Patent Decisions Increasingly Deviate from Civil Procedure Norms

“This case is thus a poster child of how patent cases are increasingly deviating from the norms of civil procedure, and of the need to start providing ‘reasoned decisions’…  like in any other civil case.”

On June 17th, 2024, Island Intellectual Property LLC (“Island”) filed a Combined Petition for Rehearing and Rehearing En Banc in Island Intellectual Property LLC v. TD Ameritrade, Inc., Nos. 2023-1318, -1441 (link here).  This case involves the failure of the District Court to provide a reasoned decision in granting summary judgment of patent ineligibility in an infringement case.

As is pertinent here, the Magistrate Judge in his report and recommendation invalidated Claim 1 of U.S. Patent No. 7,509,286 (“’286 Patent”), with a cursory analysis on summary judgment, failing to provide an Alice Step 2 analysis or any analysis at all of the over 1,400 pages of evidence supporting the unconventional, non-routine, and inventive aspects of claim.

The District Court then adopted the Magistrate Judge’s report, after erroneously characterizing the briefing by Island, with a statement merely commenting that all Island’s evidence was “unavailing,” and no more.

On appeal, the Federal Circuit failed to cure any of these deficiencies, instead issuing an order under Federal Circuit Rule 36 simply stating “affirmed” and nothing more.

This case is thus a poster child of how patent cases are increasingly deviating from the norms of civil procedure, and of the need to start providing “reasoned decisions” at both the District Court and appellate levels that properly apply the Federal Rules of Civil Procedure like in any other civil case.

In particular, the Petition presents the following two legal issues:

1. May the Court disregard Fed. R. Civ. P. 56 when deciding summary judgment in a patent litigation, in particular Rule 56’s requirement to apply all inferences in favor of the non-moving party?
2. May the Court invalidate a patent as ineligible on summary judgment without a reasoned analysis under Step 2 of Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014)?

Amicus curiae have until July 1, 2024 to submit briefs in support.  We encourage stakeholders to join us in encouraging the full Court of Appeals to take this case to address these important issues.

Factual Background

The ’286 Patent concerns cash deposit sweep and insured deposit financial technology.  The patent has proven enormously successful in the insured cash deposit industry, having been licensed to many of the industry’s biggest players. After 15 years of litigation involving many major law firms, no one has ever identified any prior art teaching this specific and inventive method of interest allocation procedures, enabling the use of tiered interest rates with aggregated deposit accounts as embodied in steps [F]-[H] of Claim 1 of the ’286 Patent. (See Appendix A for complete claim language.)

In 2021, Island brought a patent infringement case against TD Ameritrade, Inc. in the Eastern District of Texas.  At the close of discovery, TD Ameritrade moved for summary judgment of invalidity under Section 101. The Magistrate Judge granted the motion, based on a report (the “Magistrate’s Report”) that devoted a mere two sentences to its recommendation that Claim 1 of the ’286 Patent be found ineligible. The Report ignored over 1,400 pages of evidence produced by Island, including:

• that the Patent’s Examiner found the detailed method of determining tiered interest rates for aggregated accounts to be inventive, new and not be solved by the closest prior art;
• that a different District Court previously found that the same invention provided technical solutions to technical problems necessarily arising in computer environments (IslandIntellectual Property LLC v. Deutsche Bank AG, 2012 WL 386282 (S.D.N.Y. Feb. 6, 2012));
• that both sides’ experts testified that the claim contained an inventive concept; and
• that the invention experienced incredible commercial success and industry acceptance.

Significantly, and furthermore, the Magistrate’s Report contained no Alice Step 2 findings for the ’286 Patent at all.

Over Island’s Objection, the District Court issued a five-page Order (the “Order”) adopting the Magistrate Judge’s Report. The Order did not address the parties’ many material, factual disputes as to the technical challenges and technical solutions addressed by the ’286 Patent, and the unconventional, nonroutine and inventive aspect of the claimed invention. Although Rule 56(a) requires a court to “state on the record the reasons for granting or denying the [summary judgment] motion,” the Order failed to explain how the 1,400 pages of evidence presented in Island’s favor, construed in a light most favorable to Island, were insufficient to create a triable issue of fact.

The District Court’s failure to apply Fed. R. Civ. P. 56’s standard for summary judgment is reversible error. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986); Matsushita Electrical Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574 (1986); Berkheimer v. HP Inc., 881 F.3d 1360, 1364 (Fed. Cir. 2018).  In abject disregard for Rule 56, the District Court made factual findings against Island, the non-moving party, without reasoned (or indeed any) explanation, and failed to grant all justifiable inferences in Island’s favor.

