Smartflash LLC v. Apple Inc. ( 2017 )


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  •        NOTE: This disposition is nonprecedential.
    United States Court of Appeals
    for the Federal Circuit
    ______________________
    SMARTFLASH LLC, SMARTFLASH
    TECHNOLOGIES LIMITED,
    Plaintiffs-Appellees
    v.
    APPLE INC.,
    Defendant-Appellant
    ______________________
    2016-1059
    ______________________
    Appeal from the United States District Court for the
    Eastern District of Texas in No. 6:13-cv-00447-JRG,
    Judge J. Rodney Gilstrap.
    ______________________
    Decided: March 1, 2017
    ______________________
    AARON MARTIN PANNER, Kellogg, Huber, Hansen,
    Todd, Evans & Figel, PLLC, Washington, DC, argued for
    plaintiffs-appellees. Also represented by NICHOLAS O.
    HUNTER; JOHN AUSTIN CURRY, JASON DODD CASSADY,
    BRADLEY WAYNE CALDWELL, JOHN FRANKLIN SUMMERS,
    HAMAD M. HAMAD, Caldwell Cassady & Curry, Dallas, TX.
    MARK ANDREW PERRY, Gibson, Dunn & Crutcher LLP,
    Washington, DC, argued for defendant-appellant. Also
    2                                SMARTFLASH LLC   v. APPLE INC.
    represented by BRIAN BUROKER; HERVEY MARK LYON, Palo
    Alto, CA; BLAINE H. EVANSON, JENNIFER RHO, Los Ange-
    les, CA; BRETT ROSENTHAL, Dallas, TX; JAMES RICHARD
    BATCHELDER, Ropes & Gray LLP, East Palo Alto, CA;
    DOUGLAS HALLWARD-DRIEMEIER, Washington, DC; KEVIN
    JOHN POST, New York, NY.
    ______________________
    Before PROST, Chief Judge, NEWMAN and LOURIE, Circuit
    Judges.
    PROST, Chief Judge.
    Apple Inc. (“Apple”) appeals from the district court’s
    denial of Apple’s motion for judgment as a matter of law
    (“JMOL”) seeking to invalidate three Smartflash LLC
    (“Smartflash”) patents for being patent-ineligible under
    
    35 U.S.C. § 101
    . Apple further appeals a jury verdict of
    patent validity and infringement. Because we find that
    the asserted claims recite patent-ineligible subject matter
    under § 101, we reverse.
    I
    Smartflash asserted the following claims from three
    patents in district court: claim 13 of 
    U.S. Patent No. 7,334,720
     (“’720 patent”); claim 32 of 
    U.S. Patent No. 8,118,221
     (“’221 patent”); and claims 26 and 32 of 
    U.S. Patent No. 8,336,772
     (“’772 patent”) (collectively, “the
    asserted claims”). 1 The three patents-in-suit, entitled
    “Data Storage and Access Systems,” generally “relate[] to
    a portable data carrier for storing and paying for data and
    1   The ’772 patent is a continuation of the ’221 pa-
    tent which is a continuation of 
    U.S. Patent No. 7,942,317,
    which is a continuation of the ’720 patent. All four pa-
    tents share the same specification. For simplicity, all
    citations herein are to the ’720 patent unless stated
    otherwise.
    SMARTFLASH LLC   v. APPLE INC.                           3
    to computer systems for providing access to data to be
    stored.” ’720 patent col. 1 ll. 6–8.
    According to the specification, at the time of the in-
    vention, there was a “growing prevalence of so-called data
    pirates” who “obtain[ed] data either by unauthorized or
    legitimate means and then ma[d]e this data available
    essentially world-wide over the internet without authori-
    zation.” 
    Id.
     at col. 1 ll. 15–19. The patents sought to
    address this problem by purportedly inventing systems
    comprising data carriers, or “terminals,” that could re-
    ceive and validate payments from users and then retrieve
    and provide data, such as audio, video, text, and software
    over the Internet. See 
    id.
     at col. 1 ll. 45–55. Figure 6 of
    the ’720 patent, shown below, illustrates one such system:
    4                              SMARTFLASH LLC   v. APPLE INC.
    In this system, users employ content access terminals
    118, including, for example, personal computers, to re-
    quest content such as audio or video content and provide
    payment information such as credit card or bank account
    information. The payment information is validated by e-
    payment systems 121 and banks 122. After the payment
    is validated, the requested content is provided to the
    content access terminal 118 by a content access web
    server 124.
    Independent claim 3 of the ’720 patent, from which
    asserted Claim 13 depends, claims “[a] data access termi-
    nal for retrieving data from a data supplier and providing
    the retrieved data to a data carrier.” 
    Id.
     at col. 26 ll. 41–
    43. The claimed terminal further comprises interfaces for
    communicating with the data supplier and the data
    carrier, and a “processor coupled to . . . the data carrier.”
    
