Previously Denied Section 101 Defense Rendered Meritorious by the Supreme Court’s Alice Decision (Mortgage Grader, Inc. v. First Choice Loan Servs. Inc. et al.)

Addressing a summary judgment of patent ineligibility, the U.S. Court of Appeals for the Federal Circuit agreed with the district court that the Supreme Court’s Alice decision provided good cause for a defendant to amend its invalidity contentions and also rendered the claims unpatentable. Mortgage Grader, Inc. v. First Choice Loan Servs. Inc. et al., Case No. 15-1415 (Fed. Cir., Jan. 20, 2015) (Stark, D.J.) (sitting by designation).

Mortgage Grader sued for infringement of two related patents directed to methods for a prospective borrower to browse loan offers. The defendants pled various defenses, including invalidity based on patent-ineligible subject matter under § 101, but did not include the § 101 defense in their (pre-Alice) preliminary invalidity contentions. After the Supreme Court issued its patent eligibility opinion in Alice (see IP Update, Vol. 17, No. 7), the defendants tried to resurrected their § 101 defense in their final invalidity contentions and relied on the Alice decision as the requisite “good cause” to amend. After the district court found the contention amendment to be proper, the defendants moved for summary judgement on that defense. The district court then found that the claims were directed to the abstract idea of “anonymous loan shopping” and lacked any inventive concept that could render the claims patentable. Mortgage Grader appealed.

On appeal, the Federal Circuit first addressed whether the invalidity contention amendment was properly allowed. The Court concluded that Alice had provided significant additional clarity on the patent eligibility inquiry, such that the district court did not abuse its discretion in permitting the amendment. The Court also pointed to its own Ultramercial opinions—where it had reversed two eligible subject matter holdings before it switched, after Alice to an ineligible subject matter holding—as indicative that a § 101 defense that previously lacked merit could be rendered meritorious by Alice. The Court found this particularly appropriate to cases akin to Alice, where the claims are directed to implementing economic arrangements using generic computer technology.

Turning to the merits of the ineligibility defense, the Federal Circuit agreed that the claims were directed to the abstract idea of anonymous loan shopping and also found it notable that the methods could be performed by humans without a computer. Like the district court, the Federal Circuit found no inventive technological concept, concluding that the claims merely added generic computer components that did not improve the functioning of the computer itself or solve a problem unique to the Internet. Finally, the Court rejected Mortgage Grader’s protest that the summary judgment ruling improperly resolved underlying factual disputes, noting that the district court had merely acknowledged the existence of pertinent expert testimony, but had not relied on it. The Court thus affirmed the district court’s ineligible subject matter decision.