Law360, New York (June 29, 2016, 12:14 PM ET) — For the third time since Alice, the Federal Circuit has upheld the validity of claims challenged under 35 U.S.C. § 101 as being patent-eligible. In a decision handed down Monday, Bascom Global Internet Services Inc. v. AT&T Mobility LLC, the court required a more robust analysis under step two of the Alice test, finding that an “inventive concept inquiry requires more than recognizing that each claim element, by itself, was known in the art.” Case No. 15-1763, at *15. In this precedential opinion, the court vacated the United States District Court for the Northern District of Texas dismissal order, reversing the district court’s finding that the claims are patent-ineligible under § 101.

Bascom’s U.S. Patent No. 5,987,606 (“the ‘606 patent”) is directed to internet filtering software. The software enables “individually customizable filtering at the remote [internet service provider] server by taking advantage of the technical capability of certain communication networks.” Id. at *5. More specifically, the “claimed filtering system is located on a remote ISP server that associates each network account with (1) one or more filtering schemes and (2) at least one set of filtering elements from a plurality of sets of filtering elements.” Id. at *6.

The district court found Bascom’s claims patent-ineligible under § 101. The district court held that filtering content is an abstract idea, regardless of whether the content being filtered is provided on the internet or through older mediums such as books, magazines, television or movies. Id. at * 9. The district court also found that the claims did not contain an inventive concept under the second step of the Alice analysis. Id. at *9-*10. In so finding, the district court noted that each individual claim element was a well-known, generic computer component or standard filtering mechanism. Moreover, according to the district court, the combination of the claim elements was not inventive because filtering software and the use of ISP servers to filter content was well known. Consequently, the district court granted AT&T’s motion to dismiss under Rule 12(b)(6), holding the claims patent-ineligible under § 101.

On appeal, the Federal Circuit held that Bascom’s claims were directed to an abstract idea under step one of the Alice test. The Federal Circuit stated that unlike Enfish, in which the claims “were unambiguously directed to an improvement in computer capabilities,” Bascom’s ‘606 patent did not readily lend itself to a step-one finding of patent eligibility. Id. at *13. The Federal Circuit, however, disagreed with the district court’s analysis of step two under § 101: whether the claims contained an inventive concept. In so doing, Bascom provides an avenue for patent owners to overcome an invalidity challenge under § 101.

Notably, the Federal Circuit recognized that the lower court’s analysis “looks similar to an obviousness analysis under 35 U.S.C. § 103, except lacking an explanation of a reason to combine the limitations as claimed.” Id. at *15. Accordingly, the Federal Circuit implicitly acknowledged what patent practitioners have been suggesting since the Alice and Mayo decisions: Courts have bootstrapped an obviousness analysis into step two of the patent-eligibility inquiry of § 101. After suggesting that the § 101 and 103 analyses have been conflated, the Federal Circuit reverted to the Alice/Mayo two-step test to determine patent-eligibility. Ultimately, the Federal Circuit held that Bascom’s claims were patent-eligible.

Although the court’s analysis is couched in terms of Alice and Mayo, the court required a more robust obviousness-like analysis for step two than in previous decisions. The Federal Circuit held that step two cannot be satisfied by conclusory statements regarding the prior art. For example, the Federal Circuit stated that the “inventive concept inquiry requires more than recognizing that each claim element, by itself, was known in the art.” Id. at *15. The court held “an inventive concept can still be found in the non-conventional and non-generic arrangement of known, conventional pieces.” Id. Mirroring KSR, the court held there must be some articulated reasoning with some rational underpinning to support a conclusion that, as a matter of law, the claim elements and the arrangement thereof are conventional or generic. See KSR v. Teleflex, 550 U.S. 398 (2007) (“[R]ejections on obviousness cannot be sustained by mere conclusory statements; instead, there must be some articulated reasoning with some rational underpinning to support the legal conclusion of obviousness.”).

It is interesting to note that the Federal Circuit’s acknowledgement of a more robust obviousness-like analysis appears to conflict with an earlier decision by the U.S. Supreme Court in Diamond v. Diehr, which held that a § 101 analysis is independent of a § 102 or § 103 analysis. Diamond, 450 U.S. 175 (1981) (“A rejection on [§ 102 or § 103] grounds does not affect the determination that respondents’ claims recited subject matter which was eligible for patent protection under 101.”).

At least for now, Bascom, along with DDR and Enfish, provides another arrow in the quiver for patent owners fighting a § 101 challenge. A mere recitation that each of the claim elements is “well-understood, routine, and conventional” will no longer suffice. Rather, any step-two analysis must be bolstered by some rational underpinning to support this conclusion. As in an obviousness analysis, based on Bascom, challengers will have to show that a person of ordinary skill would have found the combination of the claim elements known in the prior art to be “well-understood, routine, and conventional.”

In a thought-provoking concurring opinion, Judge Pauline Newman agrees with the majority’s finding that Bascom’s claims are patent-eligible, but writes separately to encourage a more flexible approach to the eligibility analysis. Specifically, Judge Newman proposes that judicial economy would be better served if the inventive-concepts inquiry were handled (at least at a preliminary stage) as a patentability analysis under §§ 102, 103 or 112. As Judge Newman states, the district court should be permitted to determine patentability, instead of eligibility based on “abstract idea,” when the patentability/validity determination would be dispositive of the dispute. Section 101’s “cumbersome procedures for separate determinations of patent eligibility and patentability have added to the cost and uncertainty of patent-supported commerce, with no balancing benefit.” Concurring Opinion at *1. Thus, Judge Newman urges abandoning the judge-made exceptions of § 101, returning to the letter of the law and recognizing eligibility for “any new and useful process, machine, manufacture, or composition of matter.” After all, “[i]t follows that if any of these classes is claimed so broadly or vaguely or improperly as to be deemed an “abstract idea,” this could be resolved on application of the requirements and conditions of patentability.” Id. at *3.