Federal Circuit Review October 2021

| Irfan LateefDaniel Kiang

October 2021 Federal Circuit Newsletter (Japanese)

October 2021 Federal Circuit Newsletter (Chinese)

No Assembly, No Infringement – Federal Circuit Declines to Expand the “Final Assembler” Theory of Direct Infringement

In Acceleration Bay LLC v. Take-Two Interactive Software, Appeal No. 20-1700 the Federal Circuit held that the “final assembler” theory of direct infringement does not apply to defendants who neither manufacture nor install components to complete a claimed system. 

Acceleration Bay owned patents relating to multi-participant computer networks, such as multi-player game environments.  Acceleration Bay sued Take-Two and others for direct infringement for allegedly establishing infringing networks for customers playing Grand Theft Auto V and other games.  Because Take-Two did not make or sell each claimed component, Acceleration Bay relied on a “final assembler” theory of infringement.  Under a “final assembler” theory, a defendant can directly infringe even when its product does not meet every claim limitation in a claimed system if the defendant “makes” the claimed system when it installs its product into an existing network.  Take-Two moved for summary judgment of non-infringement, arguing that the final assembler theory did not apply.  The district court agreed and granted summary judgment of non-infringement.  Acceleration Bay appealed. 

The Federal Circuit affirmed the district court.  Acceleration Bay argued that the “final assembler” theory applied because Take-Two’s software controlled customers’ consoles, which caused the claimed components to satisfy the functional elements of the claims.  The Federal Circuit disagreed, finding that the final assembler theory did not apply because Take Two did not manufacture any hardware or install any hardware to a network.  Therefore, the Federal Circuit affirmed the district court’s grant of summary judgment of non-infringement. 


Defeating the Duo: Jumping to Alice Step Two

In Cosmokey Solutions GmbH & Co. Kg v. Duo Security LLC, Appeal No. 20-2043, the Federal Circuit held that patent claims directed to computer-implemented authentication and verification techniques may survive § 101 challenges if they recite specific improvements that provide particular benefits.

CosmoKey sued Duo Security for patent infringement, asserting claims directed to a method of authenticating a user performing a transaction at a terminal by, among other steps, activating an authentication function on the user’s mobile device.  Duo moved for judgment on the pleadings, arguing that all asserted claims were ineligible under 35 U.S.C. § 101.  The district court found that the patent was directed to the abstract idea of “authentication” and did not recite an inventive concept.  Thus the court found the claims invalid under § 101.  CosmoKey timely appealed to the Federal Circuit. 

Starting with step one of Alice, the Federal Circuit expressed doubt as to the district court’s framing of the claims as “directed to the abstract idea of authentication.”  However, the Federal Circuit declined to determine if the claims were directed to an abstract idea, instead finding that the claims satisfied Alice step two.  The Federal Circuit explained that the claims and specification “recite a specific improvement to authentication that increases security, prevents unauthorized access by a third party, is easily implemented, and can advantageously be carried out with mobile devices of low complexity.”  Accordingly, the Federal Circuit reversed the judgment below.

Judge Reyna concurred with the majority decision to reverse the district court’s judgment but wrote separately to argue that, under Alice step one, the claims at issue were directed to patent-eligible subject matter.  Judge Reyna also heavily criticized the majority’s bypassing of step one of the Alice inquiry as “extraordinary and contrary to Supreme Court precedent.” 


Federal Circuit Holds That the PTAB Does Not Have an Impermissible Incentive to Institute IPRs

In Mobility Workx, LLC v. Unified Patents, LLC, Appeal No. 20-1441, the Federal Circuit held that fee-funded structure of AIA review proceedings does not violate due process.

After inter partes review (“IPR”), the Board found Mobility’s patent claims invalid.  Mobility appealed the decision to the Federal Circuit, arguing that the structure and funding of AIA review proceedings violates due process.  Particularly, Mobility argued that the Board and the individual administrative patent judges (“APJs”) have impermissible financial incentives to institute IPRs.

The Federal Circuit rejected Mobility’s due process challenges.  First, the Court distinguished the Board from the mayor’s court found impermissible in Tumey v. Ohio, 273 U.S. 510 (1927), where the mayor presiding over the proceedings received compensation if the defendant was convicted and used the fees to finance the town.  The Federal Circuit explained that Congress, not the APJs, is responsible for setting the USPTO’s budget, and thus held that the fee-funded structure of IPRs does not violate due process.  Second, the Federal Circuit held that individual APJs did not have an impermissible incentive to institute IPRs based on the APJ bonus structure because any interest in instituting IPRs for a bonus was too remote to violate due process.

In light of United States v. Arthrex, Inc., 141 S. Ct. 1970 (2021), the Court remanded the case to allow the Patent Office Director to review the Board’s final written decision and did not reach the merits of the patentability issue.

Judge Newman concurred with the decision to remand but dissented from the rest of the opinion.  In her dissent, Judge Newman addressed multiple constitutional concerns raised by Mobility, including a possible Appointments Clause violation by delegating the institution decision to the Board and bias in having the same Board decide institution and patentability.