The U.S. Supreme Court sometimes gives and sometimes takes, but this year, it largely left technology attorneys waiting after turning down a chance to unjumble the Alice test for patent eligibility and effectively punting on the question of when technical legal violations can create liability.
Here, Law360 looks at the top technology cases of 2016.
Alice Goes in Two Directions
Attorneys had expected two cases to potentially break ground this year when it comes to interpreting the Supreme Court’s 2014 decision in Alice Corp. v. CLS International — which held that abstract ideas implemented using a computer are not eligible for patents — but one of them couldn’t make it through the high court’s door.
That case was Ariosa Diagnostics v. Sequenom, which had been seen as a likely candidate for Supreme Court review. Sequenom was appealing a Federal Circuit decision invalidating its patent for a fetal DNA test after lower courts found that the patent was directed toward a natural phenomenon and hence ineligible, but the high court refused to take the case in June.
The case has caused quite a furor, according to Kirkland & Ellis LLP partner Ken Adamo, because of the importance of the technology at issue. The high court’s snub “cries out for Congress to take a look and see if there can’t be a legislative solution,” he told Law360.
Sequenom’s March petition had sought clarification from the justices on whether a researcher who discovers a natural phenomenon and applies a new combination of previously known methods to it is allowed to patent the technique. The company argued that the Federal Circuit’s June 2015 ruling set a dangerous precedent for other important life sciences patents and said it could render patents for vaccines, drugs or other techniques invalid. The full circuit court refused to reconsider that decision last December.
Molecular diagnostics company Ariosa initiated the suit in 2011, seeking a declaration that its Harmony test for genetic defects in a fetus did not copy Sequenom’s MaterniT21 test. A district judge obliged in 2013, and a Federal Circuit panel agreed that the patent did not contain an inventive concept sufficient to “transform” the claimed naturally occurring phenomenon — using the cell-free fetal DNA that circulates in an expectant mother’s bloodstream — into a patent-eligible application.
In the second case, the Federal Circuit gave the swinging Alice pendulum a push toward software companies trying to hold on to their patents, according to Ahsan Shaikh, a partner at McDermott Will & Emery LLP.
Shaikh noted that the circuit took on several software eligibility cases under Alice after having left the field largely untouched before. Chief among those decisions was a September ruling reviving asserted claims of software patents for lip-sync animation technology, in which the a Federal Circuit panel held that the specific types of rules the patents outlined are not directed to abstract ideas and so are eligible to be deemed inventions. That case is McRO v. Bandai Namco Games America.
Specifically, the panel determined that McRO Inc.’s patents — which combine rules for sounds, facial expressions and conversational timing to automate the process of animating a speaking character’s face — describe an ordered set of steps that use “unconventional” rules in a specific way. McRO is now fighting a bid for a full-court rehearing.
Gaming companies like Electronic Arts Inc. had argued McRO’s patents were too abstract and general, and that the asserted claims were simply an automated version of what animators already do. But the Federal Circuit disagreed, holding that describing one set of rules doesn’t preclude the existence of other techniques. Given that combining sounds and facial expressions is a very complex process, it is possible that other entities could develop a series of steps and rules distinct from the process that McRO sought to patent, the court said.
The McRO case, also known as Planet Blue, was important for the technology sector on several fronts, Shaikh said, including by putting back into play the ability of patents to preempt described techniques. It also made clear that individual features of patent claims can’t be singled out from the overall idea, he said, and it distinguished between automated processes that are and aren’t patent-eligible by holding that new techniques could be patentable, while those that simply automate previously manual treatments are not.
“These are subtle points, but they’re really helpful because they’re opening more and more doors for software tech companies,” Shaikh said. “They have different doors through which they can cross the threshold for software patent-eligibility for their software patent application.”
The Sequenom case is Sequenom Inc. v. Ariosa Diagnostics Inc. et al., case number 15-1182, in the Supreme Court of the United States.
The McRO case is McRO Inc. v. Bandai Namco Games America Inc. et al., case number 15-1080, in the U.S. Court of Appeals for the Federal Circuit.
ITC’s Piracy Enforcement Powers Hit Roadblock
One route around the courts for patent holders pursuing infringement claims was completely blocked off this year when the U.S. International Trade Commission elected not to seek Supreme Court review of a Federal Circuit decision holding that the ITC lacks the authority to stop imports of digital files.
ClearCorrect LLC, accusing of infringing patents owned by Align Technology Inc., announced in August that neither the ITC nor Align would appeal the Federal Circuit’s November 2015 decision. The case attracted widespread attention from the high-tech and entertainment industries due to its potential to give the ITC the power to police piracy on the internet.
Align, the maker of the Invisalign teeth-straightening system, sued ClearCorrect at the ITC, alleging that the company used digital files created in Pakistan and transmitted to the U.S. to make infringing products.
