Judge Fallon recommends court grant summary judgment and dismiss action for lack of patentable subject matter

In a recent report and recommendation, Magistrate Judge Sherry R. Fallon considered defendants’ motion for summary judgment, which alleged that the patents-in-suit, U.S. Patent Nos. 7,418,409 (“the ’409 patent”) and 8,145,536 (“the ’536 patent”), are invalid because they fail to meet the subject matter eligibility requirements of 35 U.S.C. § 101. Tenon & Groove, LLC et al. v. Plusgrade S.E.C. et al., C.A. No. 12-1118-GMS-SRF (D. Del. Jan. 6, 2015). The ’409 patent discloses “methods for the concurrent optimization of value in various types of transactions between sellers and buyers, with applications in the context of the airline industry,” and the ’536 patent discloses “computerized applications for generating revenue based on conditional options for products, particularly in the context of the airline industry.” Id. at 1-2. Judge Fallon ultimately recommended that the court grant defendants’ motion and dismiss the action. Id. at 16.

Judge Fallon first considered whether the patents-in-suit satisfied the “machine-or-transformation” test. Given that the parties did not dispute the transformation prong, Judge Fallon analyzed only the machine prong of the test. Id. at 8. Judge Fallon concluded that the patents-in-suit did not satisfy the machine-or-transformation test, noting that specifications “themselves reveal that the processes may be performed mentally by a human, expressly stating that the inventions ‘eliminate[] manual, time-consuming processes and replace[] those with an efficient, automatic process.’” Id. at 9. Judge Fallon also noted that the “specifications provide that achieving an optimal upgrade for customers and the airline, which is a primary purpose of the invention, requires the use of human judgment” and that the Federal Circuit has held that the patent statute “does not allow patents on particular systems that depend for their operation on human intelligence alone.” Id. at 10. Moreover, Judge Fallon explained that “[d]ata-gathering steps alone cannot bring a claim into compliance with § 101, because humans have historically gathered and stored data mentally or with pen and paper.” Id. at 10-11.

Noting that the machine-or-transformation test is not dispositive, Judge Fallon next “examine[d] more generally the abstract nature of the claims” and applied the test set forth in Alice Corp. Pty. Ltd v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). Considering the first step of the Alice framework, Judge Fallon found that the ’409 and ’536 patents “are directed to the unpatentable fundamental concept of using a computer to facilitate negotiations between an airline and its customer that results in a contract for a product upgrade.” Id. at 12. Judge Fallon explained that “[a]lthough certain dependent claims restrict the field of use to the airline industry, this limitation is insufficient to establish patent eligibility under § 101.” Id. at 13.

Turning to the second step of the Alice framework, Judge Fallon considered whether the patents-in-suit “embody inventive concepts” despite being directed to an abstract idea. Judge Fallon concluded that “[a]n airline’s capacity to track variables, including the preferences of multiple passengers, flight availability, and the perceived value for an upgrade option, is not an inventive concept.” Id. at 14. Judge Fallon explained that like “the risk hedging in Bilski, and the concept of intermediated settlement in Alice, the concept of using a computer to optimize negotiations between an airline and its customer, to each obtain the best economic results given certain conditions, is ‘a fundamental economic practice long prevalent in our system of commerce.’” Id. As Judge Fallon noted, “the claimed concept is not directed to any specific device or system, nor is it limited to a concrete application.” Id. Judge Fallon additionally explained that “the claims recite only a general purpose computer performing ‘purely conventional’ functions.” Id. at 15.


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