Fairwarning Ip, LLC v. Iatric Systems, Inc.

United States Court of Appeals

for the Federal Circuit

______________________

FAIRWARNING IP, LLC,

Plaintiff-Appellant

v.

IATRIC SYSTEMS, INC.,

Defendant-Appellee

______________________

2015-1985

______________________

Appeal from the United States District Court for the

Middle District of Florida in No. 8:14-cv-02685-SDM-

MAP, Judge Steven D. Merryday.

______________________

Decided: October 11, 2016

______________________

SEAN A. PASSINO, Hauptman Ham, LLP, Alexandria,

VA, argued for plaintiff-appellant. Also represented by

RACHEL KAREN PILLOFF; MICHAEL S. HOOKER, JASON PAUL

STEARNS, Phelps Dunbar LLP, Tampa, FL.

LISA M. TITTEMORE, Sunstein Kann Murphy & Tim-

bers LLP, Boston, MA, argued for defendant-appellee.

Also represented by BRANDON TAYLOR SCRUGGS.

______________________

2 FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC.

Before LOURIE, PLAGER, and STOLL, Circuit Judges.

STOLL, Circuit Judge.

FairWarning IP, LLC, appeals a judgment of the

United States District Court for the Middle District of

Florida dismissing its suit with prejudice after holding

that the asserted patent, U.S. Patent No. 8,578,500,

claims patent-ineligible subject matter under 35 U.S.C.

§ 101. Because we agree with the district court that

FairWarning’s ’500 patent claims patent-ineligible subject

matter, we affirm.

BACKGROUND

FairWarning sued Iatric Systems, Inc. for infringing

claims of the ’500 patent. The ’500 patent is titled “Sys-

tem and Method of Fraud and Misuse Detection” and

discloses ways to detect fraud and misuse by identifying

unusual patterns in users’ access of sensitive data. The

specification describes systems and methods to detect

fraud by an otherwise-authorized user of a patient’s

protected health information (“PHI”). According to the

specification, pre-existing systems were able to record

audit log data concerning user access of digitally stored

PHI. The claimed systems and methods record this data,

analyze it against a rule, and provide a notification if the

analysis detects misuse. Claim 1 recites:

1. A method of detecting improper access of a pa-

tient’s protected health information (PHI) in a

computer environment, the method comprising:

generating a rule for monitoring audit

log data representing at least one of

transactions or activities that are executed

in the computer environment, which are

associated with the patient’s PHI, the rule

comprising at least one criterion related to

accesses in excess of a specific volume, ac-

cesses during a pre-determined time in-

FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC. 3

terval, accesses by a specific user, that is

indicative of improper access of the pa-

tient’s PHI by an authorized user wherein

the improper access is an indication of po-

tential snooping or identity theft of the pa-

tient’s PHI, the authorized user having a

pre-defined role comprising authorized

computer access to the patient’s PHI;

applying the rule to the audit log data

to determine if an event has occurred, the

event occurring if the at least one criterion

has been met;

storing, in a memory, a hit if the event

has occurred; and

providing notification if the event has

occurred.

’500 patent col. 16 ll. 27–46.

Before the district court, Iatric moved to dismiss the

complaint, arguing the asserted patent claimed patent-

ineligible subject matter under § 101. FairWarning filed

an amended complaint asserting all claims of the ’500

patent, and Iatric again moved to dismiss. The district

court granted Iatric’s motion and dismissed the case

under Rule 12(b)(6) of the Federal Rules of Civil Proce-

dure.

Following the two-step test for patent-eligibility iden-

tified in Alice Corp. v. CLS Bank International, 134 S. Ct.

2347 (2014), the court first found the claims were directed

to a patent-ineligible abstract idea: “the concept of analyz-

ing records of human activity to detect suspicious behav-

ior.” FairWarning IP, LLC v. Iatric Sys., Inc., No. 8:14-

CV-2685, 2015 WL 3883958, at *2 (M.D. Fla. June 24,

2015) (quotation marks omitted). This concept, the court

explained, “is a basic and well-established abstract idea.”

