In Determining Whether a Case “Stands Out,” It was Not Improper to Consider Patent Cases Generally

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In Nova Chemicals Corp. (Canada) v. Dow Chemical Co., [2016-1576] (May 11, 2017), the Federal Circuit affirmed the district court’s determination that the case was “exceptional” under 35 USC 285, and the award of $2.5 million in attorneys’ fees.

After a patent infringement trial which resulted in a $61 million award to Dow, in a proceeding for supplemental damages, the patent was found to be invalid for indefiniteness.  After uncovering what it claimed was evidence of fraud on the part of Dow and its counsel, Nova filed an action for relief from the initial judgment. The district court dismissed the action, and Dow sought sanctions and attorneys fees under 35 USC 285.  The district agreed with Dow finding NOVA’s claims for relief “just didn’t stand
up” and were “not even plausible.”

The Federal Circuit found nothing exceptional in the mere fact that NOVA filed a separate action because that was the only option available to challenge the earlier judgment.  However,  the Federal Circuit found that the substantive strength of a NOVA’s position could, and did, independently support an exceptional-case determination.

Nova also argued that it was error to compare the case to all patent cases, pointing out with this baseline an action to set aside a prior judgment would always be exceptional because, by necessity,it would
“stand out” from the traditional patent infringement case.  The Federal Circuit decline to hold that the district court erred in comparing this case to other patent cases more generally.  The Federal Circuit found that any concern regarding the district court’s comparison was tempered by the fact that it did not hold that this case stood out merely because NOVA requested that a prior judgment be set aside.

 

 

Patent Owner Statements During an IPR Disclaimed Claim Scope

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In Aylus Networks, Inc., v. Apple, [2016-1599] (May 11, 2017), the Federal Circuit affirmed summary judgment of non-infringement of U.S. Patent No. RE 44,412 on systems and methods for implementing digital home networks having a control point located on a wide area network.

Apple argued that it did not practice the claim requirement “wherein the CPP logic is invoked to negotiate media content delivery between the MS and the MR” recited in the two asserted claims 2 and 21.  Apple argued that this language required that only the CPP logic is invoked to negotiate media content delivery between the MS and the MR, and based upon this construction the district court granted summary judgment.

In construing the “wherein the CPP logic is invoked to negotiate media content delivery between the MS and the MR” limitation, the district court relied on statements made by Aylus in its preliminary responses to Apple’s petitions for IPR of the ’412 patent, finding these  statements
“akin to prosecution disclaimer.”  On appeal Aylus argued that statements made during an IPR cannot be relied on to support a finding of prosecution disclaimer, and that even if they can, the statements it made did not constitute a clear and unmistakable disclaimer of claim scope.

The Federal Circuit rejected Aylus’s first argument, holding that statements made by a patent owner during an IPR proceeding can be relied on to support a finding of prosecution disclaimer during claim construction.  After briefly reviewing the disclaimer doctrine, and noting that disclaimer have been applied in post-issuance proceedings before the patent office, such as reissues and reexaminations, the Federal Circuit said that extending the prosecution disclaimer doctrine to IPR proceedings will ensure that claims are not argued one way in order to maintain their patentability and in a different way against accused
infringers.  The Federal Circuit noted that several district courts have already held that statements in an IPR can be considered for prosecution disclaimer.  The Federal Circuit also rejected Aylus argument that statements in a Patent Owner’s Preliminary Response don’t count as a disclaimer because they are made pre-institution.

The Federal Circuit then turned to the question of whether Aylus’s statements in the IPR were sufficiently “clear and unmistakable.”  After examining the statements themselves, and the fact that the statements worked — avoiding IPR for the subject claims — the Federal Circuit agreed with the district court that the statements represent
an unequivocal and unambiguous disavowal, and found no
error in the district court’s claim construction.

 

Not Necessarily Unfair to Reply on Patent Owner’s Submissions in Obviousness Finding, but Board Failed to Provide Adequate Explanation

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In Rovolma, S.A. v. Bohler-Edelstahl GmbH & Co., KG, [2016-2233] (May 11, 2017), the Federal Circuit vacated the Board’s Final Written Decision in IPR2015-00150, finding the Board did not set forth its reasoning in sufficient detail to determine whether the Board’s decision was substantively supported and procedurally proper, and remanded the case.

