Realtime Data LLC v Reduxio Sys., Inc

Realtime Data LLC v. Reduxio Sys., Inc., No. 2019-2198, 2020 WL 6228818
(Fed. Cir. Oct. 23, 2020)

On October 23, 2020, the U.S. Court of Appeals for the Federal Circuit vacated a district court bench judgment holding five asserted patents ineligible under § 101 and granting a motion to dismiss on that basis. In Realtime Data LLC v. Reduxio Systems, Inc., et al., Case No. 2019-2198, the Court concluded that the district court’s analysis of patent eligibility under Section 101 was too cursory to allow for meaningful appellate review, and directed the district court to consider the issue further and elaborate on its reasoning.

Asserted Patents

The five patents-in-suit are directed at methods and systems for digital data compression. Two purportedly address the problem of “data dependency” in prior art systems where the compression ratio achieved is highly contingent upon the content of the data being compressed, and describe a system that looks beyond file-type in attempting to address this problem. Two other patents-in-suit relate to improving data storage and retrieval bandwidth utilizing data compression and decompression, and purport to overcome certain limitations in the prior art by, for example, selecting encoding techniques based upon their ability to effectively encode different types of input data. The last patent-in-suit is directed to means for providing accelerated data transmission using compression and decompression to effectively increase transmission bandwidth and reduce latency.

Background

In the U.S. District Court for the District of Delaware, Realtime alleged infringement of various combinations of the claims of the asserted patents by the defendants. The defendants filed Rule 12(b)(6) motions arguing that all 159 claims of the asserted patents were patent ineligible under 35 U.S.C. § 101. Following a two-hour hearing, including a recess, focusing primarily on an exemplary claim in one of the patents, the district court announced from the bench that it was “prepared to rule on the pending motions” and would “not be issuing written opinions.” Instead, the hearing transcript would serve as the district court’s ruling on all pending motions. The district court declared all 159 claims of the five asserted patents ineligible. The district court also denied Realtime’s request for leave to amend its complaints, saying, “[M]y practice has been to ignore [requests for leave to amend] and just to grant a motion to dismiss.” The district court continued, “I think you can take your issues up with the Federal Circuit, and if I’m wrong, I’m wrong.”

CAFC

The U.S. Court of Appeals for the Federal Circuit reminded us that while it does have de novo review for this issue, it is not a court of first review. The Federal Circuit remains a court of appeal and does not resolve complex legal issues, like patent eligibility, without a district court opinion or reasoned analysis.

Furthermore, the Court highlighted the following shortcomings with the district court’s process:

• The transcript from the argument reveals a potential improper focus on factual questions that are unsuitable for resolution at the pleading stage.
• The district court’s resolution of the “directed to” question of Alicestep 1 was unclear and its conclusion questionable.
• The district court failed to address, or even acknowledge, the earlier Section 101 decisions where the asserted patents survived similar challenges.
• Although the district court requested the cases most relevant to the asserted patents, the court did not address or distinguish those cases.

The Federal Circuit further addressed each point. For the first two, the discussion from the transcript leaves it “unclear as to the true basis for the district court’s decision.” Specifically for Alice step 1, “to the extent the court purported to answer the question, it is unclear that it did so correctly.”

Regarding point 3, the CAFC stated, “the district court should have, at a minimum, provided a considered explanation as to why” the earlier decisions regarding the asserted patents and patent eligibility were wrong. The CAFC stated that such an analysis would not even need to be explicit. “The analysis could have been implied; the court could have analyzed the arguments for eligibility in such a way that the reasons for the differing conclusions are apparent.” Here, however, the Federal Circuit said the district court failed to perform that analysis.

Finally, the Federal Circuit stated that the district court failed to mention, “much less distinguish,” Realtime Data’s most supportive cases. The Federal Circuit reasoned that “by not addressing even the one case held out as most comparable by Realtime, the district court did not do enough.”

It’s important to note that the Federal Circuit did not take issue with the lack of a written order. It has seen and affirmed many oral orders in the past. This case, however, was unique because of the lack of analysis and the fact that it “eviscerated five of Realtime Data’s patents and completely resolved four separate district court actions.” Accordingly, the Federal Circuit vacated and remanded the decision for further proceedings.

Takeaway

What is particularly baffling is the district court’s apparent rush to invalidate the asserted patents without careful consideration of prior rulings. As the Court pointed out, some of the asserted patents and members of their patent families had been previously litigated. Relevant here, a Magistrate Judge in the Eastern District of Texas had recommended that the challenged claims of three of the asserted patents and family members of the other asserted patents be deemed patent eligible at both Alice step 1 and step 2. This lack of analysis left the Federal Circuit with little to work with and was unfair to both parties.