Apple just escaped a $533 million jury verdict by invalidating the plaintiff’s patents on the grounds that the patents cover abstract ideas.
The case is Smartflash, LLC v. Apple Inc., decided by the Federal Circuit Court of Appeals on March 1, 2017. Smartflash owned three patents for technology that limited Internet access to data (video, audio, text, and software) to users who had paid for access. In 2013, Smartflash sued Apple in a Texas district court for infringement of the three patents. In 2015, the jury returned a verdict of infringement against Apple, finding Apple liable to Smartflash for $533 million in damages.
Apple moved for judgment as a matter of law on the grounds that the patents were invalid under 35 U.S.C. §101 as directed to abstract ideas. The district court denied Apple’s motion, and Apple appealed to the Federal Circuit.
On March 1, 2017, the Federal Circuit reversed the district court’s ruling and held the three patents invalid. The Federal Circuit relied on the Supreme Court’s two-step test set forth in Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014) to determine the validity of the patents.
Under 35 U.S.C. §101, any new and useful process, machine, article of manufacture, or composition of matter is patent-eligible subject matter. The Supreme Court has long held that there are three exceptions: laws of nature, natural phenomena, and abstract ideas. These three categories of inventions are not patent-eligible.
In Alice, the Supreme Court established a two-step test to determine if a patent’s claims are patent-eligible. In the first step, the court determines whether the claim is directed to one of the patent-ineligible exceptions (laws of nature, natural phenomena, or abstract ideas). If the first step is met, then the court performs the second step, determining whether the claim elements add sufficient limitations to “transform the nature of the claim” into subject matter that is patent eligible. In step two, the court must find more than routine or conventional activity that has already been practiced.
In applying step one of the Alice test, the Federal Circuit agreed with the district court that Smartflash’s patent’s claims pertained to “conditioning and controlling access to data based on payment.” The court held that this was an abstract idea, basing its conclusion on Supreme Court decisions holding that “fundamental economic practices” are abstract ideas. The court explained that claims directed to computer functionality must be analyzed to determine whether they relate to a “specific asserted improvement in computer capabilities” or to an abstract idea in which a computer is simply used as a tool. The court found that, in this case, the claims were directed to limiting access to data based on the user’s payment. Thus, the claims pertained to computers being used as tools to perform fundamental economic practices. As such, the court held that the first step of the Alice test was met.
The court then considered the second step of the Alice test – whether the claims contained limitations that “transform the nature of the claim” into patent-eligible subject matter. The district court had determined that the claims did contain limitations that transformed them into patent-eligible subject matter, finding that the claims described “specific ways of managing access to digital content data based on payment validation through storage and retrieval of use status data and use rules in distinct memory types.” The Federal Circuit noted that the Supreme Court had long held that routine computer activities do not establish patent-eligibility. The court held that storing, transmitting, retrieving, and writing data on a computer was not sufficient to transform Smartflash’s claims into something other than an abstract idea. The court further found that Smartflash’s hardware components were generic computer components and did not transform the claims into patent-eligible subject matter.