Eyes on Alice: Federal Circuit Concludes that Factual Allegations in Complaint Preclude Dismissal on Patent Eligibility Grounds

On February 14, 2018, the Federal Circuit issued a precedential decision providing important guidance regarding the circumstances under which dismissal on patent eligibility grounds is appropriate at the pleadings stage. In Aatrix Software, Inc. v. Green Shades Software, Inc., the Federal Circuit ruled that “patent eligibility can be determined at the Rule 12(b)(6) stage . . . only when there are no factual allegations that, taken as true, prevent resolving the eligibility question as a matter of law.” No. 2017-1452, slip op. at 5 (Fed. Cir. Feb. 14, 2018).

The case involved two asserted patents directed to systems and methods for designing, creating, and importing data into a viewable form on a computer so that a user can manipulate the form data and create viewable forms and reports. In response to the complaint, the defendant moved to dismiss under Rule 12(b)(6), arguing that all claims in the asserted patents were ineligible under 35 U.S.C. § 101.  The district court agreed, dismissing the complaint and denying the plaintiff’s motion for leave to amend.

Concluding “[t]his is not a case where patent ineligibility was properly adjudicated with finality at the Rule 12(b)(6) stage,” the Federal Circuit found that the district court erred in several regards. Aatrix Software, Inc., slip op. at 5-6. As an initial matter, the Federal Circuit took issue with the district court’s finding that one of the claims was ineligible because it was directed to an intangible embodiment, reasoning that it “claims a data processing system which clearly requires computer operating software, a means for viewing and changing data, and a means for viewing forms and reports.” Id. at 7. “This,” according to the Federal Circuit, “is very much a tangible system.” Id.

With respect to the remaining claims, the Federal Circuit found that the plaintiff’s proposed amended complaint contained “allegations that, taken as true, would directly affect the district court’s patent eligibility analysis.” Aatrix Software, Inc., slip op. at 8. Those allegations described “the development of the patented invention, including the problems in prior art computerized form file creation,” and “improvements and problems solved by” the patents. Id. at 9. It also alleged that the “invention increased the efficiencies of computers processing tax forms” and “uses less memory, results in faster processing speed, and reduces risk of thrashing.” Id. These allegations, the Federal Circuit noted, “if accepted as true, contradict the district court’s conclusion that the claimed combination was conventional and routine,” and the Federal Circuit further found nothing in “the sources properly considered on a motion to dismiss, such as the complaint, the patent, and materials subject to judicial notice,” that would support rejecting those allegations as a factual matter. Id.

Accordingly, the Federal Circuit vacated the district court’s dismissal and reversed its denial of the plaintiff’s motion for leave to amend. The decision thus provides plaintiffs with a potential roadmap for avoiding early adjudication of patent eligibility issues, but it may be limited to situations in which the patent and materials subject to judicial notice do not provide a basis for rejecting patent eligibility allegations in the complaint. At a minimum, it represents an important decision for evaluating patent eligibility issues at the pleading stage.

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