DietGoal Innovations LLC v. Arby's Restaurant Group, Inc. et al
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NOTICE by Google Inc., Jimmy John's Franchise LLC re 300 MOTION to Dismiss Defendants' Motion to Dismiss Under Fed. R. Civ. P. 12(b)(6) for Failure to State a Claim Based on Unpatentable Subject Matter MOTION to Dismiss Defendants' Motion to Dismiss Under Fed. R. Civ. P. 12(b)(6) for Failure to State a Claim Based on Unpatentable Subject Matter DEFENDANTS' NOTICE OF SUPPLEMENTAL AUTHORITY REGARDING MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM BASED ON UNPATENTABLE SUBJECT MATTER (Attachments: # 1 Exhibit A - Fort Properties, Inc. v. American Master Lease LLC)(Carrano, Cono)
EXHIBIT “A”
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Only the Westlaw citation is currently available.
United States Court of Appeals,
Federal Circuit.
FORT PROPERTIES, INC., Plaintiff–Appellee,
v.
AMERICAN MASTER LEASE LLC, Defendant–Appellant.
No. 2009–1242.
Feb. 27, 2012.
Appeal from the United States District Court for the
Central District of California in case no. 07–CV–365,
Judge Andrew J. Guilford.
Arianna Frankl, Cole, Schotz, Meisel, Forman &
Leonard, P.A., of New York, NY, argued for
plain-tiff-appellee.
Donald M. Falk, Mayer Brown, LLP, of Palo Alto,
CA, argued for defendant-appellant. With him on the
brief were Rita K. Lomio; and Neil M. Soltman, of
Los Angeles, CA. Of counsel was Anthony G. Graham, LLP, Graham & Martin, LLP, of Costa Mesa,
CA.
Before PROST, SCHALL, and MOORE, Circuit
Judges.
PROST, Circuit Judge.
*1 Defendant–Appellant American Master Lease
LLC (“AML”) appeals from the decision of the United
States District Court for the Central District of California to grant summary judgment in favor of Plaintiff–Appellee Fort Properties, Inc. (“Fort Properties”).
In issuing this ruling, the district court invalidated all
claims in U.S. Patent No. 6,292,788 (“'788 patent”) for
failing to meet the subject matter eligibility requirements of 35 U.S.C. § 101. We affirm.
I. BACKGROUND
The '788 patent discloses an investment tool designed to enable property owners to buy and sell
properties without incurring tax liability. Proceeds
generated from real estate sales are ordinarily taxed,
with some exceptions. One such exception is contained in 26 U .S.C. § 1031, which allows an owner of
investment property to exchange one property for
another of like kind without incurring tax liability if
the following conditions are met: (1) the value of the
purchased property is greater than or equal to the value
of the sold property; (2) the debt burdening the purchased property is greater than or equal to the debt
burdening the sold property; (3) the purchased property is identified within 45 days of the sold property's
date of sale, and the entire acquisition is completed
within 180 days; and (4) the real estate owner does not
exercise control over the proceeds from the sold
property before acquiring the purchased property. See
26 U.S.C. § 1031.
The investment tool disclosed in the '788 patent is
designed to invoke the benefits of § 1031. In particular, the claims require the aggregation of a number of
properties into a “real estate portfolio.” The property
interests in this portfolio are then divided into shares
and sold to investors much in the same way that a
company sells stock. These divided property interests
are called “deedshares.” FN1 Each deedshare can be
encumbered by its own mortgage debt, which provides
flexibility to real estate investors attempting to structure their debts in a way that complies with § 1031.
FN1. As an illustration, a real estate portfolio
worth $100 million can be divided into one
thousand deedshares worth $100,000 each.
Each of these deedshares represents a 0.1%
ownership interest in the real estate portfolio.
See '788 patent col.6 ll.46–56.
The '788 patent also allows for a “master tenant”
to oversee and manage the deedshares. Among other
things, the master tenant performs administrative tasks
such as paying insurance, property taxes, and rents.
