Ever since the landmark Supreme Court case on patent eligibility, Alice v. CLS Bank, the Federal Circuit has endeavored to articulate the proper framework for determining whether a patent claim is too “abstract” to be patentable under 35 U.S.C. § 101. Much of the case law relating to § 101 since Alice has focused on developing various carve-out formulations for describing the traits of claims that are not abstract, and therefore patentable. For example, the Federal Circuit has held that claims may not be abstract in some cases where they provide a technological improvement.1 Its recent opinion in SAP America v. InvestPic2 outlined a formulation that appears to add a new requirement to this technological-improvement standard.
In SAP America, the Federal Circuit held that for a claim to be patent eligible, any technological improvement provided by the claim would need to be in the “physical” realm. In some ways, this formulation harks back to the old machine-or-transformation test (finding claims patentable if they were tied to a machine, or if they transformed an article from one state to another), which fell out of favor following the 2010 Supreme Court decision in Bilski v. Kappos.3 In SAP America, not only does the Federal Circuit apply this new formulation to the claims at issue, it appears to remold its holdings in important prior cases to this formulation, thereby suggesting that the physical-realm requirement may not simply be a fringe standard for a fringe case. However, it is still unclear at this point if SAP America has definitively carved out a new formulation of what makes a claim not abstract.
The Claims at Issue
SAP America was brought to the Federal Circuit following a declaratory judgment action, in which the district court had entered a judgment on the pleadings rendering the claims invalid under § 101.4 The claims in SAP America were directed to a way of generating a plot (or report) that summarized investment-risk information based on a statistical method in which data in a pool is repeatedly sampled according to a parameter that specifies a degree of randomness in sampling.5 Claim 1 is representative of the SAP America claims:
1. A method for calculating, analyzing and displaying investment data comprising the steps of:
(a) selecting a sample space, wherein the sample space includes at least one investment data sample;
(b) generating a distribution function using a resampled statistical method and a bias parameter, wherein the bias parameter determines a degree of randomness in a resampling process; and,
(c) generating a plot of the distribution function.
The Federal Circuit affirmed the district court’s finding of invalidity using the two-step test for subject matter eligibility outlined in Alice. In its Step One analysis, the court examined the issue of whether the claims were directed to abstract ideas. The court began by characterizing the claims as being directed merely to the abstract idea of “selecting certain information, analyzing it using mathematical techniques, and reporting or displaying the results of the analysis.”7 It rebutted the patentee’s attempts to analogize the claims to those of prior cases that had upheld claims including technological improvements.8 The court acknowledged that the claims may be directed to an improvement in the finance field, citing to the specification’s explanation that the claimed statistical method sought to remedy deficiencies in conventional approaches of determining investment risk.9 Nonetheless, it found that this improvement could not save the claims because it was “not a physical-realm improvement”—that is, it did not improve “physical things and actions.”10 Without the aegis of a technological improvement, the claims could not overcome the court’s characterization of the claims as being directed to an abstract idea. The court then proceeded to the issue raised by Step Two of the Alice test, i.e., whether the claims involve an inventive concept sufficient to transform the abstract idea into a patent-eligible invention.11 The court considered details in the claims (independent and dependent claims) that specified particular statistical methods, particular computer architectures, and some generic recitations of databases and processors.12 The court found that these details were “well-understood, routine, [and] conventional,” and that there was “nothing ‘inventive’ about [these] claim details . . . that are not themselves in the realm of abstract ideas.”13
Applying the New Formulation to Past (and Future) Cases