    Id.
     at col. 26 ll. 44–50. The processor implements
    code to read payment data from the data carri-
    er and to forward the payment data to a payment
    validation system;
    code to receive payment validation data from
    the payment validation system;
    code responsive to the payment validation data
    to retrieve data from the data supplier and to
    write the retrieved data into the data carrier; and
    code responsive to the payment validation data
    to receive at least one access rule from the data
    supplier and to write the at least one access rule
    into the data carrier, the at least one access rule
    specifying at least one condition for accessing the
    retrieved data written into the data carrier, the at
    least one condition being dependent upon the
    amount of payment associated with the payment
    data forwarded to the payment validation system.
    SMARTFLASH LLC   v. APPLE INC.                                5
    
    Id.
     at col. 26 ll. 51–67. Asserted dependent claim 13
    further recites “[a] data access terminal according
    to claim 3 integrated with a mobile communication device,
    a personal computer, an audio/video player, and/or a cable
    or satellite television interface device.” 
    Id.
     at col. 28 ll. 1–
    4.
    Asserted claim 32 of the ’221 patent is identical to
    claim 3 of the ’720 patent except that claim 32 further
    recites “code to retrieve from the data supplier and output
    to a user-stored data identifier data and associated value
    data and use rule data for a data item available from the
    data supplier.” ’221 patent col. 28 ll. 23–50.
    Independent claim 25 of the ’772 patent, from which
    asserted claim 26 depends, claims a “handheld multime-
    dia terminal for retrieving and accessing protected mul-
    timedia content.” ’772 patent col. 29 ll. 40–41. The
    claimed “handheld terminal” comprises wireless and user
    interfaces, memory, display, and a processor. 
    Id.
     at col.
    29 ll. 41–54. The terminal comprises code to
    request and receive         “multimedia     content
    available for retrieving;”
    request, receive, and present “content infor-
    mation compris[ing] one or more of description da-
    ta and cost data pertaining to . . . [the]
    multimedia content;”
    receive user selection of available multimedia
    content and respond by “transmit[ting] payment
    data . . . for validation by a payment validation
    system;”
    receive and respond to payment validation da-
    ta by “writ[ing] said retrieved . . . multimedia con-
    tent into . . . [the] memory” and “receiv[ing] . . .
    user selection . . . [of] one or more items of re-
    trieved multimedia content;”
    6                              SMARTFLASH LLC   v. APPLE INC.
    read and evaluate “use status data and use
    rules to determine whether access is permitted
    to . . . one or more items of [the] retrieved multi-
    media content.”
    