'788 patent col.7 ll.44–51. Moreover, the real estate
portfolio can be governed by a “master agreement,”
which permits the deedshares to “reaggregate” after a
predetermined time interval. This arrangement provides flexibility to deedshare owners wishing to sell
their properties. Finally, the investment instrument
disclosed in the '788 patent utilizes a “qualified intermediary” (essentially a straw man) to facilitate
sales and purchases of deedshares for property owners
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in a manner consistent with 26 U.S.C. § 1031. See '788
patent col.10 ll.1–62.
All claims in the '788 patent are method claims.
Claim 1 discloses:
1. A method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising:
*2 aggregating real property to form a real estate
portfolio;
encumbering the property in the real estate portfolio
with a master agreement; and
creating a plurality of deedshares by dividing title in
the real estate portfolio into a plurality of tenant-in-common deeds of at least one predetermined denomination, each of the plurality of deedshares subject to a provision in the master agreement for reaggregating the plurality of tenant-in-common deeds after a specified interval.
Two of the other independent claims, claims 22
and 32, are nearly identical to claim 1—though claim
32 contains an additional limitation requiring a computer to “generate a plurality of deedshares.” The only
other independent claim in the '788 patent, claim 11,
discloses a method of transferring ownership of
deedshares in a manner consistent with 26 U.S.C. §
1031. Nearly all of the dependent claims in the '788
patent either outline contractual provisions to include
in the master agreement or provide for duties that the
master tenant can perform (e.g., the payment of rent,
property taxes, and insurance, etc.).
The district court invalidated each of the forty-one claims in the '788 patent for failing to claim
patent-eligible subject matter under 35 U.S.C. § 101.
In doing so, the court applied the machine-or-transformation test. Regarding the machine
prong, the court found that the claims of the '788 patent were not “tied to a particular machine or apparatus,” reaching this conclusion by relying on AML's
prior representation during prosecution that the recited
methods “need not be performed by a computer.” Fort
Props., Inc. v. Am. Master Lease, LLC, 609 F.Supp.2d
1052, 1055–56 (C.D.Cal.2009) (internal quotation
marks omitted). Regarding the transformation prong,
the court found that “none of the claims of the '788
Patent ‘transform[ed] any article to a different state or
thing,’ “ reasoning that the claimed deedshares, which
AML argued provided the transformation,
“represent[ed] only legal ownership interests in
property .... not physical objects.” Id. at 1056. In light
of its decision to invalidate the claims of the '788
patent, the district court granted summary judgment in
favor of Fort Properties. Id.
Notably, the district court, following our
precedent in In re Bilski, 545 F.3d 943 (Fed.Cir.2008),
relied solely on the machine-or-transformation test in
its § 101 analysis. After the district court issued its
decision, the Supreme Court clarified that the machine-or-transformation test, although not the exclusive test for patentability, is “a useful and important
clue.” Bilski v. Kappos, 130 S.Ct. 3218, 3227 (2010).
Despite this intervening precedent, we affirm the
district court's judgment invalidating the claims under
§ 101 for the reasons stated below. We have jurisdiction under 28 U.S.C. § 1295(a)(1).
II. DISCUSSION
We review the district court's grant of summary
judgment de novo. Tokai Corp. v. Easton Enters., Inc.,
632 F.3d 1358, 1366 (Fed.Cir.2011). “Issues of patent-eligible subject matter are questions of law and
are reviewed without deference.” Cybersource Corp.
v. Retail Decisions, Inc., 654 F.3d 1366, 1369
(Fed.Cir.2011).
