The First Step in Getting a Patent – Patentable Subject Matter

By Bert Andia, Member, Higgins Benjamin, PLLC

Every month, I receive a number of phone calls asking whether the caller can get a patent on a certain device or a certain idea.  While such advice cannot typically be provided over the telephone without more information, the starting point for answering that question begins with a basic tenet of patent law – what is patentable subject matter?

The statutory language for what is “patentable” is found in section 101 of the Patent Laws of the United States which provides that a patent may be offered to a person who “invents…any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”  35 U.S.C. §101.  These four independent categories of inventions – processes, machines, manufactures, and compositions of matter – are broadly interpreted.  Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980).  Three major exceptions have been placed on the reaches of section 101 — “laws of nature, physical phenomena, and abstract ideas have been held not patentable.”  Chakrabarty, 447 U.S. at 309 (citing Parker v. Flook¸ 437 U.S. 584 (1978)).  The rationale for these exceptions is that the concepts underlying the exceptions are “part of the storehouse of knowledge of all men…free to all men and reserved exclusively to none.”  Funk Brothers Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948).

One should also remember that the question of patentable subject matter under §101 is merely a threshold check – patentability of a claim ultimately depends on the other conditions and requirements of the Patent Laws, specifically novelty, non-obviousness, and adequate disclosure in §§ 102, 103, and 112.

Courts have recognized that too broad an interpretation of the exclusions to § 101 could eviscerate patent law because, at some level, all inventions embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.  Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S.Ct. 1289, 1293 (2012).

The Federal Circuit, which hears appeals over most patent cases, has endeavored to create a “consistent, cohesive, and accessible approach to the § 101 analysis….”  CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1303, 1277 (Fed. Cir. 2013)check CITE.  Recognizing that § 101 specifies categories of patentable inventions (processes, machines, manufactures, or compositions) and that the courts have created certain judicial exceptions (law of nature, natural phenomenon, abstract idea), a plurality of the Federal Circuit in the CLS Bank case highlighted several themes running through decisions of the Supreme Court.  First, “patents should not be allowed to preempt the fundamental tools of discovery – those must remain ‘free to all…and reserved exclusively to none.’”  Id. at 1280.  Second, the court should consider the true practical effect of the claim with respect to the idea of preserving basic tools of scientific discovery for common use.  Third, there are no bright-line rules because such rules “risk becoming outdated in the face of continued advances in technology.”  Id. at 1281.

In another recent opinion, Ultramercial, Inc. v. Hulu, LLC, the Federal Circuit was asked to evaluate whether the claims of U.S. Patent No. 7,346,545 involved patent-eligible subject matter.  722 F.3d 1335 (Fed. Cir. 2013).  In Ultramercial, the plaintiff sought to patent a method of distributing copyrighted products (e.g., songs, movies, books) over the Internet in which the consumer receives a copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.

The court analyzed the patent claims as defining a “process” (also called a “method”).  The court recognized, however, that the eligibility of § 101 was meant to be read broadly, and any exceptions to §101 were to be applied narrowly to avoid the exclusion of “unanticipated inventions” which are often “unforeseeable.”  722  F.3d at 1343.

In order to assist with the fight over what is too abstract as to be patentable, the court had previously set forth a “machine-or-transformation test” – a two part inquiry in which the claim must be tied to a particular machine, or the claim must show the transformation of an article.  In re Bilski, 545 F.3d, 943, 961 (Fed. Cir. 2008) aff’d on other grounds, Bilski, 130 S.Ct. 3218 (XXXX).  However, the Ultramercial court recognized that such a test was helpful to inventions of the Industrial Age but not so helpful in the inventions of the Information Age.

The Ultramercial court instead attempted to determine whether the patent claim covered only an abstract idea, or whether the claim covered an application of an abstract idea.  The “relevant inquiry” is whether the claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea.  722 F.3d at 1344.  The court recognized certain guidelines to aid in this difficult inquiry:   (1) A claim is not meaningfully limited if it merely describes an abstract idea or simply adds “apply it.” (2)  If a claim covers all practical applications of an abstract idea, it is not meaningfully limited.  (3) A claim will not be meaningfully limited if it contains only insignificant or token pre- or post-solution activity, such as identifying a relevant audience, a category of use, or a field of use.  (4) A claim is not meaningfully limited if its limitations provide no real direction, cover all possible ways to achieve the provided result, or are overly-generalized.  722 F.3d at 1346.