Bohler petitioned for inter partes review of all four claims of U.S. Patent No. 8,557,056, arguing that the claims should be construed to cover the specific chemical compositions described in the specification, regardless of whether they were created according to the recited process steps.  Rovalma successfully argued that the claims should be construed to require the process steps, but the Board then used Rovalma’s evidence of enablement to find the claims obvious.

The Fedeal Circuit noted the importance of clarity with respect to obviousness determinations, and noted that it has repeatedly
insisted on explanations in reviewing the adequacy of the Board’s analysis—both as a matter of obviousness law and as a matter of administrative law.  However, the Federal Circuit found that the Board did not sufficiently lay out the basis for its implicit findings regarding serveral of the process limitations in the claims, noting that the Board simply found that these steps would have been obvious in view of Rovalma’s submissions, with no explanation of the evidentiary basis for those determinations.  The Federal Circuit noted that petitioner did not provide any explanation regarding the process claim elements that the Board could adopt as its own.  The Federal Circuit also found that the Board did not adequately explain what would motivate a person of ordinary skill to make the modifications.  Finally, the Federal Circuit found that Board did not adequately explain why a person of ordinary skill in the art would have reasonably expected success.

The Federal Circuit rejected Rovalma’s argument that the Board was precluded from relying on a patent owner’s submissions in determining that the claims, as construed by Patent Owner, would have been obvious over the Petitioner-asserted prior art.  The Federal Circuit said that this took the rule of Magnum Oil Tools too far.  Magnum Oil Tools rejected the PTO’s position that the Board is free to adopt arguments on behalf of petitioners that could have been, but were not, raised by the petitioner during an IPR, and simply required the Board to base its decision on
arguments that were advanced by a party, and to which the opposing party was given a chance to respond.”  This does not preclude the Board from using submissions of the Patent Owner to support invalidity arguments of which Patent Owner adequate notice and opportunity to be heard.

The Federal Circuit suggested that a Petitioner may commit forfeiture when it receives notice of the Patent Owner’s claim construction (in the Patent Owners’ response) and chooses not to present a case for unpatentability under that construction when it had the opportunity, in its Reply.

As to Rovalma’s challenge that it was not given notice and an opportunity to respond, the Federal Circuit said that because it could not sufficiently determine which inferences the Board drew from Rovalma’s submissions, it would not decide whether the Board violated Rovalma’s procedural rights. The Federal Circuit said that to make that decision, it would need
to be able to determine what evidence the Board relied on to support its implicit factual findings, how the Board interpreted that evidence, and what inferences the Board drew from it.

 

 

 

Written Description Lacking Where Nothing in the Specification Suggests Inventor Contemplated Claimed Invention

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In Cisco Systems, Inc. v. Cirrex Systems, LLC, [2016-1143, 2016-1144](May 10, 2017), the Federal Circuit affirmed in part, and reversed in part the Board’s decision in inter partes reexamination of U.S. Patent No. 6,415,082.  Cisco appealed the patentability finding of five of the claims, and Cirrex appealed the rejection of the remainder of the claims.  The Federal Circuit found that all of the claims on appeal were unpatentable for lack of written description support.

The ‘082 patent is directed to the field of fiber optic communication signals.  At issue was the claim requirement of discrete attenuation of the various wavelengths of light, which the parties agreed must occur in the planar lightguide circuit (PLC).  However, there was not written description of how discrete attenuation could occur within the PLC, rather that attenuation of all of the wavelengths (i.e. collective attenuation).  The Federal Circuit agreed twith Cisco that the claims are directed to subject matter that is indisputably missing from the ’082 specification.

The Federal Circuit said that the ’082 specification does not meet the quid pro quo required by the written description requirement for the disputed claims because demultiplexing light to manipulate separately the intensities of individual wavelengths of light while the light is still inside the PLC is a technically difficult solution that the ’082 specification does not solve, let alone contemplate or suggest as a goal or desired result. The Federal Circuit added:

Nothing in the ’082 specification explains how individual wavelengths of light are separately manipulated while those wavelengths are still inside the PLC. Nor is there anything in the specification that suggests that the inventor contemplated that approach. To the contrary, the ’082 specification expressly describes using the PLC to separate wavelengths of light to allow the manipulation of each individual wavelength—outside the PLC—before it is rerouted back into the PLC for remultiplexing.

The Board also rejected Cirrex’s arguments that the claims requiring a diverting element were supported by adequate written description.   The Board concluded that the totality of of the disclosure did not establish that the inventors possessed an embodiment with a diverting element inside the PLC, and the Federal Circuit agreed.