The Federal Circuit attempted to harmonize its reasoning as to the claims in SAP America with its prior holdings in Thales Visionix v. United States14 and McRO v. Bandai15 —cases where the claims were held to be not abstract—by recasting the analyses in those cases to accommodate its physical-realm formulation. The claims in Thales Visionix covered the use of two inertial sensors to track the motion of a real-world object (e.g., a helmet of a pilot) relative to a moving reference point or platform (e.g., an airplane in which the pilot sits).16 The court in Thales Visionix held that the claims were not abstract because they improved motion tracking by using inertial sensors in a non-conventional manner to reduce measurement errors.17 The Thales Visionix court did not mention anything about the improvements being in the physical realm—in fact, in holding the claims non-abstract, the court had analogized the claims to those of Enfish v. Microsoft,18 where the claims were directed to a purely “non-physical” improvement in how data is indexed. However, the SAP America court recast the Thales Visionix claims as being non-abstract because they were directed to an improvement “in a physical tracking system.”19 While the claims in Thales Visionix had some discernible connection to physical elements (having been directed to improving a system for tracking the motion of real-world objects), the claims in McRO offer quite a bit of friction to the physical-realm formulation. Claim 1 of the McRO claims is representative:
1. A method for automatically animating lip synchronization and facial expression of three-dimensional characters comprising:
obtaining a first set of rules that define output morph weight set stream as a function of phoneme sequence and time of said phoneme sequence;
obtaining a timed data file of phonemes having a plurality of sub-sequences;
generating an intermediate stream of output morph weight sets and a plurality of transition parameters between two adjacent morph weight sets by evaluating said plurality of sub-sequences against said first set of rules;
generating a final stream of output morph weight sets at a desired frame rate from said intermediate stream of output morph weight sets and said plurality of transition parameters; and
applying said final stream of output morph weight sets to a sequence of animated characters to produce lip synchronization and facial expression control of said animated characters.20
Essentially, the McRO claims specified a set of rules for automating the animation of a character’s face as it speaks—a task that was ordinarily performed manually—based on a set of phonemes provided by an animator.21 The rules determined “morph weights” to be applied to the character’s face to synchronize its lips and morph its facial expressions in accordance with the provided phonemes.22 The McRO court upheld the claims as patentable, explaining that they incorporated features that were specific in nature and that they were directed to a technological improvement over the existing technique of manually animating the character’s face.23 In distinguishing the SAP America claims from the McRO claims, the Federal Circuit presented a new theory as to why the McRO claims are not abstract: it explained that the McRO claims were directed to “the creation of something physical,” i.e., the display of animated characters on a screen. It further explained that the improvement provided by the McRO claims was to “how the physical display operated” when an animation was displayed, and that the SAP America claims offered no such “improved display mechanism.”24 The court used this distinction as a springboard to dismiss the SAP America claims as not being directed to an improvement in the physical realm.25
But patentees and stakeholders may find themselves unsatisfied with the Federal Circuit’s attempt to reconcile the results in these two cases. How is a claim that displays an animation (McRO) any more “physical” than a claim that displays a plot (SAP America)? It could be argued that the presentation of an animation on a display does not change “how the display operate[s]” any more than the presentation of a plot on the display. The Federal Circuit’s analysis could be interpreted to suggest that the generation of some types of content are inherently more physical than others, although it does not provide a bright line for how to distinguish whether such content is sufficiently in the “physical realm.” Alternatively, the panel in SAP America may have been attempting to fashion some concrete distinction over its precedent to invalidate what it perceived to be an overbroad claim in the traditionally disfavored field of financial technology. In any case, it remains to be seen whether future cases will seize on the formulation articulated in SAP America to require that any claimed improvements be physical in nature, or if SAP America will just be a blip on the radar.
1 See, e.g., McRO, Inc., v. Bandai Namco Games America, 837 F.3d 1299, 1316 (Fed. Cir. 2016).
2 SAP America, Inc. v. InvestPic, LLC, No. 17-2081 (Fed. Cir. Aug. 2, 2018), modifying, 890 F. 3d 1016 (Fed. Cir. 2018).
3 561 U.S. 593 (2010).
4 SAP America, slip op. at 2.
5 Id. at 5–7.
6 Id. at 5–6.
7 Id. at 11.
8 Id. at 12–14.
9 Id.at 3–4.
10 Id. at 13.
11 Id. at 14.
12 Id. at 14–17.
13 Id. at 18.
14 Thales Visionix Inc. v. United States, 850 F.3d 1343 (Fed. Cir. 2017).
15 McRO, Inc. v. Bandai Namco Games America Inc., 837 F.3d 1299 (Fed. Cir. 2016).
16 Thales Visionix, 850 F.3d at 1345–46.
17 Id. at 1348–49.
18 Enfish v. Microsoft, 822 F.3d 1327, 1339 (Fed. Cir. 2016).
19 SAP America, slip op. at 13.
20 McRO, 837 F.3d at 1307–08.
23 Id. at 1316.
24 SAP America, slip op. at 12. The Federal Circuit also noted that the claims in McRO provided additional specificity, but it is unclear as to whether this statement was dicta. See id.
25 Id. at 12–13.
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