Id. Turning to step two, the court found that the claims

4 FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC.

contained nothing to “transform[] the abstract idea into a

patentable concept.” Id. at *4. The court analyzed the

elements of the claim individually and as an ordered

combination, but found “nothing significantly more than

an instruction to apply the abstract idea . . . using some

unspecified, generic computer.” Id. (quoting Alice, 134

S. Ct. at 2360) (alteration in original).

FairWarning appealed. We have jurisdiction under

28 U.S.C. § 1295(a)(1).

DISCUSSION

We review motions to dismiss under the law of the re-

gional circuit. OIP Techs., Inc. v. Amazon.com, Inc.,

788 F.3d 1359, 1362 (Fed. Cir.), cert. denied, 136 S. Ct.

701 (2015). The Eleventh Circuit reviews the dismissal of

a complaint under Rule 12(b)(6) de novo, “[a]ccepting all

of the well-pleaded allegations in the complaint as true

and drawing all reasonable inferences in favor of the

plaintiff.” Montgomery Cty. Comm’n v. Fed. Hous. Fin.

Agency, 776 F.3d 1247, 1254 (11th Cir. 2015).

I.

Section 101 defines patent-eligible subject matter as

“any new and useful process, machine, manufacture, or

composition of matter, or any new and useful improve-

ment thereof.” 35 U.S.C. § 101. The Supreme Court has

“long held that this provision contains an important

implicit exception: Laws of nature, natural phenomena,

and abstract ideas are not patentable.” Ass’n for Molecu-

lar Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107,

2116 (2013) (internal brackets omitted) (quoting Mayo

Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct.

1289, 1293 (2012)).

To determine patent eligibility, “the Supreme Court

set forth a two-step analytical framework to identify

patents that, in essence, claim nothing more than ab-

stract ideas.” BASCOM Glob. Internet Servs., Inc. v.

FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC. 5

AT&T Mobility LLC, 827 F.3d 1341, 1347 (Fed. Cir. 2016)

(citing Mayo, 132 S. Ct. at 1296–97). The inquiry’s first

step requires a court to “determine whether the claims at

issue are directed to a patent-ineligible concept.” Alice,

134 S. Ct. at 2355. If they are, the court must then, under

the second step, “examine the elements of the claim to

determine whether it contains an ‘inventive concept’

sufficient to ‘transform’ the claimed abstract idea into a

patent-eligible application.” Id. at 2357 (quoting Mayo,

132 S. Ct. at 1294, 1298). This inventive concept must do

more than simply recite “well-understood, routine, con-

ventional activity.” Mayo, 132 S. Ct. at 1298.

A.

We find that, under step one, the claims of the ’500

patent are directed to an abstract idea. As the ’500 patent

specification explains, the invention “relates to a system

and method of detecting fraud and/or misuse in a comput-

er environment based on analyzing data such as in log

files, or other similar records, including user identifier

data.” ’500 patent col. 1 ll. 15–18. The district court

found that “the ’500 patent is directed to or drawn to the

concept of analyzing records of human activity to detect

suspicious behavior.” FairWarning, 2015 WL 3883958, at

*2 (quotation marks omitted). We agree. The patented

method, as illustrated by claim 1 quoted above, collects

information regarding accesses of a patient’s personal

health information, analyzes the information according to

one of several rules (i.e., related to accesses in excess of a

specific volume, accesses during a pre-determined time

interval, or accesses by a specific user) to determine if the

activity indicates improper access, and provides notifica-

tion if it determines that improper access has occurred.

We have explained that the “realm of abstract ideas”

includes “collecting information, including when limited

to particular content.” Elec. Power Grp., LLC v. Alstrom

S.A., No. 15-1778, 2016 WL 4073318, at *3 (Fed. Cir. Aug.

6 FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC.

1, 2016) (collecting cases). We have also “treated analyz-

ing information by steps people go through in their minds,

or by mathematical algorithms, without more, as essen-

tially mental processes within the abstract-idea category.”