Turning to the claims of the patent, the court recognized that the invention was a “method for monetizing and distributing copyrighted products over the Internet.”  722 F.3d at 1349. The court found that the claims fit within the statutory definition of “process” and then focused on whether the claim was meaningfully limited to something other than an “abstract idea” (the abstract idea being the idea that advertising can be used as a form of currency).  The court recognized that the invention at issue in the case involves an extensive computer interface, but that the applicant was not attempting to preempt all forms of advertising on the Internet.  Further, the claim did not claim an algorithm or any similarly abstract concept, but instead described a particular method for collecting revenue from the distribution of media products over the Internet.  The Federal Circuit therefore found that the patent claims should not have been dismissed for lack of subject matter eligibility.

As the discussion above makes clear, the analysis of whether something meets the standard of “patentable subject matter” is often a complex, fact-specific inquiry.  If you would like to discuss an issue involving patents, contact Bert Andia at (336) 273-1600 or bandia@greensborolaw.com.
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New Opinion Involving Landlord’s Acceptance of Rent From Holdover Tenant Muddies Water

By:  John Bloss, Member, Higgins Benjamin, PLLC

A landlord who takes rent from a “holdover tenant”—a lessee who stays on the premises after the term of the lease—can run the risk of unwittingly creating a new lease term, generally presumed in North Carolina to be one year.  A recent North Carolina Court of Appeals case, however, creates new uncertainty in such landlord-tenant disputes.

For more than a century, the North Carolina appellate courts have agreed that when the landlord accepts a post-term payment from a tenant holding over from a lease of a year or longer duration, a new one-year lease term is established.  See, e.g., Scheelky v. Koch, 119 N.C. 80, 25 S.E. 713 (1896) (“A lessee for a year, with privilege of renewal for a year, who occupies the premises and pays rent therefor for a month into the second year, and then vacates with no understanding that the lease shall be canceled, is bound for the second year’s rental”); Kearney v. Hare, 265 N.C. 570, 144 S.E.2d 636, 638-39 (1965) (“In the absence of a provision in the lease for an extension of the term, when a tenant under  lease for  fixed term of one year, or more, holds over after the end of the term the lessor may eject him or recognize him as a tenant. . . . If the lessor elects to treat him as a tenant, a new tenancy relationship is created as of the end of the former term.  This is, by presumption of law, a tenancy from year to year, the terms of which are the same as those of the former lease in so far as they are applicable”).

A new Court of Appeals opinion, Automotive Group, LLC v. A-1 Charlotte, LLC, COA13-608 (N.C. App. Nov. 19, 2013), seems to be at odds with this line of cases.  Automotive Group involved a one-year commercial lease with a renewal provision requiring 180 days’ notice.  The tenant failed to give timely notice of renewal, but nevertheless stayed on after the year ended.  Significantly, the landlord accepted the tenant’s rent payment for the month immediately following the expiration of the lease term.

The landlord filed a summary ejectment (eviction) action.  The magistrate dismissed the action with prejudice (correctly, under the authority cited above) on the basis that the landlord waived the right to assert a valid nonrenewal by accepting the post-term rent payment.  The landlord filed a second summary ejectment action , which was also dismissed with prejudice.  Undeterred, the landlord then filed a third summary ejectment action.  The magistrate again dismissed the action on res judicata grounds, finding that the third complaint alleged the same cause of action as the first complaint.  The landlord appealed this decision to the district court, which rejected tenant’s res judicata argument, ruled in favor of the landlord, and ordered the tenant to vacate the premises.

The Court of Appeals affirmed.  The Court recognized that under res judicata  principles, a final judgment on the merits in one action precludes another lawsuit based on the same cause of action between the same parties or their privies.  The Court, however, determined that there had been a change in circumstances, preventing application of res judicata, because the landlord did not accept a rent payment from the tenant after the dismissal of the first lawsuit:

[P]laintiff returned each check it received from defendant after the first complaint was dismissed.  This change in circumstance eliminated plaintiff’s waiver of defendant’s lease breaches that previously prevented it from ejecting defendant.

The decision in Automotive Group is difficult to reconcile with the jurisprudence in this area.  It is especially troubling from a judicial-efficiency perspective that the landlord was rewarded for filing three different lawsuits alleging the same cause of action.  Generally the filing of serial complaints earns the plaintiff a sanctions order, not a favorable judgment.

If you would like to discuss an issue involving landlord-tenant law contact John Bloss at (336) 273-1600 or jbloss@greensborolaw.com.
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