*3 The statute sets forth the categories of patent-eligible subject matter, stating that “[w]hoever
invents or discovers any new and useful process,
machine, manufacture, or composition of matter, or
any new and useful improvement thereof, may obtain
a patent therefor, subject to the conditions and requirements of this title.” 35 U.S.C. § 101. “Section
101 thus specifies four independent categories of
inventions or discoveries that are eligible for protection: processes, machines, manufactures, and compositions of matter.” Bilski, 130 S.Ct. at 3225. “In
choosing such expansive terms ... Congress plainly
contemplated that the patent laws would be given wide
scope.” Diamond v. Chakrabarty, 447 U.S. 303, 308
(1980). Supreme Court precedent, however, has
“provide[d] three specific exceptions to § 101's broad
patent-eligibility principles: ‘laws of nature, physical
phenomena, and abstract ideas.’ “ Bilski, 130 S.Ct. at
3225 (quoting Chakrabarty, 447 U.S. at 309). “The
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concepts covered by these exceptions are ‘part of the
storehouse of knowledge of all men ... free to all men
and reserved exclusively to none.’ “ Bilski, 130 S.Ct.
at 3225 (quoting Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948)).
At issue in the present case is whether the real
estate investment tool disclosed in the '788 patent falls
under the “process” category of § 101. Section 100(b)
of the Patent Act defines “process” to mean “process,
art, or method, and includes a new use of a known
process, machine, manufacture, composition of matter, or material.” AML argues that its invention constitutes a patent-eligible process. Fort Properties, on
the other hand, contends that the invention is an unpatentable abstract idea.
Four seminal Supreme Court precedents provide
guidance regarding when an invention qualifies as a
patent-eligible process as opposed to an abstract idea:
Bilski, 130 S.Ct. 3218; Diamond v. Diehr, 450 U.S.
175 (1981); Parker v. Flook, 437 U.S. 584 (1978); and
Gottschalk v. Benson, 409 U.S. 63 (1972). First, in
Benson, the Court found that an algorithm capable of
converting binary-coded decimal numerals into pure
binary code was an unpatentable abstract idea. 409
U.S. at 64–67, 71–72. In reaching this conclusion, the
Court explained that allowing such an invention to
qualify as patent-eligible subject matter “would
wholly pre-empt [a] mathematical formula and in
practical effect would be a patent on the algorithm
itself.” Id. at 72.
In Flook, another algorithm-based invention was
at issue, with this particular algorithm being designed
to enable the monitoring of conditions during a catalytic conversion process in the petrochemical and
oil-refining industries. 437 U.S. at 585–86. “The
Court conceded that the invention at issue, unlike the
algorithm in Benson, had been limited so that it could
still be freely used outside the petrochemical and
oil-refining industries.” Bilski, 130 S.Ct. at 3230
(citing Flook, 437 U.S. at 589–90). Despite this limitation, the Court still characterized the invention as
unpatentable under § 101, stating that “[t]he notion
that post-solution activity, no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process exalts form
over substance.” Flook, 437 U.S. at 590. As the Court
later explained, “Flook stands for the proposition that
the prohibition against patenting abstract ideas ‘cannot
be circumvented by attempting to limit the use of the
formula to a particular technological environment’ or
adding ‘insignificant postsolution activity.’ “ Bilski,
130 S.Ct. at 3230 (quoting Diehr, 450 U.S. at 191–92).
*4 Third, in Diehr, the Court explained that while
an abstract idea could not be patented, “an application
of a law of nature or mathematical formula to a known
structure or process may well be deserving of patent
protection.” 450 U.S. at 187. The invention at issue in
Diehr was a method for “molding raw, uncured synthetic rubber into cured precision products” using a
mathematical formula and a computer. Id. at 177. This
invention qualified as patentable subject matter under
§ 101 because it was not “an attempt to patent a mathematical formula, but rather [was] an industrial
process for the molding of rubber products.” Id. at
192–93.
Finally, in its recent Bilski decision, the Supreme
Court relied on Benson, Flook, and Diehr to find an
invention very similar to the one at issue in our case
unpatentable under § 101. See Bilski, 130 S.Ct.
3229–31. The invention in Bilski involved a method
by which buyers and sellers of commodities could
protect, or hedge, against risk of price changes. Id. at
3223. Claim 1 of the invention required the following
steps:
Initiating a series of transactions between a commodity provider and consumers whereby the consumers purchase the commodity at a certain rate;
Identifying market participants for the commodity
having a counter-risk position to the consumers; and
Initiating a series of transactions between the
commodity provider and the market participants at a
second rate in a manner that permits the market
participant transactions to balance the risk position
of the consumer transactions.