Id. And we have found that “merely presenting the

results of abstract processes of collecting and analyzing

information, without more (such as identifying a particu-

lar tool for presentation), is abstract as an ancillary part

of such collection and analysis.” Id. Here, the claims are

directed to a combination of these abstract-idea catego-

ries. Specifically, the claims here are directed to collect-

ing and analyzing information to detect misuse and

notifying a user when misuse is detected. See id.

While the claims here recite using one of a few possi-

ble rules to analyze the audit log data, this does not make

them eligible under our decision in McRO, Inc. v. Bandai

Namco Games America Inc., No. 15-1080, 2016 WL

4896481 (Fed. Cir. Sept. 13, 2016), which also involved

claims reciting rules. In McRO we held that, in analyzing

step one, “the claims are considered in their entirety to

ascertain whether their character as a whole is directed to

excluded subject matter.” Id. at *6 (quoting Internet

Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 1346

(Fed. Cir. 2015)). Of course, claims cannot be directed to

“laws of nature, natural phenomena, and abstract ideas,”

but must instead “claim patent-eligible applications of

those concepts.” Alice, 134 S. Ct. at 2355 (citing Mayo,

132 S. Ct. at 1296–97). Indeed, even though a claim can

be abstracted to the point that it reflects a patent-

ineligible concept—for, “[a]t some level, ‘all inventions . . .

embody, use, reflect, rest upon, or apply laws of nature,

natural phenomena, or abstract ideas,’” id. at 2354 (quot-

ing Mayo, 132 S. Ct. at 1293)—that claim may neverthe-

less be patent eligible if the claim language is directed to

a patent-eligible application of that concept. See Rapid

Litig. Mgmt. Ltd. v. CellzDirect, Inc., 827 F.3d 1042, 1050

(Fed. Cir. 2016).

FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC. 7

The claims in McRO were not directed to an abstract

idea, but instead were directed to “a specific asserted

improvement in computer animation, i.e., the automatic

use of rules of a particular type.” McRO, 2016 WL

4896481, at *8. We explained that “the claimed improve-

ment [was] allowing computers to produce ‘accurate and

realistic lip synchronization and facial expressions in

animated characters’ that previously could only be pro-

duced by human animators.” Id. at *8 (quoting U.S.

Patent No. 6,307,576 col. 2 ll. 49–50). The claimed rules

in McRO transformed a traditionally subjective process

performed by human artists into a mathematically auto-

mated process executed on computers. Id. at *8–9.

Indeed, Defendants conceded that prior animating pro-

cesses were “driven by subjective determinations rather

than specific, limited mathematical rules,” such as the

mathematical rules articulated in McRO’s claimed meth-

od. Id. at *8. Thus, the traditional process and newly

claimed method stood in contrast: while both produced a

similar result, i.e., realistic animations of facial move-

ments accompanying speech, the two practices produced

those results in fundamentally different ways.

As such, we explained that “it [was] the incorporation

of the claimed rules, not the use of the computer, that

‘improved [the] existing technological process’ by allowing

the automation of further tasks.” Id. (alteration in origi-

nal) (quoting Alice, 134 S. Ct. at 2358). “This [was] unlike

Flook, Bilski, and Alice, where the claimed comput-

er-automated process and the prior method were carried

out in the same way.” Id. (citing Parker v. Flook, 437 U.S.

584, 585–86 (1978); Bilski v. Kappos, 561 U.S. 593, 611

(2010); Alice, 134 S. Ct. at 2356).

The claims here are more like those in Alice than

McRO. FairWarning’s claims merely implement an old

practice in a new environment. See Alice, 134 S. Ct. at

2356. The claimed rules ask whether accesses of PHI, as

reflected in audit log data, are 1) “by a specific user,”

8 FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC.

2) “during a pre-determined time interval,” or 3) “in

excess of a specific volume.” ’500 patent col. 16 ll. 34–36.

These are the same questions (though perhaps phrased

with different words) that humans in analogous situa-

tions detecting fraud have asked for decades, if not centu-

ries. Although FairWarning’s claims require the use of a

computer, it is this incorporation of a computer, not the

claimed rule, that purportedly “improve[s] [the] existing

technological process” by allowing the automation of

further tasks. Alice, 134 S. Ct. at 2358.

