NOTE: This disposition is nonprecedential.
`
`United States Court of Appeals
`for the Federal Circuit
`______________________
`
`SMARTFLASH LLC, SMARTFLASH
`TECHNOLOGIES LIMITED,
`Plaintiffs-Appellees
`
`v.
`
`APPLE INC.,
`Defendant-Appellant
`______________________
`
`2016-1059
`______________________
`
`Appeal from the United States District Court for the
`Eastern District of Texas in No. 6:13-cv-00447-JRG,
`Judge J. Rodney Gilstrap.
`______________________
`
`Decided: March 1, 2017
`______________________
`
`AARON MARTIN PANNER, Kellogg, Huber, Hansen,
`Todd, Evans & Figel, PLLC, Washington, DC, argued for
`plaintiffs-appellees. Also represented by NICHOLAS O.
`HUNTER; JOHN AUSTIN CURRY, JASON DODD CASSADY,
`BRADLEY WAYNE CALDWELL, JOHN FRANKLIN SUMMERS,
`HAMAD M. HAMAD, Caldwell Cassady & Curry, Dallas, TX.
`
`MARK ANDREW PERRY, Gibson, Dunn & Crutcher LLP,
`Washington, DC, argued for defendant-appellant. Also
`
`
`
`Page 1
`
`HTC EX. 1030
`HTC v. Ancora
`US Patent No. 6,411,941
`
`

`

`
`2
`
` SMARTFLASH LLC v. APPLE INC.
`
`represented by BRIAN BUROKER; HERVEY MARK LYON, Palo
`Alto, CA; BLAINE H. EVANSON, JENNIFER RHO, Los Ange-
`les, CA; BRETT ROSENTHAL, Dallas, TX; JAMES RICHARD
`BATCHELDER, Ropes & Gray LLP, East Palo Alto, CA;
`DOUGLAS HALLWARD-DRIEMEIER, Washington, DC; KEVIN
`JOHN POST, New York, NY.
`______________________
`
`
`
`Before PROST, Chief Judge, NEWMAN and LOURIE, Circuit
`Judges.
`
`PROST, Chief Judge.
`Apple Inc. (“Apple”) appeals from the district court’s
`denial of Apple’s motion for judgment as a matter of law
`(“JMOL”) seeking to invalidate three Smartflash LLC
`(“Smartflash”) patents for being patent-ineligible under
`35 U.S.C. § 101. Apple further appeals a jury verdict of
`patent validity and infringement. Because we find that
`the asserted claims recite patent-ineligible subject matter
`under § 101, we reverse.
`
`I
`Smartflash asserted the following claims from three
`patents in district court: claim 13 of U.S. Patent No.
`7,334,720 (“’720 patent”); claim 32 of U.S. Patent No.
`8,118,221 (“’221 patent”); and claims 26 and 32 of U.S.
`Patent No. 8,336,772 (“’772 patent”) (collectively, “the
`asserted claims”).1 The three patents-in-suit, entitled
`“Data Storage and Access Systems,” generally “relate[] to
`a portable data carrier for storing and paying for data and
`
`1 The ’772 patent is a continuation of the ’221 pa-
`tent which is a continuation of U.S. Patent No. 7,942,317,
`which is a continuation of the ’720 patent. All four pa-
`tents share the same specification. For simplicity, all
`citations herein are to the ’720 patent unless stated
`otherwise.
`
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`

`SMARTFLASH LLC v. APPLE INC.
`
`3
`
`to computer systems for providing access to data to be
`stored.” ’720 patent col. 1 ll. 6–8.
`According to the specification, at the time of the in-
`vention, there was a “growing prevalence of so-called data
`pirates” who “obtain[ed] data either by unauthorized or
`legitimate means and then ma[d]e this data available
`essentially world-wide over the internet without authori-
`zation.” Id. at col. 1 ll. 15–19. The patents sought to
`address this problem by purportedly inventing systems
`comprising data carriers, or “terminals,” that could re-
`ceive and validate payments from users and then retrieve
`and provide data, such as audio, video, text, and software
`over the Internet. See id. at col. 1 ll. 45–55. Figure 6 of
`the ’720 patent, shown below, illustrates one such system:
`
`
`
`
`
`
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`4
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` SMARTFLASH LLC v. APPLE INC.