The District Court also failed to provide any analysis (let alone a reasoned analysis) under Step 2 of Alice in deciding summary judgment of patent-eligibility.  This, too, is reversible error. See, e.g.,Cooperative Entertainment, Inc. v. Kollektive Technology, Inc., 50 F.4th 127, 135-36 (Fed. Cir. 2022) (vacating patent ineligibility ruling where District Court failed to conduct proper analysis under Alice).

The Federal Circuit Panel’s affirmance, in turn, consisted of just a single-word order “affirmed” which failed to address, let alone rectify, the errors below.  Reconsideration is therefore being requested of the Panel and/or the full Court, so as to vacate and remand the grant of summary judgment.

Analysis

As applied in this case, at least Federal Circuit Appellate Rule 36 (“Rule 36”) is problematic.  Rule 36 allows the Federal Circuit to “enter a judgment of affirmance without opinion”. Fed. Cir. R. 36. In doing so, as was the case here, the Court typically provides a single word or sentence affirmance of the decision below: nothing more, nothing less. Still, the Federal Circuit is limited in the types of cases in which it may invoke the rule—to be eligible for a Rule 36 summary affirmance, the prospective decision must provide no precedential value and one of the five following other conditions must be satisfied:

1. The judgment, decision, or order of the trial court appealed from is based on findings that are not clearly erroneous.
2. The evidence supporting the jury’s verdict is sufficient.
3. The record supports summary judgment, directed verdict, or judgment on the pleadings.
4. The decision of an administrative agency warrants affirmance under the standard of review in the statute authorizing the petition for review.
5. A judgment or decision has been entered without an error of law.

Fed. Cir. R. 36.

The lack of reasoned explanation by the Federal Circuit Panel is especially problematic where, as here, the Magistrate and Judge both failed to provide any Alice Step 2 analysis of claim 1 of the ’286 Patent, summarily dismissing all evidence of record by oversimplifying the claims and failing to account for its specific claim requirements. As a consequence, the record both below and on appeal lacks any reasoned explanation regarding why the claim fails to recite an inventive concept sufficient to ensure that the claim as a whole amounts to “significantly more” than the judicial exception itself in accordance with Alice.

The Federal Circuit’s affirmance of the lower court, without explanation under Rule 36 is at odds with fundamental principles of equity and justice underlying appellate review as outlined by the Supreme Court and recognized in this and other Circuits. That is because the central function of the Appellate Courts is to render justice, not just to dispose of cases.  As Justice Cardozo has explained, there is a long appellate tradition of explaining decisions—of not just “declaring justice between man and man, but of settling the law.” Benjamin N. Cardozo, Jurisdiction of the Court of Appeals (2d ed. 1909) § 6.  Rule 36, particularly as applied here, makes a mockery of that tradition and renders significant injustice to the parties.

The Supreme Court has often warned the Courts of Appeal to do better.  For example, in Carter v. Stanton, the Supreme Court vacated and remanded where the District Court’s order was “opaque and unilluminating as to either the relevant facts or the law.” 405 U.S. 669, 672 (1972); accord  Bush v. Palm Beach County Canvassing Bd., 531 U.S. 70, 78 (2000) (remanding because there was “considerable uncertainty as to the precise grounds for the decision[]” (citation omitted)); Dennison Mfg. Co. v. Panduit Corp., 475 U.S. 809, 811 (1986) (remanding for clarification due to “lack [of] an adequate explanation of the basis for the Court of Appeals’ judgment”); accord, e.g., Jang v. Bos. Sci. Corp., 532 F.3d 1330 (Fed. Cir. 2008) (holding a remand for clarification is proper where a judgment is ambiguous or fails to “supply [a] basis sufficient for a meaningful review”); United States v. Thomas, 236 Fed. Appx. 410, 413 (10th Cir. 2007)  (“The lack of an adequate explanation by the District Court is error because it has left us in the ‘zone of appellate speculation.’” (citations omitted)); Telectronics Pacing Sys., Inc. v. Ventritex, Inc., 982 F.2d 1520, 1526 (Fed. Cir. 1992) (“If the District Court’s ‘underlying holdings would otherwise be ambiguous or inascertainable,’ the reasons for entering summary judgment must be stated somewhere in the record” (citations omitted)); Boazman v. Econ. Lab., Inc., 537 F.2d 210, 213 n. 5 (5th Cir. 1976) (“[W]e are authorized to set aside a District Court’s grant of summary judgment when ‘its order is opaque and unilluminating as to either the relevant facts or the law with respect to the merits of appellants’ claim.’”) (quoting Carter supra).