Moreover, the claims here are not like those we found

patent eligible in Enfish. In that case, we explained that

the claims were “specifically directed to a self-referential

table for a computer database.” Enfish, LLC v. Microsoft

Corp., 822 F.3d 1327, 1337 (Fed. Cir. 2016). The claims

were thus “directed to a specific improvement to the way

computers operate,” rather than an abstract idea imple-

mented on a computer. Id. at 1336. The claims here, in

contrast, are not directed to an improvement in the way

computers operate, nor does FairWarning contend as

much. While the claimed system and method certainly

purport to accelerate the process of analyzing audit log

data, the speed increase comes from the capabilities of a

general-purpose computer, rather than the patented

method itself. See Bancorp Servs., L.L.C. v. Sun Life

Assurance Co. of Can. (U.S.), 687 F.3d 1266, 1278 (Fed.

Cir. 2012) (“[T]he fact that the required calculations could

be performed more efficiently via a computer does not

materially alter the patent eligibility of the claimed

subject matter.”). Thus here, as in Electric Power, “the

focus of the claims is not on . . . an improvement in com-

puters as tools, but on certain independently abstract

ideas that use computers as tools.” Elec. Power, 2016 WL

4073318, at *4.

Because we find these claims are directed to an ab-

stract idea at step one of the patent-eligibility inquiry, we

turn to step two.

FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC. 9

B.

After “scrutiniz[ing] the claim elements more micro-

scopically” under step two, id., we find nothing sufficient

“to ‘transform the nature of the claim’ into a patent-

eligible application,” Alice, 134 S. Ct. at 2355 (quoting

Mayo, 132 S. Ct. at 1297). As the district court correctly

explained, the claims generally require “(1) generating a

rule ‘related to’ the number of accesses, the timing of

accesses, and the specific users in order to review ‘trans-

actions or activities that are executed in a computer

environment’; (2) applying the rule; (3) storing the result;

and (4) announcing the result.” FairWarning, 2015 WL

3883958, at *3 (quoting ’500 patent col. 16 ll. 31–32, 34).

The claim limitations, analyzed alone and in combination,

fail to add “something more” to “transform” the claimed

abstract idea of collecting and analyzing information to

detect misuse into “a patent-eligible application.” See

Alice, 134 S. Ct. at 2354, 2357.

FairWarning argues claims 12–13 and 14–17 sepa-

rately, but none of these claims add limitations that

impart patent eligibility. Claim 12 reads as follows:

12. A system for detecting improper access of a

patient’s protected health information (PHI) in a

health-care system computer environment, the

system comprising:

a user interface for selection of at least

one criterion related to accesses in excess

of a specific volume, accesses during a pre-

determined time interval, accesses by a

specific user, representing at least one of

transactions or activities associated with

the patient’s PHI that is indicative of im-

proper access of the patient’s PHI within

the health-care system computer envi-

ronment by an authorized user wherein

the improper access is an indication of po-

10 FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC.

tential snooping or identity theft of the pa-

tient’s PHI, the authorized user having a

pre-defined role comprising authorized

computer access to the patient’s PHI, and

for selection of a schedule for application

of a rule for monitoring audit log data rep-

resenting at least one of the transactions

or the activities;

a microprocessor in communication

with the user interface and having access

to the audit log data representing the

transactions or the activities of the pa-

tient’s PHI, the microprocessor generating

the rule based at least in part on the at

least one criterion selected and applying

the rule to the audit log data according to

the schedule selected in order to deter-

mine if an event has occurred,

wherein the event occurs if the at least

one criterion has been met,

wherein the microprocessor stores a

hit if the event has occurred, and

wherein the microprocessor provides

notification if the event has occurred.

’500 patent col. 17 l. 24 – col. 18 l. 2. Claim 12 and its

dependent claim 13 are system claims that add the re-

quirement that the system include a “user interface” for

selection of a rule, as well as a microprocessor that ana-

lyzes audit log data under various rules. But, under our

precedent, the features of claims 12 and 13 do not recite

that “something more” required to make these claims

patent eligible. As we have explained, the use of generic

computer elements like a microprocessor or user interface

do not alone transform an otherwise abstract idea into

FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC. 11

patent-eligible subject matter. See DDR Holdings, LLC v.

