Is the Eastern District of Texas Becoming Less Patentee-Friendly?

On March 27, the usually patentee-friendly Eastern District of Texas threw out a patent infringement lawsuit against information technology hosting company Rackspace. It is unclear whether this decision indicates a shift from the court’s patentee-friendly persuasion, or if it is merely an anomalous result brought by a particularly frivolous patent. In either case, this is one of the first reported instances of the Eastern District of Texas dismissing a patent infringement lawsuit in an early stage, and going so far as to invalidate the claim asserted in doing so.

The patentee, Uniloc, alleged that Rackspace’s use of Red Hat’s Linux components infringed its patent, which purported to cover a method processing floating numbers in an arithmetic function. In plain English, the patent is for the method of rounding decimals before, rather than after, adding them together. In a surprising, but very smart decision, the court rightfully found a patent for something as basic as rounding numbers was invalid and dismissed Uniloc’s case.

Uniloc purports to be a developer of security software and technology. Uniloc has been described as a patent troll due to its reputation for very aggressive legal behavior surrounding alleged patent infringement. Most famously, it obtained a $388 million judgment against Microsoft in the 2006 case Uniloc v. Microsoft. This amount was later reduced and the parties settled for an undisclosed amount. Uniloc has sued 73 total defendants to date, including Sony, McAfee, Symantec and Electronic Arts, mostly on the same patent it asserted against Microsoft.

In the Rackspace case, Uniloc was using a different patent. If you want to read through the details of it, a link is here. The patent had only one claim, which is the method of rounding numbers before entering them into an arithmetic function, rather than entering the unrounded numbers and rounding the result. They alleged that Linux was violating their patent because it complies with Institute of Electrical and Electronics Engineers (IEEE) Standard 754 which defines various mathematical functions, arithmetic and otherwise, for processing floating point numbers in a computer processing unit (CPU). The Linux component that uses IEEE Standard 754, known as the Linux kernel, was the allegedly infringing technology.

To obtain a patent, the applicant’s contribution must be an invention, as opposed to a discovery of an abstract principle. Anything that is not invented by man—laws of nature, abstract ideas, and physical phenomena—is not. No matter how ingenious it may be, a mathematical formula is a law of nature, not an invention, and as such it cannot be patented.

The patent claim was held to cover a mathematical formula rather than an invention. Red Hat, which provided Rackspace’s legal defense, argued successfully that the case should be dismissed for failure to allege infringement of patentable subject matter.

The patent was not tied to the context of use in a computer processing unit, or to any specific context at all. In fact, in the court’s opinion, Judge Davis noted that the claim was merely “an improvement on a mathematical formula,” and that “even when tied to computing, since floating-point numbers are a computerized numeric format, the conversion of floating-point numbers has applications across fields as diverse as science, math, communications, security, graphics and games.” The consequence, said the court, is that the claim would cover “vast end uses, impeding the onward march of science.”

For years, the Eastern District of Texas has arguably been the most plaintiff-friendly court for patent litigation. There are several reasons for this. For one, the Eastern District was once described as a “rocket docket,” as it used to require that a trial on the merits take place within 18 months of filing suit. This was seen as a “gun to the head” for defendants to either settle or bear burdensome litigation costs all at once.

Additionally, judges in the Eastern District of Texas are more likely to defer to juries on questions of patent validity and infringement. It is thus much harder for defendants to win on judgment as a matter of law, such as by summary judgment or motion to dismiss. These conditions have led to rampant forum shopping, with over 1,200 patent infringement lawsuits being filed in the Eastern District of Texas last year, the most of any jurisdiction in the United States.

While we hope the Eastern District of Texas is moving in a different direction, this Uniloc decision might be an anomaly because the subject matter of the patent is essentially a mathematical formula.  The United States Supreme Court has reiterated in recent cases that the question of patentability — is the subject matter patentable under 35 USC 101 — is a threshold question that must be addressed before other issues may be considered, and that abstract formulae, such as mathematical algorithms, are not patentable subject matter. It remains to be seen if the Eastern District of Texas judges will eliminate other patents for threshold 101 failure at the preliminary stage or, more likely, it will wait until the summary judgment state. Allowing cases to proceed through the discovery stage of litigation, which usually costs litigants millions of dollars, would be of little value to startups and other defendants with limited resources. But it is precisely these defendants who are most vulnerable to improperly issued patents wielded by non-practicing entities.

According to Rackspace, this is one of the first reported cases in which the Eastern District of Texas invalidated a patent claim on a motion to dismiss, and the success at this preliminary stage allowed Rackspace to avoid expensive discovery and other costs of litigation. Rackspace’s victory on its motion to dismiss might be a sign that the court is less willing than it once was to allow protracted litigation on questionable patents.

Victims and opponents of patent assertion entities have praised the result, viewing it as taking leverage away from patent trolls who seek early settlement as an alternative to litigation. It is certainly worth watching to see if the Eastern District Texas is going to soften its traditional hard line against early dismissal on invalidation grounds.

This post was authored by CCIA Law Clerk Sean M. Cody.