Procedural Context Proves Critical for § 101 Alice Patent Challenge in District of Minnesota
The Honorable Donovan Frank recently issued only the second decision in the District of Minnesota to address the question of patentable subject matter under 35 U.S.C. § 101 in the context of a motion to dismiss. Like the prior decision (from the Honorable Susan Richard Nelson), Judge Frank emphasized the “presumption of validity” for patent claims in denying the motion.
While favorable, the decision may ultimately provide little reason for the patent holder to celebrate. Judge Frank suggested that the patents owned by T-Rex Property AB (T-Rex) still face possible extinction and noted that it was “entirely possible” the defendant may invalidate the patent claims at summary judgment, with the benefit of discovery and a different standard for review. Thus, the decision is grounded strictly to the procedural context in which the issue was presented, which in the District carries with it the “presumption of validity.” Although courts throughout the country disagree on the application of the presumption in this context, a party seeking to dismiss patent infringement claims in the District of Minnesota under § 101 should take note of Judge Frank’s recent decision emphasizing the procedural importance in such a challenge.
T-Rex is in the business of digital signage—an alternative to traditional, physical advertising. Cedar Fair, L.P. (Cedar Fair) operates amusement parks that utilize digital screens and supporting devices to provide information to patrons.
T-Rex sued Cedar Fair for patent infringement based on three patents relating to “digital information systems for displaying information on at least one display means, such as a screen, projector, or electronic billboard.” The patents are aimed at “increased speed, flexibility, and the ability to dynamically change digital messages.” At a high level, the patent claims are directed to a “system for collecting display instructions from external content providers, organizing the display content at a central computer, and then displaying the content on electronic displays” so that the content on the displays can be controlled dynamically in real time.
The patents have been the subject of extensive litigation in recent years. For example, the asserted 7,382,334 patent was asserted in more than 50 separate cases filed by T-Rex from December 2014 to July 2016. Yet, this appears to be only the second challenge T-Rex has faced under § 101. The first was before the Honorable Rodney Gilstrap in the Eastern District of Texas, involving the same three patents asserted in this litigation. After the motion to dismiss was fully briefed, Judge Gilstrap deferred ruling until claim construction. Shortly thereafter, the parties agreed to voluntary dismissal with prejudice—presumably because of a settlement.
Standard for Deciding § 101 Challenge on Motion to Dismiss in District of Minnesota
In addressing Cedar Fair’s motion to dismiss, the Court first highlighted the familiar standard for motions to dismiss under Rule 12(b)(6), including drawing all reasonable inferences in the light most favorable to the plaintiff. The Court then reiterated that dismissal under § 101 on a motion to dismiss is “unwarranted unless the only plausible reading of the patent must be that there is clear and convincing evidence of ineligibility.” (internal quotation marks omitted). The Court also explained that seeking to dismiss a complaint under § 101 “is made more difficult by the presumption of validity that attaches to patents.” While the Court acknowledged disagreement on the application of the presumption of validity in such context, it agreed with the only other decision—which denied a motion to dismiss in overruling the Magistrate Judge’s recommendation for dismissal—from the District of Minnesota that addressed the question.
The Court then outlined the two-part test for patent eligible subject matter set forth by the Supreme Court in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). First, the Court determines whether the claim at issue is “directed to” a judicial exception, such an abstract idea. If so, under step two of the Alice framework, the Court must decide whether the claims contain an “inventive concept” sufficient to “transform the nature of the claim into a patent-eligible application.”
Presumption of Validity May Have Saved T-Rex’s Patent from Extinction
After setting forth each party’s arguments on the issue, the Court denied the motion in a two-page, succinct analysis. Under the first step, the Court found “some merit” to the argument that the patents are directed to an abstract idea. However, because it found that the claims—at the motion to dismiss stage—survive step two of the analysis, the Court did not decide the threshold issue.
In reaching its conclusion under step two, the Court heavily emphasized the procedural context in which the issue was presented. Specifically, the Court noted the allegations regarding “what was considered conventional at the time of the invention” and, viewing all reasonable inferences in T-Rex’s favor, found no basis to disagree that the claims set forth elements that transformed the claimed subject matter into an inventive concept. “[C]ombined with the presumed validity,” the Court found the claims stated a claim for relief at the pleading stage. However, the Court previewed that its decision might be different on a more developed record: “Cedar Fair could be successful in challenging the validity of the patents at the summary judgment stage. It is entirely possible that . . . Cedar Fair will be successful in demonstrating that the asserted claims are invalid.”
The only decision in the District of Minnesota to address a § 101 challenge other than the motions to dismiss above came on a successful partial summary judgment motion. That decision was detailed in Adam Steinert’s earlier PatentWatch blog post here.
It remains to be seen whether the litigation will reach the summary judgment stage when the issue can again be addressed. In any patent litigation involving a § 101 issue, the strength of the § 101 argument, the amount of damages at issue, the expected cost of discovery, and other potential defenses play a critical role in whether a substantive decision or settlement will resolve the dispute. It is possible that this suit, like the one in the Eastern District of Texas, may settle. For the time being, though, T-Rex’s claims survived the challenge.
Motions to dismiss under § 101 and Alice have been a popular and efficient tool to challenge the validity of an asserted patent prior to undertaking prolonged and expensive discovery. More than 200 such motions have been filed since Alice issued, and in many districts, defendants have attained a high level of success with such motions. The two decisions to address the issue in the District of Minnesota, however, have noted that winning such motions is “never an easy task” because of the “presumption of validity” for issued patent claims.
Ultimately, the language and breadth of the claims at issue will be the crucial issue in determining whether the patents claim patentable subject matter. But in the District of Minnesota, like some other districts, the procedural context for a § 101 challenge appears to be paramount. A copy of Judge Frank’s order can be found here.