`
`In this system, users employ content access terminals
`118, including, for example, personal computers, to re-
`quest content such as audio or video content and provide
`payment information such as credit card or bank account
`information. The payment information is validated by e-
`payment systems 121 and banks 122. After the payment
`is validated, the requested content is provided to the
`content access terminal 118 by a content access web
`server 124.
`Independent claim 3 of the ’720 patent, from which
`asserted Claim 13 depends, claims “[a] data access termi-
`nal for retrieving data from a data supplier and providing
`the retrieved data to a data carrier.” Id. at col. 26 ll. 41–
`43. The claimed terminal further comprises interfaces for
`communicating with the data supplier and the data
`carrier, and a “processor coupled to . . . the data carrier.”
`Id. at col. 26 ll. 44–50. The processor implements
`code to read payment data from the data carri-
`er and to forward the payment data to a payment
`validation system;
`code to receive payment validation data from
`the payment validation system;
`code responsive to the payment validation data
`to retrieve data from the data supplier and to
`write the retrieved data into the data carrier; and
`code responsive to the payment validation data
`to receive at least one access rule from the data
`supplier and to write the at least one access rule
`into the data carrier, the at least one access rule
`specifying at least one condition for accessing the
`retrieved data written into the data carrier, the at
`least one condition being dependent upon the
`amount of payment associated with the payment
`data forwarded to the payment validation system.
`
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`SMARTFLASH LLC v. APPLE INC.
`
`5
`
`Id. at col. 26 ll. 51–67. Asserted dependent claim 13
`further recites “[a] data access terminal according
`to claim 3 integrated with a mobile communication device,
`a personal computer, an audio/video player, and/or a cable
`or satellite television interface device.” Id. at col. 28 ll. 1–
`4.
`Asserted claim 32 of the ’221 patent is identical to
`
`claim 3 of the ’720 patent except that claim 32 further
`recites “code to retrieve from the data supplier and output
`to a user-stored data identifier data and associated value
`data and use rule data for a data item available from the
`data supplier.” ’221 patent col. 28 ll. 23–50.
`
`Independent claim 25 of the ’772 patent, from which
`asserted claim 26 depends, claims a “handheld multime-
`dia terminal for retrieving and accessing protected mul-
`timedia content.” ’772 patent col. 29 ll. 40–41. The
`claimed “handheld terminal” comprises wireless and user
`interfaces, memory, display, and a processor. Id. at col.
`29 ll. 41–54. The terminal comprises code to
`request and receive “multimedia content
`available for retrieving;”
`request, receive, and present “content infor-
`mation compris[ing] one or more of description da-
`ta and cost data pertaining to
`.
`.
`. [the]
`multimedia content;”
`receive user selection of available multimedia
`content and respond by “transmit[ting] payment
`data . . . for validation by a payment validation
`system;”
`receive and respond to payment validation da-
`ta by “writ[ing] said retrieved . . . multimedia con-
`tent into . . . [the] memory” and “receiv[ing] . . .
`user selection . . . [of] one or more items of re-
`trieved multimedia content;”
`
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`6
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` SMARTFLASH LLC v. APPLE INC.
`
`read and evaluate “use status data and use
`rules to determine whether access is permitted
`to . . . one or more items of [the] retrieved multi-
`media content.”
`Id. at col. 29 l. 55–col. 30 l. 34. Further, the “user inter-
`face is operable to enable a user to make a first/second
`user selection . . . for retrieving/accessing” the multimedia
`content “responsive to . . . code to control access permit-
`ting access to . . . [the] retrieved multimedia content.” Id.
`at col. 30 ll. 35–47. Dependent claim 26 recites that the
`handheld multimedia terminal of claim 25 further com-
`prises “code to present said . . . selected one or more items
`of retrieved multimedia content to a user via said display
`if access is permitted.” Id. at col. 30 ll. 48–51.
