Alice Put to the Test for Video Surveillance Systems

On February 17, 2023, the U.S. Court of Appeals for the Federal Circuit issued a precedential opinion in Hawk Technology Systems, LLC v. Castle Retail, LLC that affirmed a district court’s decision to grant defendants’ Rule 12(b)(6) motion to dismiss, finding that U.S. Patent No. 10,499,091 (“the ’091 patent”) claimed ineligible subject matter under 35 U.S.C. § 101.¹ The patent claims “a method of viewing multiple simultaneously displayed and stored video images on a remote viewing device of a video surveillance system.”² The Federal Circuit Panel determined that the claims are directed to the “abstract idea of storing and displaying video” without an inventive step that could have transformed the abstract idea into patent-eligible subject matter.³

Hawk Technology Systems, LLC (“Hawk”) is the owner of the ’091 patent titled “high-quality, reduced data rate streaming video product and monitoring system.”⁴ Hawk stated that its patent provides the solution to higher quality video content while maintaining existing physical infrastructure for data-transmission.⁵ Hawk sued Castle Retail, LLC (“Castle”) for “patent infringement based on Castle[’s] [] use of security surveillance video operations in its grocery stores.”⁶ Castle moved to dismiss the case under Rule 12(b)(6) based on its assertion that the ’091 patent fails 35 U.S.C. §101.⁷ Hawk opposed, arguing that the motion was premature because material facts were in dispute and no claim terms had been construed.⁸ Additionally, Hawk contended that the ’091 patent passed both steps of the Alice test, and thus encompassed patentable subject matter.⁹ Ultimately, the district court granted Castle’s motion to dismiss, deciding that the patent is invalid under Section 101 because it claims an abstract idea and failed the Alice two-step analysis. Hawk appealed.

First, the Panel addressed whether the district court correctly determined that the ’091 patent’s claims failed the Alice two-step test. Section 101 states: “Whoever 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 therefore, subject to the conditions and requirements of this title.”¹⁰ However, the Supreme Court has determined that there are certain exceptions to patentability under Section 101, namely that “laws of nature, natural phenomena, and abstract ideas” are unpatentable.¹¹ The Supreme Court’s decision in Alice Corp. v. CLS Bank International introduced a two-step analysis to determine whether a patent is invalid under Section 101.¹² Under this test, a claim falls outside the scope of Section 101 if: “(1) it is directed to a patent-ineligible concept [], and (2) it lacks elements sufficient to transform the claim into a patent-eligible application.”¹³

1. Alice Step One – Are the Claims Directed to an Abstract Idea?

The Panel considered whether the claims are directed to an abstract idea.¹⁴ To determine this, the district court concentrated on “what the patent asserts to be the focus of the claimed advance over the prior art.”¹⁵ “Here, the district court concluded that the ’091 patent claims are directed to the abstract idea of ‘storing and displaying video.’”¹⁶

The Panel agreed with the district court, noting that the patent’s claims are similar to those that had been previously found to be directed to abstract ideas.¹⁷ In its defense, Hawk argued that the patent’s claims provide “a solution to a technical problem, specifically a multi-format digital video product system capable of maintaining full-bandwidth resolution while providing professional quality editing and manipulation of images.”¹⁸  However, the Panel stated that the argument was unpersuasive because the claims do not disclose performing any “special data conversion” or describe how the goal of “conserving bandwidth” is achieved.¹⁹ Further, the Panel stated that the claims do not include any parameters nor include requirements for how they should be manipulated.²⁰ The Panel determined that the claims “fail to recite a specific solution to make the alleged improvement [] ‘concrete’ and at most recite abstract idea manipulation.”²¹

The district court found, and the Panel agreed, that the claims did not meet Alice step one because they are directed to an abstract idea. Thus, the Panel proceeded to step two of the Alice test to determine if the claims were transformed into patent-eligible subject matter.

2. Alice Step Two – Do the Claims Transform the Abstract Idea into Patent-Eligible Subject Matter?

Alice step two considers the claim elements and “whether [they] transform the nature of the claim into a patent-eligible application of the abstract idea.”²² The district court found that the claims “do not show a technological improvement in video storage and display because the limitations can be implemented using generic computer elements” and that the “specification and claims do not explain or show how the monitoring and storage is improved, except by using already existing computer and camera technology.”²³  The Panel agreed.

Hawk argued that the claims are directed to an inventive solution.  However, the district court argued that “even if the claims achieved this purported solution, they ‘only use [] generic functional language to’ do so and require nothing ‘other than conventional computer and network components operating according to their ordinary functions.’”²⁴ The Panel stated that nothing new is required.

Thus, the Panel agreed with the district court’s finding that the ’091 patent claims fail to transform the abstract idea into something more.²⁵ Therefore, both steps of the Alice test failed and the Panel affirmed the decision that the ’091 patent is patent-ineligible.

Hawk also argued that the district court erred in granting the motion to dismiss because the district court considered materials outside of the pleadings, and thus the motion to dismiss should have been converted under Rule 12(d) to a Rule 56 motion for summary judgement.²⁶ Under these circumstances, Hawk argued that the district court should have either: (1) expressly rejected the materials, or (2) converted the motion to one for summary judgement.²⁷

While the Panel agreed that the district court made an error in this regard, the Panel stated that it nonetheless was a harmless one.²⁸ The Panel determined that the district court’s decision did not hinge on the additional info presented to the court.²⁹ Further, Hawk’s briefing before the district court failed to assert that the district court was required to treat the motion as a motion for summary judgment, instead arguing that the motion was “premature.”³⁰ The Panel noted that Hawk “failed to argue as it does now that Rule 12(d) applied; it failed to cite the CODA case it now relies on; and it failed to move the district court to convert the motion into one for summary judgment under Rule 56 and deny the motion so that Hawk could conduct full discovery.”³¹ Therefore, the Panel decided that the error did not change the outcome in this case.

Ultimately, the Panel concluded that the “’091 patent is patent-ineligible because its claims are directed towards an abstract idea” and they failed to be transformed into patent-eligible subject matter.³² While the claims included “parameters,” they “fail[ed] to specify precisely what the parameters [were] and the parameters at most concern[ed] an abstract data manipulation – image formatting and compression.”³³ The transformative aspect of Alice step two was absent.

The Panel’s opinion demonstrates the application of the Alice test, in particular how claims may be found to constitute abstract ideas and how such claims may be found patent-ineligible in the context of a motion to dismiss at the outset of a case. This opinion highlights the importance of robust written descriptions and detailed claim language when drafting patent specifications and claims to avoid such an outcome. For inventions such as the one at issue in this opinion, whether an abstract idea is transformed into patent-eligible subject matter requires a fact-specific determination of what amount of detail should be included in the claims and how well the inventive aspect is communicated in the patent’s specification.  As another take-away, the opinion demonstrates that a patentee faced with a Rule 12(b)(6) motion to dismiss may want to consider the implications of converting the motion under Rule 12(d) to a summary judgment motion. Although this is a case-by-case strategy decision that may not be advantageous in many circumstances, here it may have been advantageous to Hawk if it had converted the motion to dismiss to a motion for summary judgment.  Thus, this decision exemplifies certain considerations that may be relevant for attorneys both during patent drafting and prosecution, and during litigation when faced with a Rule 12(b)(6) motion.