Freddie Mac Proves Patent Invalid on Motion to Dismiss That Is Converted into a Summary Judgment Motion for Claiming Unpatentable Subject Matter

October 5, 2012

Graff/Ross Holdings LLP ("Graff/Ross") filed a patent infringement action against the Federal Home Loan Mortgage Corporation ("Freddie Mac") for patent infringement. Freddie Mac moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) on the ground that the patent was invalid for claiming unpatentable subject matter. The district court referred the motion to the Magistrate Judge who recommended granting Freddie Mac's motion after converting it into a motion for summary judgment. Graff/Ross objected to the district court.

Claim 101 of the patent-in-suit provides:

A method for making a financial analysis output having a system-determine purchase price for at least one component from property in consummating a sale, the financial analysis output being made by steps including:

Converting input data, representing at lest one component from property, wherein the property is a fixed income asset, into input digital electrical signals representing the input data;

Proving a digital electrical computer system controlled by a processor electronically connected to receive said input digital electrical signals and electronically connected to an output means;

Controlling a digital electrical computer processor to manipulate electrical signals to compute a system-determined purchase price for at least once component from property in consummating a sale and corresponding purchase of the component; and

Generating the financial analysis output at said output means.

As the first part of the district court's analysis, it first agreed with the standard of review used by the Magistrate Judge: "The Court agrees with Magistrate Judge Kay that the issue of patent validity should be decided on summary judgment, and therefore, hereby converts defendant's motion to dismiss into a motion for summary judgment. Summary judgment is appropriate when, based on the record, there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a)."

The district court then agreed with the Magistrate Judge that the patent claims were directed to nothing more than an abstract idea on a general purpose computer. "As Judge Kay concluded, plaintiff's claims 'recite [] nothing more than an abstract idea on a general purpose computer - i.e., computing a price for the sale of a fixed income asset and generating a financial analysis output.' R&R at 11. 'To salvage an otherwise patent-ineligible process, a computer must be integral to the claimed invention facilitating the process in a way that a person making calculations or computations could not.' Bancorp Servs., L.L.C. v Sun Life Assurance Co. of Can., 687 F. 3d 1266, 1278 (Fed. Cir. 2012) (citing SiRF Tech., 601 F. 3d at 1333). Like the computer limitations in Bancorp Services, the computer technology here 'is employed only for its most basic function, the performance of repetitive calculations, and as such does not impose meaningful limits on the scope of those claims.' Bancorp, 687 F.3d at 1278 (citing Benson, 409 U.S. at 67)."

After that analysis, the district court concluded that the Magistrate Judge had not erred in granting the motion. "Thus having determined that the machine limitations were 'no more than object[s] on which the method operates,' R&R at 12 (citation and internal quotation marks omitted) (alteration in original), Judge Kay next analyzed the 'field of use limitation,' id. at 8, 13 (citing Bilski I 130 S. Ct. at 3231). Contrary to plaintiff's objections, Judge Kay's analysis is not 'erroneous.' Pl.'s Obj. at 2. 'When the insignificant computer-based limitations are set aside from those claims that contain such limitations, the question under ยง 101 reduces to an analysis of what additional features remain in the claims.' Bancorp Servs., 687 F.3d at 1279 (citing Mayo Collaborative Servs. V. Prometheus Labs, Inc. 132 S. Ct. 1289, 1297 (2012)). As established by the Supreme Court in Parker v. Flook, 437 U.S. 584, 589-90 (1978), and reiterated by that Court in Bilski, 'limiting an abstract idea to one field...d[oes] not make the concept patentable.' Bancorp, 687 F.3d at 1275-76, 1280 (quoting Bilski, 130 S. Ct. at 3231), Just as the Court in Bancorp found that the claim limited 'to use in the life insurance market' was unpatentable, id., 687 F.3d at 1280, I agree with Judge Kay that limiting Graff/Ross' claim to fixed income assets does not provide meaningful limitations to "bestow patentability on the claim," see R&R at 8-9, 13."

Graff/Ross Holdings LLP v. Federal Home Loan Mortgage Corporation, Case No. 07-796 (D.D.C. Sept. 24, 2012)

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