`Asserted claim 32 of the ’772 patent, which depends
`from independent claim 30, claims a “data access termi-
`nal” similar to the “handheld multimedia terminal” of
`claim 26 discussed above. Id. at col. 31 ll. 46–48. In
`addition to including the features of the “handheld mul-
`timedia terminal,” the “data access terminal” of claim 32
`is also integrated with a “mobile communication device
`and audio/video player” and is able to receive “content
`data items” instead of “multimedia content.” Id. at col. 30
`ll. 65–67, col. 31 ll. 46–48.
`At district court, Apple filed a motion for summary
`judgment with the magistrate judge seeking invalidity of
`all asserted claims under § 101. The magistrate judge
`recommended denying the motion. The district court
`adopted the magistrate judge’s findings and recommenda-
`tion and found the claims not invalid under § 101. Smart-
`flash LLC v. Apple Inc., 2015 WL 661174 (E.D. Tex. Feb.
`13, 2015). In finding that the claims were directed to
`patent-eligible subject matter, the district court applied
`the Supreme Court’s two-step framework for determining
`patent eligibility. See Alice Corp. v. CLS Bank Int’l, 134
`S. Ct. 2347 (2014) (citing Mayo Collaborative Servs. v.
`
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`SMARTFLASH LLC v. APPLE INC.
`
`7
`
`Prometheus Labs., Inc., 132 S. Ct. 1289, 1294, 1296–98
`(2012)). At step one, the district court concluded that the
`claims are directed to the abstract idea of “conditioning
`and controlling access to data based on payment.” Smart-
`flash, 2015 WL 661174, at *8. At step two, however, the
`district court found that the claims recite meaningful
`limitations that transform the abstract idea into a patent-
`eligible invention because the claims “recite specific ways
`of using distinct memories, data types, and use rules that
`amount to significantly more than the underlying abstract
`idea.” Id. The district court concluded that “[a]lthough in
`some claims the language is functional and somewhat
`generic, the claims contain significant limitations on the
`scope of the inventions.” Id.
`After trial, Apple moved for JMOL asserting that the
`tried claims were ineligible under § 101. The district
`court denied Apple’s motion and Apple appeals. “[W]e
`apply [the regional circuit’s] law when reviewing . . .
`denials of motions for JMOL or new trial.” i4i Ltd. P’ship
`v. Microsoft Corp., 598 F.3d 831, 841 (Fed. Cir. 2010),
`aff’d, 564 U.S. 91 (2011). The Fifth Circuit reviews denial
`of JMOL de novo. Cambridge Toxicology Grp. v. Exnicios,
`495 F.3d 169, 175 (5th Cir. 2007). Further, the issue of
`patent-eligibility under § 101 is a question of law that we
`review without deference. Rapid Litig. Mgmt. Ltd. v.
`CellzDirect, Inc., 827 F.3d 1042, 1047 (Fed. Cir. 2016).
`We have jurisdiction under 28 U.S.C. § 1295(a)(1).
`II
`Section 101 of the Patent Act states that “[w]hoever
`invents or discovers any new and useful process, machine,
`manufacture, or composition of matter, or any new and
`useful improvement thereof, may obtain a patent there-
`fore, subject to the conditions and requirements of this
`title.” 35 U.S.C. § 101. In interpreting this statute, the
`Supreme Court has held that the broad language of this
`provision is subject to an implicit exception for “laws of
`
`Page 7
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`

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`8
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` SMARTFLASH LLC v. APPLE INC.
`
`nature, natural phenomena, and abstract ideas,” which
`are not patentable. Alice, 134 S. Ct. at 2355.
`To determine whether the exception applies, the Su-
`preme Court has set forth a two-step inquiry. Specifical-
`ly, courts must determine (1) whether the claim is
`directed to a patent-ineligible concept, i.e., a law of na-
`ture, a natural phenomenon, or an abstract idea; and if so,
`(2) whether the elements of the claim, considered “both
`individually and ‘as an ordered combination,’” add enough
`to “‘transform the nature of the claim’ into a patent-
`eligible application.” Id. (quoting Mayo, 132 S. Ct. at
`1298, 1297).
