Fed Circ lengthens odds for Alice patent eligibility test

Appeals court makes it more challenging for claims to pass the second prong of eligibility standard | Decision ends three-year infringement suit targeting big names in gaming industry.

Just under a dozen gaming companies have secured a win at the US Court of Appeals for the Federal Circuit, setting a new standard for the eligibility of patents assessed under the Alice test.

The decision, handed down on June 21, ends a three-year patent infringement dispute initiated by patent assertion entity Beteiro.

The Federal Circuit's ruling has far-reaching implications for the online gaming industry and other technology sectors facing patent lawsuits, according to the winning legal team from Arnold & Porter.

The appellate court's ruling effectively invalidated GPS-based patent claims in online gaming, deeming the technology abstract under the first prong of the Alice Corp v CLS Bank International analysis.

Additionally, the court made it more challenging for such claims to pass the second prong of the Alice test, which examines the presence of an inventive concept.

Judge Leonard Stark's opinion set a new standard for pleading in patent infringement cases, requiring plaintiffs to “explicitly link claims” of an inventive concept to the patent specification.

This heightened scrutiny is expected to benefit defendants in future Rule 12(b)(6) motions.

Case background

Beteiro has targeted numerous players in the online gaming market, including DraftKings, FanDuel, UniBet, among others over US patent numbers: 9,965,920; 10,043,341; 10,147,266; and 10,255,755, all of which have the specification and title “Apparatus and Method for Facilitating Gaming Activity and/or Gambling Activity”.

The patents concern the use of GPS technology to verify users' locations in online gaming applications—a critical issue due to the fragmented state-by-state regulatory framework governing online gaming in the US.

Additionally, the patents describe an invention that allows users to participate in live gaming or gambling remotely through a communication device, without needing to be at the gaming venue.

Initially, the gaming companies secured a victory at the US District Court for the District of New Jersey, where the judge dismissed Beteiro’s claims against DraftKings, FanDuel, PointsBet, BetMGM, Hillside New Jersey, Betfair Interactive, TSG Interactive, ODS Technologies, Kindred Group, Trannel International, and Unibet.

The court found the patents invalid, ruling they were directed towards unpatentable subject matter.

Court’s abstract idea determination

Beteiro's appeal brought the case before the Federal Circuit, where it was argued on May 5, 2024.

The appeals court on Friday determined that Beteiro’s claims focused on the abstract idea of exchanging bet information and verifying bet validity based on the user's location.

The court ruled that the plaintiff’s proffered steps were generic and lacked specifics on how the results are achieved—fitting the pattern of abstract ideas.

Despite Beteiro’s claim that the patents involve technological improvements, the court found it simply uses computers as tools without enhancing computer technology, making the claims abstract under patent law.

Requirement of inventive concept

Under the US Supreme Court's Alice test, a patent covering an abstract idea can only be patented under Section 101 if there is an added inventive concept.

The Federal Circuit explored that second prong in Friday's precedential opinion penned by US Circuit Judge Leonard Stark.

At step two, the district court ruled that Beteiro's main claim lacked innovation because it relied on standard computer parts such as ‘computer’, ‘communication link’ ‘first communication device’, ‘second communication device’ and ‘global positioning device’.

These were seen as typical tools used in everyday business practices with generic computer technology, which did not make the claim more than just an abstract idea.

In deciding under the Alice framework, the court assessed whether the combination of elements in the claim offered something substantially beyond the abstract idea itself.

This assessment involved examining whether these elements were usual, routine, and widely understood in the industry.

Despite Beteiro arguing that using GPS on a mobile phone was unconventional in 2002, the court found no evidence to support this claim.

The patents' description only briefly mentioned GPS used conventionally across different types of computers, lacking any unique application or advancement specific to mobile phones.

The court rejected Beteiro's claim that the patents represented a technological advancement, noting they simply applied existing technology without enhancing it.

“In the end, Beteiro’s claims amount to nothing more than the practice of an abstract idea using conventional (even as of 2002) computer equipment, including GPS on a mobile phone,” the court said.

“Such claims are not eligible for patent under current Section 101 jurisprudence,” it added.

The court affirmed that Beteiro's claims were centred on an abstract idea and did not integrate an inventive concept using standard technology. Therefore, the district court's decision to dismiss the case was upheld.

This landmark decision “gives patent defendants one of the first positive precedential decisions to rely upon for future Rule 12(b)()(6) motions in years and is bound to be cited in nearly every “Rule 101 Motion” going forward,” said the team at Arnold & Porter.

Beteiro was represented by Scott Fuller, Randall Garteiser and Christopher Honea from Garteiser Honea.

DraftKings was represented by Eliot Williams, Jamie Lynn, G. Hopkins Guy III, Robert Maier and Clarke Stavinoha from Baker Botts.

The other defendants were represented by Elisabeth Theodore from Arnold & Porter.

BetMGM was also represented by Patrick Hall and Evan Rothstein from Arnold & Porter.

The FanDuel units were also represented by Megan Redmond, Caroline Bader and Eric Allan Buresh from Erise IP.

Hillside New Jersey was also represented by Arthur Zorio from Brownstein Hyatt Farber Schreck.

The Kindred units were also represented by Mark Supko from Crowell & Moring.

PointsBet was also represented by Jared Newton from Quinn Emanuel Urquhart & Sullivan.

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