Fundamentally, “the parties are entitled to know the reasons upon which (summary) judgment(s) … are based … if for no other purpose than to secure meaningful appellate review.” Hanson v. Aetna Life & Cas., 625 F.2d at 575-76 (5th Cir. 1980) (citation omitted).   Here, Island is entitled to know the reasons upon which the summary judgment was based.  In the absence of any Alice Step 2 analysis of claim 1 of the ’286 Patent in the Magistrate’s Report or the District Court’s Order, Island was denied meaningful appellate review of the summary judgment.  The Federal Circuit’s Rule 36 affirmance adds insult to injury—ratifying the lower court’s judgment despite its failure to provide the requisite analysis, while further failing to provide any reasoned explanation itself.

The Panel’s Order Is In Conflict With The Practice Of A Majority Of Other Circuits

The Panel’s use of a one-word decision under Rule 36 in this case conflicts with the practice of a majority of other Circuits and continues to be the subject of multiple challenges to the Supreme Court.  The First, Second, Third, Fourth, Sixth, Seventh, Ninth and Eleventh Circuits all require an explanation when rendering a decision, either by internal rule or established practice:

• 1st R. 36(a)requires an opinion or “summary explanation.”
• 2d Cir:Summary orders issued pursuant to 2nd Internal Operating Procedure 32.1.1. contain explanations.
• 3d Circ:The Third Circuit permits affirmance by reference to lower court decisions (3rd I.O.P. 6.3.2) but has not issued a one-word affirmance in over 30 years (Birth v. United States, 958 F.2d 362 (3d Cir. 1992)).
• 4th R. 36.3explicitly requires reasoning in any summary opinion.
• 6th Cir: The Sixth Circuit has no rule authorizing one-word written affirmances.
• 7th Cir: The Seventh Circuit does not have a specific rule, but in practice provides an explanation for its affirmances. See, e.g., Thomas v. WGN News, 637 F. App’x 222, 223 (7th Cir. 2016).
• 9th Cir: The Ninth Circuit provides for “memorandum disposition” of cases, which include a “concise explanation of the Court’s decision” and “such information crucial to the result.” 9th Cir. General Order 4.3.a.
• 11th Cir: The Eleventh Circuit rescinded its rule permitting affirmances without opinion in 2006. See 11th Cir. R. 36-1, prior to Aug. 1, 2006.
• D.C. Cir: The “abbreviated disposition” provided for in D.C. Cir. R. 36(d) requires “a notation of precedents” or “brief memorandum”, while D.C. Cir. R. 36(e) requires that an “opinion, memorandum, or other statement explaining the basis” for the court’s action under R. 36(d) “be retained as part of the case file … and be publicly available there on the same basis as any published opinion.” Id. 36(e).

Moreover, as noted above, all Circuits, including the Fifth and Federal Circuits, recognize the need for District Courts to provide reasons to support their orders, and support vacatur when such reasons are absent or inadequate.

In recent years, concerns as to Rule 36 affirmances have been raised in no fewer than 20 petitions for certiorari to the Supreme Court. (See Appendix B).  A wide array of issues with the Court’s Rule 36 practices have been highlighted.  However, a critical concern underscoring this discussion on Rule 36 has been the ambiguity and confusion flowing from the issuance of Rule 36 affirmances. All agree the Federal Circuit has stretched the use of summary affirmances beyond the boundaries otherwise set by Rule 36. Despite this, the Court continues to invoke Rule 36 frequently, including in cases where the correctness of a particular party’s position is far from clear.

Conclusion

The primary objective of the Courts of Appeal is to supply justice, not simply to mechanically complete judicial proceedings. See Benjamin N. Cardozo, Jurisdiction of the Court of Appeals (2d ed. 1909) § 6. The Federal Circuit should reassess its current practice and remedy its epidemic of illegitimate reliance on Rule 36 summary affirmances. Its panels’ current abuse of Rule 36 procedures is unfair both to affected petitioners and to the judicial system as a whole.  Unless the Federal Circuit finally corrects such abuse, it will likely be a target for correction by the Supreme Court in its upcoming terms.

 

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Author: zolnierek
ID 178673538

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