Hotels.com, L.P., 773 F.3d 1245, 1256 (Fed. Cir. 2014).

Claim 14 is a system claim, but it recites limitations

that FairWarning admits are “analogous to that recited in

[method] claim 1” and argues that they are patentable for

the same reasons as claim 1. Appellant Br. 41.

Claims 15–17 depend from claim 14 and, like claim 14,

add nothing more than similar nominal recitations of

basic computer hardware, such as “a non-transitory

computer-readable medium with computer-executable

instructions” and a microprocessor. See ’500 patent

col. 18 ll. 37–50. “While it is not always true that related

system claims are patent-ineligible because similar meth-

od claims are, when they exist in the same patent and are

shown to contain insignificant meaningful limitations, the

conclusion of ineligibility is inescapable.” Accenture Glob.

Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336,

1344 (Fed. Cir. 2013). The claims here are decidedly not

the exception to that rule. The limitations added in

FairWarning’s system claims merely graft generic com-

puter components onto otherwise-ineligible method

claims. As such, these claims are patent ineligible along

with claim 1 and its dependents.

Nonetheless, FairWarning argues that all of the

claims, without exception, solve technical problems

unique to the computer environment and thus should be

patent eligible under DDR Holdings. Appellant Br. 44–48

(citing DDR Holdings, 773 F.3d at 1257). FairWarning

explains that, at the time of the ’500 patent’s filing, audit

log data of patient health information “tended to have

different file formats” and that this information was

stored in different applications and data stores. Reply

Br. 9 (citing ’500 patent col. 1 ll. 26–31). FairWarning

contends that its system allowed for the compilation and

combination of these disparate information sources and

that the patented method “made it possible to generate a

full picture of a user’s activity, identity, frequency of

12 FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC.

activity, and the like in a computer environment.” Id. at

10. The mere combination of data sources, however, does

not make the claims patent eligible. As we have ex-

plained, “merely selecting information, by content or

source, for collection, analysis, and [announcement] does

nothing significant to differentiate a process from ordi-

nary mental processes, whose implicit exclusion from

§ 101 undergirds the information-based category of ab-

stract ideas.” Elec. Power, 2016 WL 4073318, at *4.

Furthermore, to the extent that FairWarning suggests

that its claimed invention recites a technological advance

relating to accessing and combining disparate information

sources, its claims do not recite any such improvement.

Rather, the claimed invention is directed to the broad

concept of monitoring audit log data. The claims here do

not propose a solution or overcome a problem “specifically

arising in the realm of computer [technology].” DDR

Holdings, 773 F.3d at 1257. At most, the claims require

that these processes be executed on a generic computer.

But, “after Alice, there can remain no doubt: recitation of

generic computer limitations does not make an otherwise

ineligible claim patent-eligible.” Id. at 1256 (citing Alice,

134 S. Ct. at 2358). Thus, while the patent may in fact

require that the claimed data relate to “transactions or

activities that are executed in the computer environ-

ment,” Reply Br. 10, limiting the claims to the computer

field does not alone transform them into a patent-eligible

application. See Alice, 134 S. Ct. at 2358.

After closely examining the claims of the ’500 patent

in search of “something more” to transform the underlying

abstract idea into a patent-eligible application, we con-

clude that there is nothing claimed in the patent—either

by considering the claim limitations individually or as an

ordered combination—that makes its claims patent

eligible.

FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC. 13

II.

FairWarning further alleges that the district court

improperly granted Iatric’s motion under Rule 12(b)(6).

We disagree. “We have repeatedly recognized that in

many cases it is possible and proper to determine patent

eligibility under 35 U.S.C. § 101 on a Rule 12(b)(6) mo-

tion.” Genetic Techs. Ltd. v. Merial L.L.C., 818 F.3d 1369,

1373–74 (Fed. Cir. 2016) (citing OIP Techs., 788 F.3d at

1362; Content Extraction & Transmission LLC v. Wells

Fargo Bank, Nat’l Ass’n, 776 F.3d 1343, 1351 (Fed. Cir.