 

 

 

 

Merely Because Petitioner Changes its Mind is not Enough to Stop Inter Partes Reexamination

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In In Re: AT&T Intellectual Property II, L.P., [2016-1830] (May 10. 2017), the Federal Circuit affirmed the PTAB determination in inter partes reexamination, that the claims of U.S. Patent No. 7,454,071, directed to methods of compressing and transmitting digital video data, were invalid.

On appeal, AT&T argued that it was improper to institute inter partes reexamination, when the petitioner requested that its petition be denied.  The Federal Circuit found that institution was proper.  AT&T also argued that the claims were not anticipated, and the Federal Circuit concluded that the Board’s finding of anticipation is supported by substantial evidence.  Finally AT&T argued that the Examiner improperly changed the basis for the anticipation rejection.  The Federal Circuit found that AT&T had notice of the the second basis for finding anticipation, and still did not amend the claims to respond to this second basis.

Concluding that the finding of anticipation was supported by substantial
evidence, the Board affirmed.

 

Estoppel Under 317(b) Always Applies on a Claim by Claim Basis, Just Like the Statute Says

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In In Re Affinity Labs of Texas, LLC, [2016-1092, 2016-1172] (May 5, 2017) the Federal Circuit affirmed the Board’s affirmance of a reexamination determination that all of the claims of U.S. Patent No. 7,324,833 was invalid.

The Board merged two inter partes reexaminations (one of which brought by Volkswagen) and an ex parte reexamination of U.S. Patent No. 7,324,833.Volkswagen subsequently received an adverse final judgment in a parallel district court proceeding, upholding the validity of claims 28 and 35 of Affinity’s ’833 patent. In response, Affinity petitioned the PTO to vacate the entire merged reexamination proceeding, arguing that the estoppel provision in pre-America Invents Act (AIA) 35 U.S.C. § 317(b)1 extends to all parties, not just Volkswagen, and all claims challenged in the three reexaminations, not just litigated claims 28 and 35.  The PTO
denied Affinity’s termination request, but it severed the Volkswagen reexamination from the merged proceeding and held that no rejection could be maintained in that reexamination as to the claims at issue in the district court.  The Examiner evaluated the Volkswagen reexamination separately from the merged King/Apple reexamination and ultimately issued a Right of Appeal Notice in each proceeding, rejecting numerous
claims of the ’833 patent as unpatentable, and the PTAB affirmed.

Affinity argued that the PTO erred in maintaining the reexaminations in light of the final decision that Volkswagen failed to prove invalidity of two of the patent’s claims, which were asserted in the co-pending litigation and, therefore, the Board’s decisions in the reexaminations should be reversed pursuant to the section 317(b) estoppel provision.

Affinity also argued that, assuming the reexaminations were properly maintained, the Board’s decisions are based on misreadings of the
asserted prior art and a misevaluation of Affinity’s objective indicia evidence of nonobviousness.

Because the plain language of pre-AIA section 317(b) precludes Affinity’s
estoppel argument and because the Board found no error in the Board Decision upholding the Examiner’s findings of unpatentability as to all claims at issue, the Federal Circuit affirmed.

Affinity argued that the decision not to terminate all three reexaminations frustrated section 317(b)’s underlying policy goal of preventing duplicative, harassing actions. The Federal Circuit concluded that a
straightforward reading of the plain language of section 317(b) precludes Affinity’s overly broad conception of the estoppel provision, and found no grounds to reverse the Board’s final decisions based on section 317(b).

The Federal Circuit observed that Section 317(b) bars a party from using the inter partes reexamination process after a final decision has been
entered against that party in a civil action. The Federal Circuit noted that (1) it applies to the party in the civil action that loses its validity attack against “any patent claim” as well as the party’s privies; (2) it applies to validity issues raised in the civil action or that could have been raised in
that action; (3) unlike section 317(a), it speaks in terms of any “patent claim,” as opposed to the “patent;” (4) it prohibits the losing party and its privies from requesting an inter partes reexamination “of any such patent claim;” and (5) “on the basis of such issues,” it prohibits the PTO from “maintain[ing]” any inter partes reexamination requested by the losing party.  The Federal Circuit disagreed with Affinity’s proposed interpretation that the estoppel provision applied differently to maintaining a pending reexamination versus requesting a new reexamination.  The Federal Circuit held that section 317(b) was plainly limited the scope of estoppel in all circumstances to only those claims actually challenged and for which the requesting party received an adverse final decision in the district court proceeding.  The Federal Circuit further found no basis in the statute for Affinity’s argument that the final decision in the Volkswagen litigation should have preclusive effect on the reexaminations requested by third parties.