`Applying this two-step process to claims challenged
`under the abstract idea exception, we first evaluate “the
`focus of the claimed advance over the prior art to deter-
`mine if the claim’s character as a whole is directed to
`excluded subject matter.” Affinity Labs of Tex., LLC v.
`DIRECTV, LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016)
`(internal quotation marks omitted). If the claim is di-
`rected to such excluded subject matter, then, at step two
`we “search for an ‘inventive concept’” that “‘transform[s]
`the nature of the claim’ into a patent-eligible application.”
`Alice, 134 S. Ct. at 2355 (quoting Mayo, 132 S. Ct. at
`1294, 1297). “At step two, more is required than ‘well-
`understood, routine, conventional activity already en-
`gaged in by the . . . [relevant] community,’ which fails to
`transform the claim into ‘significantly more than a patent
`upon the’ ineligible concept itself.” Rapid Litig., 827 F.3d
`at 1047 (quoting Mayo, 132 S. Ct. at 1298, 1294).
`On appeal, Apple contends that each of the asserted
`claims is directed to an abstract idea and fails to recite
`any inventive concept sufficient to transform the nature of
`the claims into patent-eligible applications.
`
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`SMARTFLASH LLC v. APPLE INC.
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`9
`
`A
`We begin our analysis at step one: whether the claims
`are “directed to” an abstract idea. Alice, 134 S. Ct. at
`2355. The district court concluded that the asserted
`claims were directed to the abstract idea of “conditioning
`and controlling access to data based on payment.” Smart-
`flash, 2015 WL 661174, at *8. We agree.
`In Alice, the Supreme Court explained that “funda-
`mental economic practice[s]” and other “method[s] of
`organizing human activity” are not patent-eligible be-
`cause they are abstract ideas. 134 S. Ct. at 2356–57. In
`Bilski v. Kappos, for example, the Supreme Court held
`that the “concept of hedging risk and the application of
`that concept to energy markets” was not patentable
`because it was a “fundamental economic practice long
`prevalent in our system of commerce.” 561 U.S. 593, 611
`(2010). Following this guidance, we have noted that when
`considering claims purportedly directed to “an improve-
`ment of computer functionality,” we “ask whether the
`focus of the claims is on the specific asserted improvement
`in computer capabilities . . . or, instead, on a process that
`qualifies as an ‘abstract idea’ for which computers are
`invoked merely as a tool.” Enfish, LLC v. Microsoft Corp.,
`822 F.3d 1327, 1335–36 (Fed. Cir. 2016); compare id. at
`1336–37
`(finding computer-implemented system
`for
`improving computer search and retrieval systems using
`self-referential tables patent-eligible), with Ultramercial,
`Inc. v. Hulu, LLC, 772 F.3d 709, 716 (Fed. Cir. 2014)
`(finding computer-implemented system for “using adver-
`tising as a currency [on] the Internet” to be ineligible),
`buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1352, 1355
`(Fed. Cir. 2014) (finding computer-implemented system
`for guaranteeing performance of an online transaction to
`be ineligible), and CyberSource Corp. v. Retail Decisions,
`Inc., 654 F.3d 1366, 1370 (Fed. Cir. 2011) (finding com-
`puter-implemented system for “verifying the validity of a
`credit card transaction over the Internet” to be ineligible).
`
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`10
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` SMARTFLASH LLC v. APPLE INC.
`
`The asserted claims here invoke computers merely as
`tools to execute fundamental economic practices. Claim
`13 of the ’720 patent and claim 32 of the ’221 patent, for
`example, both claim “data access terminal[s] for retriev-
`ing data from a data supplier and providing the retrieved
`data to a data carrier.” ’720 patent col. 28 ll. 1–4; ’221
`patent col. 28 ll. 23–25. Claims 26 and 32 of the ’772
`patent similarly claim terminals for controlling access to
`and retrieving multimedia content. ’772 patent col. 30 ll.
`48–52; col. 31 ll. 45–48. The asserted claims all purport to
`retrieve and provide this data subject to “payment valida-
`tion” and “access/use rule[s]” that specify conditions for
`accessing/using the retrieved data. ’720 patent col. 26 ll.