2014); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1355

(Fed. Cir. 2014)). We have also acknowledged, however,

that plausible factual allegations may preclude dismissing

a case under § 101 where, for example, “nothing on th[e]

record . . . refutes those allegations as a matter of law or

justifies dismissal under Rule 12(b)(6).” BASCOM,

827 F.3d at 1352.

FairWarning argues that the district court wrongly

found facts outside of the pleadings and construed disput-

ed facts in a light unfavorable to FairWarning. It argues

that the court erred in finding, on a motion to dismiss,

that the ’500 patent is not necessarily rooted in computer

technology. It points to the ability of its system and

method to collect and analyze disparate data sources in

real time. And it claims that the court, drawing all rea-

sonable inferences in its favor, could not resolve this issue

on a motion to dismiss. We disagree. As we explained

above, the practices of collecting, analyzing, and display-

ing data, with nothing more, are practices “whose implicit

exclusion from § 101 undergirds the information-based

category of abstract ideas.” Elec. Power, 2016 WL

4073318, at *4. The district court correctly dismissed

FairWarning’s purportedly factual claims as insufficient

to impart patent eligibility.

FairWarning also contends that the court erred by

finding that “the human mind can perform each step”

14 FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC.

because there is no support in the complaint or the patent

for this finding. Appellant Br. 30–34. It argues that the

large number of calculations required in its patents

precludes a pen and paper test. Id. at 32. First of all, we

do not rely on the pen and paper test to reach our holding

of patent eligibility in this case. At the same time, we

note that, in viewing the facts in FairWarning’s favor, the

inability for the human mind to perform each claim step

does not alone confer patentability. As we have ex-

plained, “the fact that the required calculations could be

performed more efficiently via a computer does not mate-

rially alter the patent eligibility of the claimed subject

matter.” Bancorp Servs., 687 F.3d at 1278.

FairWarning further argues that the district court in-

correctly found that its patents preempt the field of

HIPAA regulation compliance. FairWarning contends

that, while HIPAA regulations require certain privacy

protections for PHI, they do not mandate a particular set

of specific response measures. But even assuming that

the ’500 patent does not preempt the field, its lack of

preemption does not save these claims. As this court

explained in Ariosa, “[w]hile preemption may signal

patent ineligible subject matter, the absence of complete

preemption does not demonstrate patent eligibility.”

Ariosa, 788 F.3d at 1379; see also OIP Techs., 788 F.3d at

1362–63. So too here. That the ’500 patent’s claims

might not preempt the entire field of HIPAA compliance

“do[es] not make them any less abstract.” OIP Techs., 788

F.3d at 1363.

Finally, FairWarning argues that “there is an identi-

fied claim construction issue” that precludes dismissal

under Rule 12(b)(6). Appellant Br. 19. FairWarning

appears to argue that, under a correct construction, the

district court would have understood the term audit log

data to “exist[] in the computer environment after at least

one of [the] transactions or activities . . . are executed in

the computer environment by an authorized user.” Id. at

FAIRWARNING IP, LLC v. IATRIC SYSTEMS, INC. 15

30 (emphases omitted). The implication of this construc-

tion, FairWarning argues, would be that “the ‘500 patent

is necessarily rooted in computer technology.” Id. But

this is the same argument we dismissed above, cloaked as

claim construction. Simply requiring computer imple-

mentation of an otherwise abstract-idea process, as Fair-

Warning would require of the claim, does not make the

claims patent eligible. Regardless of the resolution of this

construction issue, the ’500 patent claims patent-

ineligible subject matter.

CONCLUSION

We have considered FairWarning’s remaining argu-

ments and find them unpersuasive. For the forgoing

reasons, we affirm the district court’s determination that

the claims of the ’500 patent recite patent-ineligible

subject matter under § 101 and its dismissal of FairWarn-

ing’s infringement suit.

AFFIRMED