The Federal Circuit concluded that substantial evidence supports the Board’s unpatentability findings as to all challenged claims in the merged third party reexaminations, and because the claims at issue in the
Volkswagen reexamination comprised only a subset of the claims in the merged third party reexamination, it declined to address the alternative grounds of unpatentability at issue in the Volkswagen reexamination appeal.

Semicolons Strongly Indicate Each Step is Separate and Distinct; Confuse Most Non-Patent Lawyers

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In In re Affinity Labs of Texas, LLC, [2016-1173] (May 5, 2017), the Federal Circuit affirmed the Board’s decision that §317(b) did not bar the reexamination, and that the reexamined claims were in valid.

Affinity sued Apple for infringement of U.S. Patent No. 7,440,772, and Apple requested reexamination of the ‘772 Patent.  Apple and Affinity settled the lawsuit and filed a joint stipulation of dismissal.  Apple also filed a notice of non-participation in the reexamination, and Affinity petitioned to terminate the reexamination under 35 U.S.C. § 317(b), whihc prohibits the USPTO from maintaining an inter partes reexamination after the party who requested the reexamination has received a final decision against it in a civil action.  The USPTO denied Affinity’s petition because because the district court’s dismissal,
without prejudice did not meet section 317(b)’s required condition for terminating the reexamination.  The reexamination resulted in invalidation of all of the claims, which was affirmed by the PTAB.

The claims  the claim included a dual download feature, inter alia, requiring:

in response to receiving the request, making a first version of the piece of selectable content available for downloading to the wireless user device and a second version of the piece of selectable content available for downloading to a personal computer of the user, wherein the first version has the specific format and the second version has a different format playable by the personal computer;
sending the first version of the piece of selectable content to the wireless user device; and
sending the second version of the piece of selectable content to the personal computer.

Affinity argued that the two sending steps must occur automatically, without intervening steps, after the “in response to” language.  The Federal Circuit disagreed, noting that each of the five steps of method claim 4 —including the three steps of the dual download feature— are offset by semicolons. The Federal Circuit said: “This punctuation choice strongly indicates that each step is separate and distinct.” It would, therefore, be reasonable to conclude the fourth and fifth steps—the sending steps—are not tied to the “making . . . available” step and
not performed “in response to” the same request found in
the “making . . . available” step, as Affinity argued.  The Federal Circuit also found that while portions of specification were consistent with automatically downloading, they certain did not require it, and in fact some embodiments did not have automatic downloads.  The Federal Circuit thus affirmed the broad claim construction by the Board, and the invalidation of those broad claims.

Because the Federal Circuit agreed that the estoppel provision of § 317(b) did not prohibit the PTO from maintaining the reexamination
of the ’772 Patent’s claims, and the Board’s construction of the claims was consistent with the broadest reasonable interpretation, the Federal Circuit affirmed the Board’s decision.

 

The Federal Circuit Holds that a Public, Non-Disclosing Sale is Prior Art; But Do the 102(b)(1) Exceptions Apply?

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In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., [2016-1284, 2016-1787] (May 1, 2017), the Federal Circuit reversed the district court’s determination that U.S. Patent Nos.  7,947,724, 7,947,725, 7,960,424, and 8,598,219, were not anticipated, finding that the patents-in-suit were subject to an invalidating contract for sale prior to the critical date, and the AIA did not change the statutory meaning of “on sale.”  The product covered by the patents was subject to a Supply and Purchase Agreement, contingent on FDA approval of the formulation, the terms of which were public except for the price and the specific dosage formulation covered by the agreement.

As to the ’724, ’725, and ’424 patents, the district court found that pre-AIA law applied under § 102(b) and that the Supply and Purchase Agreement was a contract for a future sale of a commercial product embodying the
0.25 mg dose and therefore constituted a sale under (old) §102(b). But, the district court found that the claimed invention was not reduced to practice before the critical date, and therefore was not ready for patenting
under the second prong of Pfaff.

