage of litigation. In short, the panel here appears to be aggressively seeking to reach the matter of patent eligibility despite the possibility of underlying factual disputes and, indeed, without any fact-finding by the district court or any jury (which, again, is understandable in the circumstances given that the accused infringer dropped the issue at trial).
In sum, by reaching eligibility despite the underlying factual components of the patent eligibility test, the panel usurps some of the important procedural and substantive control parties and district courts possess over patent litigation, evidence, and in particular the patent eligibility analysis.
Consider, moreover, the impact of the decision. No matter if a patent owner wins at a district court on an early motion for summary judgment of invalidity and the accused infringer subsequently drops its patent eligibility challenge, the issue of patent eligibility is (apparently) ripe for the Federal Circuit to reach in a (renewed) effort by the accused infringer to invalidate patent claims. So, what should patent owners do? Apparently, patent owners should introduce evidence of inventiveness, and in particular lack of conventionality (the second part of the patent eligibility test), even when the issue of patent eligibility is not disputed at trial. Who would have thought?