The ITC has the authority to block imports of “articles” that infringe U.S. intellectual property, and the case hinged on whether ClearCorrect’s digital files were in fact “articles.” The ITC sided with Align and held that they were, ruling in 2014 that an “article” refers to “an identifiable unit, item or thing” that can be traded in commerce, such as digital data. The Federal Circuit reversed, concluding instead that “articles” can only refer to physical objects, not digital files. The full circuit declined to take another look in March.
Although the case was about braces, it attracted contentious amicus briefing, with the entertainment industry taking Align’s side and arguing that the ITC has authority over digital files and should use it to police piracy of copyrighted material, and the technology industry taking the opposing view, saying the agency had no such power.
Adamo said he was stunned when the ITC decided not to appeal what he characterized as an extremely important Federal Circuit ruling, noting the contrast between allowing enforcement against files imported on a disk but forbidding it when the same files are shared electronically.
“You could have knocked me over with a feather when the commission decided not to appeal,” he said.
The suit is ClearCorrect Operating LLC et al. v. International Trade Commission, case number 14-1527, in the U.S. Court of Appeals for the Federal Circuit.
Spokeo Leaves More Questions Than Answers
In concluding in May that a consumer could not sue Spokeo for mere technical violations of the Fair Credit Reporting Act, while leaving the door open for plaintiffs in other cases to use statutory violations to establish standing, the Supreme Court left chaos in its wake. In the months since, different courts have come to different conclusions in cases with similar fact patterns.
In a 6-2 decision written by Justice Samuel Alito, the high court vacated and remanded the Ninth Circuit’s February 2014 ruling that plaintiffs do not need to allege actual injury to maintain statutory class action claims like the ones lodged by Thomas Robins. Robins accused the self-described people search engine Spokeo of violating the FCRA by falsely reporting that he was wealthy, married and had a graduate degree when in fact he was struggling to find work.
Technology and internet giants including Facebook Inc., eBay Inc., Google Inc. and Yahoo Inc. had weighed in with concerns that a ruling in Robins’ favor could open the floodgates for multibillion-dollar “no injury” class actions.
The majority held that because the Ninth Circuit failed to consider both aspects of the injury-in-fact requirement — namely, that an injury be both particularized and concrete — its Article III standing analysis was incomplete. The justices took no position on whether the Ninth Circuit’s ultimate conclusion, that Robins adequately alleged an injury in fact, was correct.
Attorneys anticipated at the time that the decision would spur divergent decisions in the lower courts. The months since have seen that play out across dozens of cases touching not just on the FCRA but also on similar statutes such as the Telephone Consumer Protection Act, the Video Privacy Protection Act and the Stored Communications Act that provide for hefty automatic statutory penalties.
The Spokeo decision has also bled into lawsuits against companies suffering data breaches, according to Orrick Herrington & Sutcliffe LLP partner Aravind Swaminathan. He pointed to several cases, including a Sixth Circuit ruling after Spokeo came down reviving a suit against Nationwide Insurance over a 2012 hack where millions of Social Security numbers were leaked.
“Spokeo has not proven to be as important in allowing defendants to get rid of data breach class actions as quickly as we had hoped,” said Swaminathan.
In applying Spokeo, a Sixth Circuit panel said in September that plaintiffs did not have to wait for their information to actually be misused to meet the standing bar for the FCRA set by the Supreme Court’s decision, upending a district court decision nixing negligence claims absent a suffered injury.
The Nationwide plaintiffs contend the company failed to institute robust security controls that would have protected against hackers stealing names, Social Security numbers and other personal information. The Sixth Circuit concluded that standing could be found through the plaintiffs’ claims that the data theft put them at a heightened risk for fraud and had caused them to dole out mitigation costs such as paying for credit freezes.
Another important data breach case decided this year was multidistrict litigation against Home Depot Inc. over a 2014 breach, with a $13 million settlement approved in August. That case was important less for the settlement, Swaminathan said, and more for the “data point” it provided about what such suits are really worth.
Companies “really should be thinking about what those numbers are before they have an incident, so they can try to understand what their legal monetary exposure is,” Swaminathan said.
The high court case is Spokeo Inc. v. Robins et al., case number 13-1339, in the Supreme Court of the United States.
The MDL is In re: The Home Depot Inc. Customer Data Security Breach Litigation, case number 1:14-md-02583, in the U.S. District Court for the Northern District of Georgia.
The consolidated insurance company cases are Galaria et al. v. Nationwide Mutual Insurance Co., case number 15-3386, and Hancox v. Nationwide Mutual Insurance Co., case number 15-3387, in the U.S. Court of Appeals for the Sixth Circuit.
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