Id. at 3223–24. Claim 4 incorporated the steps
listed in Claim 1 into a mathematical formula. Id. at
3223. The remaining claims at issue in Bilski explained how claims 1 and 4 could be applied in the
energy market. Id. at 3224.
The Court concluded that the claims at issue in
Bilski did not satisfy the requirements of § 101. Id. at
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3229–30. Specifically, the Court reasoned that claims
1 and 4 merely explained the basic concept of hedging, which “is an unpatentable abstract idea, just like
the algorithms at issue in Benson and Flook.” Id. at
3231. “Allowing petitioners to patent risk hedging
would pre-empt use of this approach in all fields, and
would effectively grant a monopoly over an abstract
idea.” Id. at 3231. Regarding the remaining claims,
which were confined to the energy market, the Court
explained that “limiting an abstract idea to one field of
use or adding token postsolution components [does]
not make the concept patentable.” Id. at 3231. Thus,
these claims were also characterized as abstract. Id. at
3231.
A. Claims 1–31 of the '788 patent
For the reasons provided below, claims 1–31 of
the '788 patent do not satisfy the patent-eligibility
requirements of § 101. As an initial matter, these
claims, like the invention in Bilski, disclose an investment tool not requiring the use of a computer.
Specifically, claims 1–10 and 22–31 involve the following conceptual steps: aggregating real property
into a real estate portfolio, dividing the interests in the
portfolio into a number of deedshares, and subjecting
those shares to a master agreement. Claims 11–21 then
describe how property can be bought and sold under
this arrangement in a manner that permits a
tax-deferred exchange.
*5 AML argues that claims 1–31 constitute a
patentable process and not an abstract idea because
they require a series of steps to take place in the real
world that involve real property, deeds, and contracts.
More specifically, AML contends that the deeds remove the invention from the realm of the abstract
because they are physical legal documents signifying
real property ownership that must be publicly recorded. Fort Properties disagrees, arguing that the
claimed method of aggregating property, making it
subject to an agreement, and then issuing ownership
interests to multiple parties consists entirely of mental
processes and abstract intellectual concepts. Fort
Properties counters that under Bilski, 130 S.Ct. at
3218, the invention's intertwinement with deeds, contracts, and real property does not transform the abstract method into a patentable process.
We agree with Fort Properties. Indeed, the claims
in Bilski were tied to the physical world through at
least two tangible means: commodities and mon-
ey. Id. at 3223–24. These ties, however, were insufficient to render the abstract concept of hedging patentable. See id. at 3231. We view the present case as
similar to Bilski. Specifically, like the invention in
Bilski, claims 1–31 of the '788 patent disclose an investment tool, particularly a real estate investment tool
designed to enable tax-free exchanges of property.
This is an abstract concept. Under Bilski, this abstract
concept cannot be transformed into patentable subject
matter merely because of connections to the physical
world through deeds, contracts, and real property. Our
reasoning is further supported by the fact that the
claimed algorithm in Flook also had ties to the physical world (i.e., the invention involved the “catalytic
chemical conversion of hydrocarbons”), yet the Supreme Court still characterized that invention as unpatentable. 437 U.S. at 586, 594–95. For these reasons, we conclude that claims 1–31 of the '788 patent
do not disclose patent-eligible subject matter.
Our precedent is in accord. Specifically, in In re
Comiskey, we found claims to a method of “mandatory arbitration resolution” unpatentable under § 101
even though those claims required the use of physical
“unilateral and contractual documents.” 554 F.3d 967,
981 (Fed.Cir.2009). Additionally, in In re Schrader,
the applicants sought to patent a method of bidding at
an auction. 22 F .3d 290, 291 (Fed.Cir.1994). The
claim at issue “required” the “physical effect or result”
of “entering of bids in a ‘record,’ a step that [could
have] be[en] accomplished simply by writing the bids
on a piece of paper or a chalkboard.” Id. at 294. This
court concluded that this physical effect was “insufficient to impart patentability” to the claim, explaining
that “[t]he dispositive issue [was] whether the claim as
a whole recite[d] sufficient physical activity to constitute patentable subject matter .” Id. As explained
above, claims 1–31 of the '788 patent recite an abstract
real estate investment tool. When viewing the claimed
invention as a whole, the physical activities involving
the deeds, contracts, and real property are insufficient
to render these claims patentable.
