United States: Fairwarning Or Fair Weather For Patentees?

Following Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), accused infringers have favored the tactic of filing an early motion to dismiss. The perceived effectiveness of these motions, coupled with their potential to nip a litigation in the bud, propelled their use. This trend met resistance in BASCOM Global Internet Services, Inc. v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016) and McRO, Inc. v. Bandai Namco Games America, Inc., No. 2015-1080 (Fed. Cir. Sept. 13, 2016), where claims survived early dispositive motions. But in the recent case FairWarning IP, LLC v. Iatric Systems, Inc., No. 2015-1985 (Fed. Cir. Oct. 11, 2016), the Federal Circuit affirmed the early invalidation of claims under Alice. This further refinement of patent-eligibility jurisprudence is important for all patent attorneys, both prosecutors and litigators.

FairWarning IP, LLC's (FairWarning) patent relates to ways of detecting fraud and misuse by identifying suspicious patterns in the accessing of sensitive data, such as protected health information (PHI). Claim 1 of the patent recites a method for generating rule data, recording PHI data, analyzing PHI data in view of a rule, and providing a notification if the analysis identifies potential misuse. The patent's specification acknowledges that prior art systems recorded audit log data regarding access to PHI.

FairWarning sued Iatric Systems, Inc. (Iatric) in U.S. District Court for the Middle District of Florida, alleging infringement of FairWarning's patent. Iatric responded with a motion to dismiss under Fed. R. Civ. P. 12(b)(6), arguing that the patent is invalid under 35 U.S.C. § 101. The district court granted the motion based on Alice's two-step test for patent-eligibility. According to the district court, the claims were directed to the abstract idea of "analyzing records of human activity to detect suspicious behavior" and did not recite additional subject matter that could transform the abstract idea into a patent-eligible concept. The district court thus dismissed the case.

On appeal, the Federal Circuit likewise applied the Alice two-step test.  Under the first step, the Federal Circuit agreed with the district court's articulation of the abstract idea embodied by the claims. The Federal Circuit's analysis was guided by the patent's specification, which included a similar description of the field of invention. The Federal Circuit explained that its prior cases found "collecting information" and "analyzing information by steps people go through in their minds, or by mathematical algorithms," to represent abstract ideas. FairWarning, slip op. at 6. Consistent with those prior cases, the Federal Circuit found that the recited process for generating rule data, recording PHI data, analyzing PHI data in view of a rule, and providing a notification if the analysis identifies potential misuse was an abstract idea. Further, unlike in McRO, where claims for using automated rules that allowed computers to generate accurate and realistic lip synchronization and facial expressions were found not to be abstract, here FairWarning's claims "merely implement an old practice in a new environment." Id. at 7.  Further, "[a]lthough FairWarning's claims require the use of a computer, it is this incorporation of a computer, not the claimed rule, that purportedly 'improve[s] [the] existing technological process' by allowing the automation of further tasks."  Id. at 8 (emphasis in original).

The Federal Circuit next addressed step two of Alice, concluding that the claims contained nothing sufficient to transform the claimed subject matter into a patent-eligible invention. Although the Federal Circuit's abstract idea analysis was focused on independent claim 1 of the patent, it addressed FairWarning's arguments regarding other claims under step-two of Alice. Nevertheless, the Federal Circuit found that none of these additional claims—including several "system" claims—satisfied step-two of Alice. In particular, the claims recited limitations "analogous" to those found in independent claim 1, and added only "basic computer hardware," such as "non-transitory computer-readable" media. Id. Because "FairWarning's system claims merely graft generic computer components onto otherwise-ineligible method claims," they do not transform the claimed abstract idea into something patent-eligible. Id. at 11. Further, the Federal Circuit rejected FairWarning's argument that the claims solved "technical problems unique to the computer environment." Id. According to the Federal Circuit, even if the claims involved a combination of "data sources," that would be insufficient to demonstrate a solution to a problem "specifically arising in the realm of computer" technology, as was the case in DDR Holdings., LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014). Id. at 12.

Lastly, FairWarning challenged the early nature of the district court's dismissal, arguing that the court improperly engaged in fact-finding beyond the pleadings, and did so adversely to FairWarning. The Federal Circuit disagreed, concluding that the district court properly characterized the abstract idea, even after viewing the facts in FairWarning's favor. Further, the Federal Circuit rejected FairWarning's argument that the district court improperly found the claims to "preempt the field of HIPAA regulation compliance."  Id. at 14. The Federal Circuit explained that, even if the claims did not cause such preemption, the lack of preemption does not save the claims.

FairWarning contains several important teachings for patent prosecutors. In addition to providing yet another example of claim language that prosecutors can compare to language they are drafting themselves, FairWarning highlights risks that a patent's specification may pose in a patent-eligibility analysis. In FairWarning, the patent specification's description of the field of invention was used to help formulate the abstract idea embodied by the claims. Further, the specification's acknowledgement that preexisting technologies accomplished a similar task helped establish that the claims did not represent anything substantially more than the abstract idea. Accordingly, practitioners should be mindful when drafting specifications and attempt to avoid providing a roadmap for a future patent-eligibility challenge.

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