Federal Circuit Snuffs Out Smartflash Patents Under Section 101 in Apple Win

On March 1, 2017, the Federal Circuit found certain Smartflash LLC patent claims to be ineligible under Section 101 of the Patent Act. In so doing, it reversed the district court's (E.D. Tex.) finding of subject matter eligibility for the asserted claims, signaling a solid win for defendant Apple.

The patents at issue were purportedly directed to subject matter designed to combat so-called "data pirates," who are described as actors who obtain data (with or without authorization) and make that data available over the Internet without permission. Independent claim 3 of U.S. Patent No. 7,334,720, is representative of the claims at issue and is recited as follows:

3. A data access terminal for retrieving data from a data supplier and providing the retrieved data to a data carrier, the terminal comprising:

a first interface for communicating with the data supplier;

a data carrier interface for interfacing with the data carrier;

a program store storing code; and

a processor coupled to the first interface, the data carrier interface, and the program store for implementing the stored code, the code comprising:

code to read payment data from the data carrier and to forward the payment data to a payment validation system;

code to receive payment validation data from the payment validation system;

code responsive to the payment validation data to retrieve data from the data supplier and to write the retrieved data into the data carrier; and

code responsive to the payment validation data to receive at least one access rule from the data supplier and to write the at least one access rule into the data carrier, the at least one access rule specifying at least one condition for accessing the retrieved data written into the data carrier, the at least one condition being dependent upon the amount of payment associated with the payment data forwarded to the payment validation system.

In reversing the district court, the Federal Circuit applied the two-step analysis set forth in the Supreme Court's 2014 decision in Alice Corp. v. CLS Bank, Int'l, 134 S. Ct. 2347 (2014) (i.e., (1) determine whether claim is directed to an abstract idea and (2) if so, whether the elements of the claim transform the nature of the claim into a patent-eligible application).

In step 1, the court found that the claims at issue did not "improve computer functionality," but instead "invoke[d] computers merely as tools to execute fundamental economic practices," in this case, "conditioning and controlling access to data based on payment." Accordingly, the court held the claims were directed to an abstract idea and moved on to step 2 of the analysis.

In step 2, the court found that the claims did not recite any "inventive concept" sufficient to "transform the nature of the claim into a patent eligible application." In reaching that determination, the court relied on its and the Supreme Court's precedent previously holding "that such routine computer activities [as recited in the claims at bar] are insufficient for conferring patent eligibility." Accordingly, the court reversed, holding that all three patents at issue were invalid under Section 101 of the Patent Act. The full opinion can be found here: http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/16-1059.Opinion.2-27-2017.1.PDF

This is the latest in the growing line of cases in which the Court has applied the Alice analysis to software-based claims. Here, the existing Alice and subsequent Federal Circuit Section 101 eligibility standards (e.g., Enfish) were applied, and no judicial gloss was created in this "nonprecedential" opinion. Nonetheless, this case presents another fact pattern in which claims were found ineligible, which is now a fundamental part of the analysis (see, e.g., Alice step 2 in which courts compare fact patterns of prior holdings to determine eligibility).

Practitioners should continue to follow these cases as they come out to keep apprised of changes to and refinement of the abstract idea eligibility standard. This is useful not only in the context of defending against patent infringement allegations, but also to consider in the context of how to position claims in pending patent application filings.

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