Federal Circuit Affirms Alice Loss for WhitServe After Supreme Court Rejects NPE’s Related Appeal

  • April 30, 2021
  • Category: Patent Litigation Feature
    Market Sector: E-Commerce and Software

Inventor-controlled NPE WhitServe LLC has hit another patent eligibility speedbump in its decade-long assertion campaign with a new loss before the Federal Circuit. On April 26, the appellate court affirmed a July 2019 ruling by Delaware District Judge Colm F. Connolly that a data backup patent asserted against Dropbox is invalid under Alice, holding that the challenged claims are unpatentably directed to the abstract idea of “maintaining data records”. The decision follows another setback before the US Supreme Court, which late last year declined to hear the NPE’s appeal in another case that more broadly challenged the Federal Circuit’s approach to eligibility motions.

WhitServe sued Dropbox over its cloud storage service in May 2018 (1:18-cv-00665) alleging the infringement of a single patent (8,812,437) broadly directed to creating a local backup of data stored over the Internet in a third-party system (e.g., making a local backup of data stored on a cloud server). Two months later, the defendant filed a Rule 12 motion to dismiss under Alice, arguing that the ‘437 patent is directed to the abstract idea of “obtaining and personally storing a backup copy of records” and lacks a sufficient inventive concept, asserting that that idea is implemented solely through generic computer technology. The ensuing months saw the parties brief WhitServe’s request for leave to file an amended complaint that would purportedly account for subsequent developments in patent eligibility caselaw, a motion that the court appears not to have decided.

Judge Connolly granted Dropbox’s motion to dismiss in July 2019, ruling that the ’437 patent is directed to the abstract idea of “backing up data records” and that it is not directed to improved computer functionality. Rather, he found that it “recites only generic computer components performing routine computer functions”. Judge Connolly further found “nothing inventive in how the [‘]437 patent arranges the storage of backup data”, noting that “[i]t is a well-understood practice of human organization that backup copies are stored in a location separate and distinct from the original location”. As later summarized by the Federal Circuit, he “reasoned that if the original location was onsite, the conventional backup location would be offsite, or vice versa”.

Moreover, Judge Connolly also dispensed with a series of defenses raised by WhitServe, in part holding that Dropbox did not have to “separately address the patent’s preemptive scope in order to prevail on its motion to dismiss, because preemption ‘is not a separate and independent test under Alice,’ but rather is a ‘concern that undergirds [] § 101 jurisprudence’”. Judge Connolly further rejected the patent owner’s attempt to block dismissal due to a factual dispute raised under Berkheimer (details about which can be found below), and its argument that the claims were eligible because they overcame the Section 101 inquiry during its post-Alice examination process.

On appeal (2019-2334), WhitServe argued that its patent should have survived at step one of Alice, asserting that the claims are directed to an improved system providing local backup of online data and are thus abstract: “The claims are not simply directed to storing any data in a general form, but instead is directed to a specific form of storing a specific type of data . . . .” As such, the NPE contended that “the claims describe a particular solution to a specific software and computer functionality problem”, akin to those found patentable in the Federal Circuit’s 2016 Enfish v. Microsoft decision.

The Federal Circuit disagreed, countering in its April 26 ruling on appeal that the patent essentially describes “requesting, transmitting, receiving, copying, deleting, and storing data records”. Here, the court noted that it has previously held such claims to be abstract—including in its 2017 Intellecutal Ventures I v. Erie Indemnity decision, which established that “[s]uch transmitting, saving, and storing of client records is a fundamental business practice that ‘existed well before the advent of computers and the Internet’” (also citing its 2014 ruling in Content Extraction & Transmission v. Wells Fargo Bank). While WhitServe argued that the requirement of “onsite” rather than “offsite” storage amounted to a specific improvement, the Federal Circuit countered that this distinction “does not alter the conclusion that the claims are directed to the abstract idea of maintaining data records, even if storage of the records is limited to the client’s computer, rather than a web server”.