    Id.
     at col. 29 l. 55–col. 30 l. 34. Further, the “user inter-
    face is operable to enable a user to make a first/second
    user selection . . . for retrieving/accessing” the multimedia
    content “responsive to . . . code to control access permit-
    ting access to . . . [the] retrieved multimedia content.” 
    Id.
    at col. 30 ll. 35–47. Dependent claim 26 recites that the
    handheld multimedia terminal of claim 25 further com-
    prises “code to present said . . . selected one or more items
    of retrieved multimedia content to a user via said display
    if access is permitted.” 
    Id.
     at col. 30 ll. 48–51.
    Asserted claim 32 of the ’772 patent, which depends
    from independent claim 30, claims a “data access termi-
    nal” similar to the “handheld multimedia terminal” of
    claim 26 discussed above. 
    Id.
     at col. 31 ll. 46–48. In
    addition to including the features of the “handheld mul-
    timedia terminal,” the “data access terminal” of claim 32
    is also integrated with a “mobile communication device
    and audio/video player” and is able to receive “content
    data items” instead of “multimedia content.” 
    Id.
     at col. 30
    ll. 65–67, col. 31 ll. 46–48.
    At district court, Apple filed a motion for summary
    judgment with the magistrate judge seeking invalidity of
    all asserted claims under § 101. The magistrate judge
    recommended denying the motion. The district court
    adopted the magistrate judge’s findings and recommenda-
    tion and found the claims not invalid under § 101. Smart-
    flash LLC v. Apple Inc., 
    2015 WL 661174
     (E.D. Tex. Feb.
    13, 2015). In finding that the claims were directed to
    patent-eligible subject matter, the district court applied
    the Supreme Court’s two-step framework for determining
    patent eligibility. See Alice Corp. v. CLS Bank Int’l, 
    134 S. Ct. 2347
     (2014) (citing Mayo Collaborative Servs. v.
    SMARTFLASH LLC   v. APPLE INC.                           7
    Prometheus Labs., Inc., 
    132 S. Ct. 1289
    , 1294, 1296–98
    (2012)). At step one, the district court concluded that the
    claims are directed to the abstract idea of “conditioning
    and controlling access to data based on payment.” Smart-
    flash, 
    2015 WL 661174
    , at *8. At step two, however, the
    district court found that the claims recite meaningful
    limitations that transform the abstract idea into a patent-
    eligible invention because the claims “recite specific ways
    of using distinct memories, data types, and use rules that
    amount to significantly more than the underlying abstract
    idea.” 
    Id.
     The district court concluded that “[a]lthough in
    some claims the language is functional and somewhat
    generic, the claims contain significant limitations on the
    scope of the inventions.” 
    Id.
    After trial, Apple moved for JMOL asserting that the
    tried claims were ineligible under § 101. The district
    court denied Apple’s motion and Apple appeals. “[W]e
    apply [the regional circuit’s] law when reviewing . . .
    denials of motions for JMOL or new trial.” i4i Ltd. P’ship
    v. Microsoft Corp., 
    598 F.3d 831
    , 841 (Fed. Cir. 2010),
    aff’d, 
    564 U.S. 91
     (2011). The Fifth Circuit reviews denial
    of JMOL de novo. Cambridge Toxicology Grp. v. Exnicios,
    