B. Claims 32–41 of the '788 patent
*6 Claims 32–41 of the '788 patent have the same
ties to deeds, contracts, and real property as claims
1–31. For the reasons explained in Section II.A, these
physical connections are insufficient to qualify claims
32–41 for patent eligibility under § 101. Claims 32–41
contain an additional limitation, however, requiring a
computer to “generate a plurality of deedshares.” We
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address this limitation below.
This court has recently provided guidance on how
claim limitations involving computers apply in the §
101 analysis. In Cybersource, we explained that “the
basic character of a process claim drawn to an abstract
idea is not changed by claiming only its performance
by computers, or by claiming the process embodied in
program instructions on a computer readable medium.” 654 F.3d at 1375. Instead, “to impart patent-eligibility to an otherwise unpatentable process
under the theory that the process is linked to a machine, the use of the machine ‘must impose meaningful limits on the claim's scope.’ “ Id. (quoting In
re Bilski, 545 F.3d at 961). As an example, in Ultramercial, LLC v. Hulu, LLC the claimed invention
“require[d] intricate and complex computer programming” and “specific application to the Internet
and a cybermarket environment.” 657 F.3d 1323, 1328
(Fed.Cir.2011). The addition of the computer to the
claims was not merely insignificant post-solution
activity; rather, the invention itself involved “advances in computer technology,” and it was thus sufficient to qualify the claims for patent eligibility under
§ 101. Id. at 1329.
On the other hand, in Dealertrack, Inc. v. Huber,
we concluded that claims to a method of applying for
credit did not satisfy § 101 even though the claims
contained a limitation requiring the invention to be
“computer aided.” Nos.2009–1566, –1588, 2012 WL
164439, at * 14, * 18 (Fed.Cir. Jan. 20, 2012). In
reaching this conclusion, we explained that “[t]he
claims [were] silent as to how a computer aids the
method, the extent to which a computer aids the method, or the significance of a computer to the performance of the method.” Id. at *17. “Simply adding a
‘computer aided’ limitation to a claim covering an
abstract concept, without more, is insufficient to
render the claim patent eligible.” Id. Dealertrack distinguished itself from Ultramercial on the grounds
that its claims “recite[d] only that the method [was]
‘computer aided’ without specifying any level of involvement or detail,” while the Ultramercial claims
required “an extensive computer interface.” Id.
“generate a plurality of deedshares.” At the claim
construction stage, AML agreed that “using a computer” merely meant “operating an electronic device
that features a central processing unit.” Such a broad
and general limitation does not “impose meaningful
limits on the claim's scope.” See Cybersource, 654
F.3d at 1375. AML simply added a computer limitation to claims covering an abstract concept—that is,
the computer limitation is simply insignificant
post-solution activity. See id. at 1371. Without more,
claims 32–41 cannot qualify as patent-eligible. See
Dealertrack, 2012 WL 164439, at *17.
III. CONCLUSION
*7 Because claims 1–41 of the '788 patent attempt
to capture unpatentable abstract subject matter, they
are invalid under 35 U.S.C. § 101. Therefore, we
affirm the district court's grant of summary judgment
in favor of Fort Properties.
AFFIRMED.
C.A.Fed. (Cal.),2012.
Fort Properties, Inc. v. American Master Lease LLC
--- F.3d ----, 2012 WL 603969 (C.A.Fed. (Cal.))
END OF DOCUMENT
The computer limitation in claims 32–41 of the
'788 patent, like the computer limitation in Dealertrack, does not “play a significant part in permitting
the claimed method to be performed.” See id. Specifically, claims 32–41 only require the computer to
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