Nor did the claimed advance over the prior art save the claims at step one, the Federal Circuit continued, ruling that the district court was correct to conclude that the claims instead “rely on the ordinary storage and transmission capabilities of computers within a network and apply that ordinary functionality in the particular context of onsite backup”. As the Federal Circuit previously held in Digitech Image Technologies v. Electronics for Imaging (2014), “claims reciting computer function, or the mere manipulation of data, are directed to an abstract idea”.

WhitServe had further argued that the ‘437 patent should survive step two of the Alice test, asserting that its claims contained an inventive concept because they took the “unconventional step of storing backup data onsite (i.e., a particular form of storage)” and by reciting “internet-based data processing software that allows the ability to ‘edit and modify’” data (both as summarized by the Federal Circuit). The Federal Circuit disagreed, concluding instead that “the ability to edit and modify data was well known and cannot constitute an inventive concept”—pointing out that the specification of the ‘437 patent describes how companies were, at the relevant point in time, “increasingly moving their data processing systems onto the Internet and providing web interfaces for their customers to see and manipulate their own data”.

Lastly, the Federal Circuit rejected WhitServe’s arguments that a series of alleged factual disputes precluded the resolution of Dropbox’s Alice challenge at the Rule 12 stage—citing the Federal Circuit’s February 2018 Berkheimer and Aatrix decisions, which established that dismissal under Alice may be premature when the patent owner can establish a factual dispute over the challenged patent’s inventiveness. With respect to the NPE’s assertion that the patent’s inventiveness was at issue, the Federal Circuit agreed with the district court that “there were ‘no concrete or specific allegations in WhitServe’s complaint or discussions in the specification’ regarding any improvements in technology” preventing it from ruling on patent eligibility. Also unavailing was the patent owner’s argument that the district court failed to consider objective criteria of non-obviousness, which the Federal Circuit dismissed as “relevant in a § 103 inquiry, but not in a § 101 inquiry”. The Federal Circuit further found that WhitServe had waived its argument that the lower court should have “analyze[d] the claims from the perspective of one skilled in the art at the time of the invention” by not raising that claim construction issue in the proceedings below.

Having dispensed with each of those arguments—apart from the district court’s conclusion on the presumption of validity, which it did not separately address—the Federal Circuit concluded by affirming the district court’s ruling that the ‘437 patent is invalid under Alice.

More broadly, the role of facts in the Section 101 analysis has become a point of contention since Berkheimer and Aatrix, which effectively give some patent owners what amounts to an early Alice defense and have led many plaintiffs to supplement their complaints with copious factual allegations regarding their patents’ alleged inventiveness. WhitServe pushed back against the resulting, post-Berkheimer jurisprudence on this issue in its most recent Supreme Court petition, filed in April 2020. Specifically, the petition asked whether courts may ignore assertions that a claim is not directed to a “well understood, routine, or conventional activity”, and argued that the manner in which courts have allegedly been doing so conflicts with the presumption of validity, which the Federal Circuit extended to patent eligibility through its 2019 CellSpin Soft decision. Under current caselaw, WhitServe’s petition asserted, early Alice dismissals have been granted at “unprecedented levels”—including one decision that invalidated another two of its patents. The Supreme Court denied the petition in November of last year.

WhitServe’s objections notwithstanding, Berkheimer and Aatrix have actually led to a decrease in the overall Alice invalidation rate, as regularly observed by RPX in the three years since those decisions came down. While the pre-Berkheimer invalidation rate was 65%, for Alice decisions issued since then, just 45% of patents have had claims invalidated.

Patents Invalidated Under Alice Before and After Berkheimer

Note: Some percentages add up to more than 100%, as patent claims occasionally see multiple Alice rulings with different outcomes. (For example, a claim may be found not invalid in one case and invalid in another.)

More on patent eligibility can be found in RPX’s first-quarter review, including a variety of other analyses breaking down Alice outcomes by market sector and plaintiff type. The blog post also takes a look at the latest policy developments, as recent signs point to a renewed push by Congress for legislative reform of Section 101. See the full report for details.

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