    495 F.3d 169
    , 175 (5th Cir. 2007). Further, the issue of
    patent-eligibility under § 101 is a question of law that we
    review without deference. Rapid Litig. Mgmt. Ltd. v.
    CellzDirect, Inc., 
    827 F.3d 1042
    , 1047 (Fed. Cir. 2016).
    We have jurisdiction under 
    28 U.S.C. § 1295
    (a)(1).
    II
    Section 101 of the Patent Act states 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 there-
    fore, subject to the conditions and requirements of this
    title.” 
    35 U.S.C. § 101
    . In interpreting this statute, the
    Supreme Court has held that the broad language of this
    provision is subject to an implicit exception for “laws of
    8                              SMARTFLASH LLC   v. APPLE INC.
    nature, natural phenomena, and abstract ideas,” which
    are not patentable. Alice, 
    134 S. Ct. at 2355
    .
    To determine whether the exception applies, the Su-
    preme Court has set forth a two-step inquiry. Specifical-
    ly, courts must determine (1) whether the claim is
    directed to a patent-ineligible concept, i.e., a law of na-
    ture, a natural phenomenon, or an abstract idea; and if so,
    (2) whether the elements of the claim, considered “both
    individually and ‘as an ordered combination,’” add enough
    to “‘transform the nature of the claim’ into a patent-
    eligible application.” 
    Id.
     (quoting Mayo, 
    132 S. Ct. at 1298, 1297
    ).
    Applying this two-step process to claims challenged
    under the abstract idea exception, we first evaluate “the
    focus of the claimed advance over the prior art to deter-
    mine if the claim’s character as a whole is directed to
    excluded subject matter.” Affinity Labs of Tex., LLC v.
    DIRECTV, LLC, 
    838 F.3d 1253
    , 1257 (Fed. Cir. 2016)
    (internal quotation marks omitted). If the claim is di-
    rected to such excluded subject matter, then, at step two
    we “search for an ‘inventive concept’” that “‘transform[s]
    the nature of the claim’ into a patent-eligible application.”
    Alice, 
    134 S. Ct. at 2355
     (quoting Mayo, 
    132 S. Ct. at 1294, 1297
    ). “At step two, more is required than ‘well-
    understood, routine, conventional activity already en-
    gaged in by the . . . [relevant] community,’ which fails to
    transform the claim into ‘significantly more than a patent
    upon the’ ineligible concept itself.” Rapid Litig., 827 F.3d
    at 1047 (quoting Mayo, 
    132 S. Ct. at 1298, 1294
    ).
    On appeal, Apple contends that each of the asserted
    claims is directed to an abstract idea and fails to recite
    any inventive concept sufficient to transform the nature of
    the claims into patent-eligible applications.
    SMARTFLASH LLC   v. APPLE INC.                             9
    A
    We begin our analysis at step one: whether the claims
    are “directed to” an abstract idea. Alice, 
    134 S. Ct. at 2355
    . The district court concluded that the asserted
    claims were directed to the abstract idea of “conditioning
    and controlling access to data based on payment.” Smart-
    flash, 
    2015 WL 661174
    , at *8. We agree.
    In Alice, the Supreme Court explained that “funda-
    mental economic practice[s]” and other “method[s] of
    organizing human activity” are not patent-eligible be-
    cause they are abstract ideas. 
    134 S. Ct. at
    2356–57. In
    Bilski v. Kappos, for example, the Supreme Court held
    that the “concept of hedging risk and the application of
    that concept to energy markets” was not patentable
    because it was a “fundamental economic practice long
    prevalent in our system of commerce.” 
    561 U.S. 593
    , 611
    (2010). Following this guidance, we have noted that when
    considering claims purportedly directed to “an improve-
    ment of computer functionality,” we “ask whether the
    focus of the claims is on the specific asserted improvement
    in computer capabilities . . . or, instead, on a process that
    qualifies as an ‘abstract idea’ for which computers are
    invoked merely as a tool.” Enfish, LLC v. Microsoft Corp.,
    
    822 F.3d 1327
    , 1335–36 (Fed. Cir. 2016); compare 
    id.
     at
    1336–37 (finding computer-implemented system for
    improving computer search and retrieval systems using
    self-referential tables patent-eligible), with Ultramercial,
    Inc. v. Hulu, LLC, 
    772 F.3d 709
    , 716 (Fed. Cir. 2014)
    (finding computer-implemented system for “using adver-
    tising as a currency [on] the Internet” to be ineligible),
    buySAFE, Inc. v. Google, Inc., 
    765 F.3d 1350
    , 1352, 1355
    (Fed. Cir. 2014) (finding computer-implemented system
    for guaranteeing performance of an online transaction to
    be ineligible), and CyberSource Corp. v. Retail Decisions,
    Inc., 
    654 F.3d 1366
    , 1370 (Fed. Cir. 2011) (finding com-
    puter-implemented system for “verifying the validity of a
    credit card transaction over the Internet” to be ineligible).
    10                               SMARTFLASH LLC   v. APPLE INC.
    The asserted claims here invoke computers merely as
    tools to execute fundamental economic practices. Claim
    13 of the ’720 patent and claim 32 of the ’221 patent, for
    example, both claim “data access terminal[s] for retriev-
    ing data from a data supplier and providing the retrieved
    data to a data carrier.” ’720 patent col. 28 ll. 1–4; ’221
    patent col. 28 ll. 23–25. Claims 26 and 32 of the ’772
    patent similarly claim terminals for controlling access to
    and retrieving multimedia content. ’772 patent col. 30 ll.
    48–52; col. 31 ll. 45–48. The asserted claims all purport to
    retrieve and provide this data subject to “payment valida-
    tion” and “access/use rule[s]” that specify conditions for
    accessing/using the retrieved data. ’720 patent col. 26 ll.
    59–67; ’221 patent col. 28 ll. 38–46; ’772 patent col. 30 ll.
    19–34, col. 31 ll. 31–34, 41–43. The patents’ specifications
    explain that “[t]his invention is generally concerned with
    data storage and access systems. More particularly, it
    relates to portable data carrier[s] for storing and paying
    for data and to computer systems for providing access to
    data to be stored.” ’720 patent col. 1 ll. 6–9. The district
    court correctly concluded that “the asserted claims recite
    methods and systems for controlling access to content
    data, such as various types of multimedia files, and
    receiving and validating payment data.” Smartflash,
    