`59–67; ’221 patent col. 28 ll. 38–46; ’772 patent col. 30 ll.
`19–34, col. 31 ll. 31–34, 41–43. The patents’ specifications
`explain that “[t]his invention is generally concerned with
`data storage and access systems. More particularly, it
`relates to portable data carrier[s] for storing and paying
`for data and to computer systems for providing access to
`data to be stored.” ’720 patent col. 1 ll. 6–9. The district
`court correctly concluded that “the asserted claims recite
`methods and systems for controlling access to content
`data, such as various types of multimedia files, and
`receiving and validating payment data.” Smartflash,
`2015 WL 661174, at *8. As such, the asserted claims are
`directed to the abstract idea of conditioning and control-
`ling access to data based on payment.
`B
`Having determined that the asserted claims are di-
`rected to an abstract idea, we next address whether the
`claims recite any “inventive concept” sufficient to “‘trans-
`form the nature of the claim’ into a patent-eligible appli-
`cation.” Alice, 134 S. Ct. at 2355. The district court found
`that the claims are patent-eligible because they purport-
`edly recite “specific ways of managing access to digital
`content data based on payment validation through stor-
`age and retrieval of use status data and use rules in
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`SMARTFLASH LLC v. APPLE INC.
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`11
`
`distinct memory types2 and evaluating the use data
`according to the use rules.” Smartflash, 2015 WL 661174,
`at *9. Smartflash argues that the claims comprise in-
`ventive concepts because they recite “storing payment
`data on the data carrier,” “transmitting payment valida-
`tion data to the data access terminal and having the
`terminal retrieve the digital content from the data suppli-
`er in response,” and “writing on the data carrier ‘access
`rules’ that are dependent on the amount of payment.”
`Appellee’s Br. 29–30 (emphasis removed).
`The Supreme Court and this court, however, have
`previously held that such routine computer activities are
`insufficient for conferring patent eligibility. See, e.g.,
`Alice, 134 S. Ct. at 2359 (“[U]se of a computer to obtain
`data, adjust account balances, and issue automated
`instructions; all of these computer functions are ‘well-
`understood, routine, conventional activit[ies]’ previously
`known to the industry.”) (quoting Mayo, 132 S. Ct. at
`1294); Content Extraction & Transmission LLC v. Wells
`Fargo Bank, Nat. Ass’n, 776 F.3d 1343, 1347 (Fed. Cir.
`2014) (“The concept of data collection, recognition, and
`storage is undisputedly well-known. Indeed, humans
`have always performed these functions.”); Accenture
`Global Servs., GmbH v. Guidewire Software, Inc., 728
`F.3d 1336, 1339, 1346 (Fed. Cir. 2013) (finding claims
`reciting “applying . . . information related to the insurance
`transaction to rules to determine a task to be completed”
`
`
`2 The district court found that the claims’ recitation
`of “distinct memory types,” specifically “parameter
`memory” and “content memory” contributed to the in-
`ventive concept of the asserted claims. Smartflash, 2015
`WL 661174, at *8–*9. Smartflash is no longer asserting
`the claims that recite these distinct memory type limita-
`tions. “Distinct memory types” therefore cannot support
`the eligibility of the asserted claims.
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` SMARTFLASH LLC v. APPLE INC.
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`and “allowing an authorized user to edit and perform the
`determined task” to be patent ineligible). As such, merely
`storing, transmitting, retrieving, and writing data to
`implement an abstract idea on a computer does not
`“‘transform the nature of the claim’ into a patent-eligible
`application.” Alice, 134 S. Ct. at 2355.
`Smartflash further argues that the asserted claims
`are akin to the claims we found patent-eligible in DDR
`Holdings, LLC v. Hotels.com, L.P. 773 F.3d 1245 (Fed.
`Cir. 2014). In DDR Holdings, we evaluated the eligibility
`of claims “address[ing] the problem of retaining website
`visitors that, if adhering to the routine, conventional
`functioning of Internet hyperlink protocol, would be
`instantly transported away from a host’s website after
`‘clicking’ on an advertisement and activating a hyperlink.”