As to the ’219 patent governed by the AIA, the court held that the AIA changed the meaning of the on-sale bar and § 102(a)(1) now “requires a public sale or offer for sale of the claimed invention.” The district court concluded that, to be “public” under the AIA, a sale must publicly disclose the details of the invention, and thus the Supply and Purchase Agreement did not constitute a public sale or commercial offer for sale because, although it disclosed the sale agreement and substance of the transaction, it failed to publicly disclose the 0.25 mg dose. The district court also found that the invention was not ready for patenting before the critical date.

On the issue of the post-AIA meaning of “on sale,” the Federal Circuit acknowledged the arguments that the statutory language “otherwise available to the public” and various statements by individual members of Congress, meant that “on sale” in post-AIA 102 does not include non-disclosing sales.  After first noting that “floor statements are typically not reliable,” the Federal Circuit distinguished these statements as directed to non-disclosing public uses, not non-disclosing offers for sale.  The Federal Circuit noted that the comments did not identify any sale cases that would be overturned by the amendments, and noted that even if they were intended to overrule prior secret sale cases, the comments still did not apply because the case before it involved a public but non-disclosing sale.

The Federal Circuit said that requiring disclosure as a condition of the on-sale bar would work a “foundational change” in the theory of the statutory on-sale bar.  The Federal Circuit noted that both the Supreme and its own precedent had rejected the requirement that the sale be disclosing:

[O]ur prior cases have applied the on-sale bar even when there is no delivery, when delivery is set after the critical date, or, even when, upon delivery, members of the public could not ascertain the claimed invention.

The Federal Circuit found no indication in the floor statements that these
members intended to overrule these cases, and in fact the Federal Circuit found the statements to be consistent.  The Federal Circuit found no floor statements suggesting that the sale or offer documents must themselves publicly disclose the details of the claimed invention before the critical
date, and said that if Congress intended to work such a sweeping change to our on-sale bar jurisprudence and wished to repeal these prior cases legislatively, it would do so by clear language.

The Federal Circuit concluded that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale.”  Thus the Supply and Purchase Agreement constituted a sale of the claimed invention before the critical
date, and therefore both the pre-AIA and AIA on-sale bars apply.

Finally, the Federal Circuit found the invention was ready for patenting, so that the pre-filing sales did, in fact, invalidate the four patents in suit.

The Federal Circuit’s construction makes some sense, relying on the addition of a clause, and some remarks of a few Congressmen does not seem a proper way to over rule a century of cases surrounding the meaning of “on sale.”  However, the overall structure of the statute raises a further question — assuming that the Federal Circuit is correct, does the statute provided any any grace period for non-disclosing sales?  In the rearrangement of Section 102 by the AIA, the grace period was separated into its own section (§102(b)(1)), and by its express terms, only applies to disclosures:

(b)(1) Disclosures made 1 year or less before the effective filing date of the claimed invention.—A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if—

(A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or

(B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

It would seem either a non-disclosing offer for sale or sale is a disclosure, which does not make linguistic sense, or a non-disclosing offer for sale or sale is an absolute bar to patentability because there is no exception for non-disclosures. which does not make practical sense.  The result would be that a public non-disclosing sale is an immediate bar to patentability, but a public disclosing sale is not.

It is possible that the §102(b)(1) exception could be found to apply by treating the disclosure of the offer for sale or sale as a disclosure that triggers the exception, but such an interpretation strains the language of the statutory exceptions, which refer to “subject matter.”  It also raises further questions, such as: Does the public disclosure of a non-disclosing offer for sale or sale, count as a disclosure that bars third parties from filing on the undisclosed subject matter?  Does the public siclosure of a non-disclosing offer for sale or sale count as a §102(b)(1)(B) disclosure that would remove subsequent third party disclosures of the subject matter as prior art?

If a public, non-disclosing offer for sale, is in fact a disclosure, it would seem that this would provide a peculiar incentive for inventors to make a public but non-disclosing offer for sale of an invention immediately, the subject matter of which would be prior art to all subsequent third parties under 102(a), and would remove the prior art effect of subsequent third party disclosures under 102(b)(1)(B), all without actually disclosing what was invented.

The definitions of what is and what is not patentable, and what is and what is not prior art, are fundamental to a patent system.  It is disappointing that something optimistically titled the America Invents Act could not have been better thought out.

 

 

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Lack of Proof That Infringement was But For Cause of Lost Sales or Price Erosion Defeats Permanent Injunction

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In Nichia Corp. v. Everlight Americas, Inc., [2016-1585, 2016-1618] (April 28, 2017), the Federal Circuit affirmed the district court’s judgment that U.S. Patent Nos. 8,530,250, 7,432,589, and 7,462,870, directed to LED devices, were valid and infringed, as well as the district court’s denial of a permanent injunction.