    2015 WL 661174
    , at *8. As such, the asserted claims are
    directed to the abstract idea of conditioning and control-
    ling access to data based on payment.
    B
    Having determined that the asserted claims are di-
    rected to an abstract idea, we next address whether the
    claims recite any “inventive concept” sufficient to “‘trans-
    form the nature of the claim’ into a patent-eligible appli-
    cation.” Alice, 
    134 S. Ct. at 2355
    . The district court found
    that the claims are patent-eligible because they purport-
    edly recite “specific ways of managing access to digital
    content data based on payment validation through stor-
    age and retrieval of use status data and use rules in
    SMARTFLASH LLC   v. APPLE INC.                            11
    distinct memory types 2 and evaluating the use data
    according to the use rules.” Smartflash, 
    2015 WL 661174
    ,
    at *9. Smartflash argues that the claims comprise in-
    ventive concepts because they recite “storing payment
    data on the data carrier,” “transmitting payment valida-
    tion data to the data access terminal and having the
    terminal retrieve the digital content from the data suppli-
    er in response,” and “writing on the data carrier ‘access
    rules’ that are dependent on the amount of payment.”
    Appellee’s Br. 29–30 (emphasis removed).
    The Supreme Court and this court, however, have
    previously held that such routine computer activities are
    insufficient for conferring patent eligibility. See, e.g.,
    Alice, 
    134 S. Ct. at 2359
     (“[U]se of a computer to obtain
    data, adjust account balances, and issue automated
    instructions; all of these computer functions are ‘well-
    understood, routine, conventional activit[ies]’ previously
    known to the industry.”) (quoting Mayo, 
    132 S. Ct. at 1294
    ); Content Extraction & Transmission LLC v. Wells
    Fargo Bank, Nat. Ass’n, 
    776 F.3d 1343
    , 1347 (Fed. Cir.
    2014) (“The concept of data collection, recognition, and
    storage is undisputedly well-known. Indeed, humans
    have always performed these functions.”); Accenture
    Global Servs., GmbH v. Guidewire Software, Inc., 
    728 F.3d 1336
    , 1339, 1346 (Fed. Cir. 2013) (finding claims
    reciting “applying . . . information related to the insurance
    transaction to rules to determine a task to be completed”
    2   The district court found that the claims’ recitation
    of “distinct memory types,” specifically “parameter
    memory” and “content memory” contributed to the in-
    ventive concept of the asserted claims. Smartflash, 
    2015 WL 661174
    , at *8–*9. Smartflash is no longer asserting
    the claims that recite these distinct memory type limita-
    tions. “Distinct memory types” therefore cannot support
    the eligibility of the asserted claims.
    12                            SMARTFLASH LLC   v. APPLE INC.
    and “allowing an authorized user to edit and perform the
    determined task” to be patent ineligible). As such, merely
    storing, transmitting, retrieving, and writing data to
    implement an abstract idea on a computer does not
    “‘transform the nature of the claim’ into a patent-eligible
    application.” Alice, 
    134 S. Ct. at 2355
    .
    Smartflash further argues that the asserted claims
    are akin to the claims we found patent-eligible in DDR
    Holdings, LLC v. Hotels.com, L.P. 
    773 F.3d 1245
     (Fed.
    Cir. 2014). In DDR Holdings, we evaluated the eligibility
    of claims “address[ing] the problem of retaining website
    visitors that, if adhering to the routine, conventional
    functioning of Internet hyperlink protocol, would be
    instantly transported away from a host’s website after
    ‘clicking’ on an advertisement and activating a hyperlink.”
    