`Id. at 1257. There, we found that the claims were patent-
`eligible because they transformed the manner in which a
`hyperlink typically functions to resolve a problem that
`had no “pre-Internet analog.” Id. at 1258. “[W]e cau-
`tion[ed], however, that not all claims purporting to ad-
`dress Internet-centric challenges are eligible for patent.”
`Id. For example, in DDR Holdings we distinguished the
`patent-eligible claims at issue from claims we found
`patent-ineligible in Ultramercial. See id. at 1258–59
`(citing Ultramercial, 772 F.3d at 715–16). As we noted
`there, the Ultramercial claims were “directed to a specific
`method of advertising and content distribution that was
`previously unknown and never employed on the Internet
`before.” Id. at 1258 (quoting Ultramercial, 772 F.3d at
`715–16).
` Nevertheless, those claims were patent-
`ineligible because they “merely recite[d] the abstract idea
`of ‘offering media content in exchange for viewing an
`advertisement,’ along with ‘routine additional steps such
`as updating an activity log, requiring a request from the
`consumer to view the ad, restrictions on public access, and
`use of the Internet.’” Id.
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`SMARTFLASH LLC v. APPLE INC.
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`13
`
`Smartflash’s asserted claims are analogous to claims
`found ineligible in Ultramercial and distinct from claims
`found eligible in DDR Holdings. The ineligible claims in
`Ultramercial recited “providing [a] media product for sale
`at an Internet website;” “restricting general public access
`to said media product;” “receiving from the consumer a
`request to view [a] sponsor message;” and “if the sponsor
`message is an interactive message, presenting at least one
`query to the consumer and allowing said consumer access
`to said media product after receiving a response to said at
`least one query.” 772 F.3d at 712. Similarly, Smart-
`flash’s asserted claims recite reading, receiving, and
`responding to payment validation data and, based upon
`the amount of payment, and access rules, allowing access
`to multimedia content. This is precisely the type of
`Internet activity that we found ineligible in Ultramercial.
`Smartflash also argues that its claims are patent-
`eligible because the claim elements, when considered as
`an ordered combination, recite “specific hardware compo-
`nents—including a communications interface, an inter-
`face for communicating with the data carrier, and a
`program store, all coupled to a processor” that “reflect
`specific technical choices that provide distinct advantages
`over alternatives.” Appellee’s Br. 28–29. But “provid[ing]
`a distinct advantage over alternatives” is not the test for
`eligibility. Instead, the test is whether the claims recite
`an “inventive concept sufficient to ‘transform’ the nature
`of the claim” into an eligible application. Alice, 134 S. Ct.
`at 2355 (quoting Mayo, 132 S. Ct. at 1298, 1297). In Alice,
`the Supreme Court considered an argument similar to
`Smartflash’s and found that “what petitioner characteriz-
`es as specific hardware—a ‘data processing system’ with a
`‘communications controller’ and ‘data storage unit’”—did
`not confer eligibility because “[n]early every computer will
`include a ‘communications controller’ and ‘data storage
`unit’ capable of performing the basic calculation, storage,
`and transmission functions required by the . . . claims.”
`
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` SMARTFLASH LLC v. APPLE INC.
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`134 S. Ct. at 2360. Similarly, we find here that “interfac-
`es,” “program stores,” and “processors” are all generic
`computer components and do not, taken individually or as
`an ordered combination, “transform [the] abstract idea
`into a patent-eligible invention.” Id. at 2352.
`In sum, the asserted claims are all directed to the ab-
`stract idea of conditioning and controlling access to data
`based on payment, and fail to recite any inventive con-
`cepts sufficient to transform the abstract idea into a
`patent-eligible invention. As such, the asserted claims
`are all invalid for failing to recite patent-eligible subject
`matter under 35 U.S.C. § 101.
`Because we find all asserted claims invalid, we do not
`reach the remaining issues raised on appeal. For the
`foregoing reasons, the district court’s decision is reversed.
`REVERSED
`
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