Smartflash LLC v. Apple Inc.

NOTE: This disposition is nonprecedential.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