Federal Circuit strikes down patent directed to patent-ineligible subject matter

On January 20 2015 in Mortgage Grader, Inc v First Choice Loan Services Inc the Court of Appeals for the Federal Circuit struck down yet another patent as being directed to patent-ineligible subject matter . The court affirmed the grant of summary judgment invalidating a computer-implemented system for enabling borrowers to shop anonymously for loan packages offered by a plurality of lenders as being too abstract. The case continues the post-Alice flood of decisions invalidating computer-implemented patents, but without providing any additional substantive guidance on what constitutes patentable subject matter under Section 101 of the Patent Act.

Two years ago the Supreme Court opened the floodgates for attacks on computer-implemented inventions in Alice Corp Pty, Ltd v CLS Bank International. The Supreme Court set out a "two-step framework" for determining whether patents are claiming laws of nature, natural phenomena or abstract ideas, as opposed to patent-eligible applications of those concepts. Under the first step, courts must determine whether the claims at issue are directed to a patent ineligible concept, such as an abstract idea. If so, the courts must look for an "inventive concept" – that is, an element or combination of elements sufficient to ensure the patent amounts to significantly more than the abstract idea or ineligible concept itself.

Mortgage Grader joins the post-Alice wave of cases invalidating computer-implemented inventions in various forms. The court agreed that the claims were directed to the abstract idea of "anonymous loan shopping", and that the claims as a whole recited nothing more than the collection of information to generate a "credit grading" and facilitate anonymous loan shopping. In particular, the court noted that the series of steps covered by the asserted claims could all be performed by humans without a computer.

As a procedural matter, Mortgage Grader had asserted that the defendant was precluded from raising the Section 101 patentability issue because it had included patent invalidity as a defence in its answer, dropped patent ineligibility as a defence in its initial invalidity contentions and added it back in its final invalidity contentions after the Alice decision. While the local patent rules normally would have prevented the defendant from raising the defence after dropping it, the trial court held that Alice was a sufficiently big change to justify including a new Section 101 argument in the final contentions. The Federal Circuit affirmed, holding that the district court had not abused its discretion.

Courts have struggled with devising a workable definition for 'abstract', and that struggle continues. This most recent case, while providing yet another example of what is not patent eligible, does not help the patent community in determining what is patent eligible.