IP Law Advisory

November 8, 2016

Federal Circuit Finds Distributed Network Accounting System Patent-Eligible Under § 101

By: Nathan Harris

In Amdocs (Israel) Ltd. v. Openet Telecom Inc. the Federal Circuit reversed a district court’s judgment on the pleadings that Amdoc’s four patents were patent ineligible. The Federal Circuit compared the claims at issue to some of its recent Section 101 decisions, finding the claims to be most similar to those found eligible in DDR Holdings and Bascom. The decision comes on the heels of the Bascom, Enfish, and McRO decisions, in which various software-related claims were held to be eligible for patent protection.

Amdocs’ patents claim systems and methods for enhancing network accounting data records, which are generated and used by network service providers to bill customers for network usage. In prior art systems, raw usage data collected from application servers was sent directly to a central repository. The large amount of data being transmitted led to network bottlenecks, and required a central repository with high-volume processing capabilities and massive storage capacity.

To solve these drawbacks, the patents-in-suit employed a distributed network of devices. “Gatherers” that aggregate and filter the raw data are installed on or near the application servers to minimize network traffic. Other distributed components merge and further process the data close to the source. The streamlined data is then either transmitted to a central server, or stored in a distributed manner, in either case being accessible on demand.

The district court held that the claims were directed to abstract ideas such as correlating records and compiling and reporting network information. Furthermore, the district court found, the claims lacked any inventive concept that would render them patent-eligible.

The Federal Circuit observed that the subject matter eligible under Section 101 has an “expansive” scope, with specific exceptions such as laws of nature, natural phenomena, and abstract ideas carved out by the courts. While the Supreme Court has set out a two-step test set in Alice to determine whether the claims are directed to an abstract idea without significantly more, the Federal Circuit acknowledged that what constitutes an abstract idea has eluded definition by the courts. Though “not for want of trying,” there is currently “no such single, succinct, usable definition or test.”

The Federal Circuit started its analysis by comparing the challenged claims to “similar or parallel” claims in prior decisions  to help determine eligibility. The court reviewed several of its recent 101 decisions as context for analyzing the present claims. On the one hand, cases such as Digitech and Content Extraction found methods of collecting and organizing data generally to be ineligible. On the other hand, claims directed to specific improvements in computer functionality have been found eligible, as in Enfish. In DDR Holdings and Bascom, the court held that claims that solve a technology-based problem using conventional, generic components may be eligible if those components are combined in an unconventional manner.

The Court held that the Amdocs’claims were most analogous to the subject matter found eligible in Bascom and DDR Holdings. Just as the claims in DDR Holdings solved the technical problem of conventional hyperlinks directing visitors away from a website, Amdocs ‘claims address the computer-specific problem of moving and storing huge amounts of data. The use of network-distributed components to overcome the limitations of prior art solutions at a single (i.e., non-distributed) location was  was comparable to the web filtering solution of Bascom.

The Court also found the claims to be eligible under Step Two of Alice, since the use of a distributed network provides a “critical advancement” over the prior art. This “inventive concept” rendered the claims “sufficiently more” than an abstract idea. The Court further noted that the claims are narrowly drawn so as not to preempt the general concept of enhancing data in a distributed network, but rather recite ordered combinations of elements arranged to achieve a specific technical solution.

The Federal Circuit therefore reversed the district court, finding the claims of the patents-in-suit to be patent-eligible.

Writing in dissent, Judge Reyna asserted that the majority had failed to apply Step One of Alice, and instead selectively analogizing the challenged claims to prior decisions. He also criticized the majority for importing the distributed nature of the system from the specification into claims, which do not explicitly recite a distributed network. Accordingly, the claims, according to Judge Reyna, were directed to the abstract idea of “combining accounting data from different sources,” and are therefore ineligible.

This decision is notable for the Federal Circuit’s increased reliance on the specific facts of prior decisions, as well as its lack of an explicit analysis under Step One of Alice. The Court also appears to be heeding its own admonishment that claims should not be over-simplified when identifying the allegedly abstract idea.  To the contrary, the court emphasized the distributed nature of the system even though the claims do not explicitly require this limitation.

The full text of the decision is here.