The Federal Circuit affirmed the district court’s construction of “lead,” rejecting the argument that it should have been construed to mean “the conductive portion of the device that makes an electrical connection to a structure outside of the device” rather than “the portion of the device that conducts electricity.”  The Federal Circuit also affirmed the district court’s construction of “planar,” rejecting the argument that it should have been construed to mean “no measurable surface variation,” rather than “in a substantially same plane.” Thus the Federal Circuit affirmed the finding of infringement.

With respect to validity, the Federal Circuit found substantial evidence supported the district court’s conclusion that some of the references asserted were not analogous, that claim elements were missing from other references, and that there was a lack of motivation to combine,  and thus that the patents were not proven obvious.

As to Nichia’s appeal, the district court held that Nichia failed to show that it had suffered irreparable harm and that remedies at law provided Nichia inadequate compensation.  The Federal Circuit agreed that Nichia failed to show irreparable harm, and thus did not reach the adequacy of compensation issue.  The Federal Circuit said that an injunction in patent law must be justified like any other: the moving party must satisfy the court that relief is needed. Applying “well established principles of equity” the Federal Circuit found the showing of irreparable harm lacking.

The district court noted the absence of meaningful competition between the parties.  The district court also found that Nichia had failed to establish past irreparable harm, or the likelihood of irreparable harm in the future based on lost sales” or “based on price erosion.”  The district court further found that Nichia’s licensing of the patents to major competitors suggested that harm from “infringement of the patents-in-suit is not irreparable.”  Finally, the district court found that Nichia’s licensing practices have made multiple low-priced non-infringing alternatives from competitors available to replace the accused Everlight products if such products were not available.

The Federal Circuit deferred to the district court because the court heard these arguments as the original finder of fact and concluded to the contrary, carefully weighing both parties’ evidence.  The Federal Circuit agreed that that parties sold in different markets, and Nichia failed to prove that any competition between the parties was meaningful.  The Federal Circuit noted that Nichia failed to show the infringement was the “but for” cause of even one lost sale, or the “but for” cause of price erosion.

The Federal Circuit rejected a rule that the patentee’s licensing activities automatically barred injunctive relief, but had no problem with considering licensing activities as a factor.  Because Nichia failed to establish one of the four equitable factors, the court did not abuse its discretion in denying Nichia’s request for an injunction.

It is interesting that principles of equity can defeat the Constitutionally established “exclusive rights” to inventions and discovery, yet principals of equity are insufficient to extend laches to patent cases.

A Claim to an Abstract Idea does not Automatically Become Eligible Merely by Adding a Mathematical Formula

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In Recognicorp, LLC v. Nintendo Co., Ltd., [2016-1499](April 28, 2017), the Federal Circuit affirmed the district court’s grant of judgment on the pleadings that U.S. Patent No. 8,005,303 on a method and apparatus
for building a composite facial image using constituent parts was directed to the abstract idea of encoding and decoding image data.

At Alice step one, the district court concluded that the asserted claims are “directed to the abstract idea of encoding and decoding composite facial images using a mathematical formula.”  At Alice step two, the district court found that the ’303 patent contains no inventive concept, stating that “the entirety of the ’303 Patent consists of the encoding algorithm itself or purely conventional or obvious pre-solution activity and post-solution activity insufficient to transform the unpatentable abstract idea into a patent-eligible application.”

The Federal Circuit agreed that claim 1 is directed to the abstract idea of
encoding and decoding image data, noting that it claims a method
whereby a user displays images on a first display, assigns image codes to the images through an interface using a mathematical formula, and then reproduces the image based on the codes.  The Federal Circuit rejected the argument that, like the claims in Enfish, the claim was being parsed at too high a level of abtractions.  The Federal Circuit found Digitech Image Technologies more analogous.

At step two of the Alice inquiry, the Federal Circuit found that nothing
“transforms” the abstract idea of encoding and decoding into patent-eligible subject matter.  The Federal Circuit said that claims that are directed to a nonabstract idea are not rendered abstract simply because they use a mathematical formula, but that the converse is also true: A claim directed to an abstract idea does not automatically become eligible merely by adding a mathematical formula.

The Federal Circuit concluded that the claims of the ’303 patent are directed to encoding and decoding image data, an abstract idea, adding that the claims provide no inventive concept to render them eligible under
§ 101.

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