    Id. at 1257
    . There, we found that the claims were patent-
    eligible because they transformed the manner in which a
    hyperlink typically functions to resolve a problem that
    had no “pre-Internet analog.” 
    Id. at 1258
    . “[W]e cau-
    tion[ed], however, that not all claims purporting to ad-
    dress Internet-centric challenges are eligible for patent.”
    
    Id.
     For example, in DDR Holdings we distinguished the
    patent-eligible claims at issue from claims we found
    patent-ineligible in Ultramercial. See 
    id.
     at 1258–59
    (citing Ultramercial, 772 F.3d at 715–16). As we noted
    there, the Ultramercial claims were “directed to a specific
    method of advertising and content distribution that was
    previously unknown and never employed on the Internet
    before.” Id. at 1258 (quoting Ultramercial, 772 F.3d at
    715–16).      Nevertheless, those claims were patent-
    ineligible because they “merely recite[d] the abstract idea
    of ‘offering media content in exchange for viewing an
    advertisement,’ along with ‘routine additional steps such
    as updating an activity log, requiring a request from the
    consumer to view the ad, restrictions on public access, and
    use of the Internet.’” Id.
    SMARTFLASH LLC   v. APPLE INC.                            13
    Smartflash’s asserted claims are analogous to claims
    found ineligible in Ultramercial and distinct from claims
    found eligible in DDR Holdings. The ineligible claims in
    Ultramercial recited “providing [a] media product for sale
    at an Internet website;” “restricting general public access
    to said media product;” “receiving from the consumer a
    request to view [a] sponsor message;” and “if the sponsor
    message is an interactive message, presenting at least one
    query to the consumer and allowing said consumer access
    to said media product after receiving a response to said at
    least one query.” 772 F.3d at 712. Similarly, Smart-
    flash’s asserted claims recite reading, receiving, and
    responding to payment validation data and, based upon
    the amount of payment, and access rules, allowing access
    to multimedia content. This is precisely the type of
    Internet activity that we found ineligible in Ultramercial.
    Smartflash also argues that its claims are patent-
    eligible because the claim elements, when considered as
    an ordered combination, recite “specific hardware compo-
    nents—including a communications interface, an inter-
    face for communicating with the data carrier, and a
    program store, all coupled to a processor” that “reflect
    specific technical choices that provide distinct advantages
    over alternatives.” Appellee’s Br. 28–29. But “provid[ing]
    a distinct advantage over alternatives” is not the test for
    eligibility. Instead, the test is whether the claims recite
    an “inventive concept sufficient to ‘transform’ the nature
    of the claim” into an eligible application. Alice, 
    134 S. Ct. at 2355
     (quoting Mayo, 
    132 S. Ct. at 1298, 1297
    ). In Alice,
    the Supreme Court considered an argument similar to
    Smartflash’s and found that “what petitioner characteriz-
    es as specific hardware—a ‘data processing system’ with a
    ‘communications controller’ and ‘data storage unit’”—did
    not confer eligibility because “[n]early every computer will
    include a ‘communications controller’ and ‘data storage
    unit’ capable of performing the basic calculation, storage,
    and transmission functions required by the . . . claims.”
    14                             SMARTFLASH LLC   v. APPLE INC.
    
    134 S. Ct. at 2360
    . Similarly, we find here that “interfac-
    es,” “program stores,” and “processors” are all generic
    computer components and do not, taken individually or as
    an ordered combination, “transform [the] abstract idea
    into a patent-eligible invention.” 
    Id. at 2352
    .
    In sum, the asserted claims are all directed to the ab-
    stract idea of conditioning and controlling access to data
    based on payment, and fail to recite any inventive con-
    cepts sufficient to transform the abstract idea into a
    patent-eligible invention. As such, the asserted claims
    are all invalid for failing to recite patent-eligible subject
    matter under 
    35 U.S.C. § 101
    .
    Because we find all asserted claims invalid, we do not
    reach the remaining issues raised on appeal. For the
    foregoing reasons, the district court’s decision is reversed.
    REVERSED