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Arthrex, Inc. v. Smith & Nephew, Inc.

| Category: Intellectual Property News

On February 14, 2018, the United States Court of Appeals for the Federal Circuit (“the Federal Circuit”) found in Aatrix Software, Inc. v. Green Shades Software, Inc. that Aatrix Software, Inc. (“Aatrix”) was entitled to file its proposed second amended complaint, holding that the District Court erred to the extent it granted the motion to dismiss filed by Green Shades Software, Inc. (“Green Shades”).

Aatrix sued Green Shades for infringing two of Aatrix’s patents, U.S. Patent No. 7,171,615 (“the ‘615 Patent”) and U.S. Patent No. 8,984,393 (“the ‘393 Patent”). These two patents are directed to systems and methods for designing, creating, and importing data into a viewable form on a computer so that a user can utilize the data to create forms and reports. Subsequently, Green Shades moved to dismiss the complaint under Rule 12(b)(6), arguing that all claims in the ‘615 Patent and the ‘393 Patent were patent ineligible under 35 U.S.C. § 101. The District Court granted Green Shade’s motion, concluding that the claims in the asserted patents were directed to abstract ideas without inventive concepts. Aatrix moved to modify and vacate the judgment, for reconsideration, and for leave to amend the complaint. The District Court denied these motions, providing that there is “no reason to reconsider its prior determination,” because the claimed data file “describes a ‘well understood’ and ‘routine’ component and function of a computer.” Aatrix appealed.

The Federal Circuit first determined this case was not properly adjudicated with finality at the Rule 12(b)(6) stage, because the District Court never considered claim construction. The Federal Circuit provided that patent eligibility can only be determined at the Rule 12(b)(6) stage when “there are no factual allegations that, taken as true, prevent resolving the eligibility question as a matter of law.” Since both Aatrix’s claim construction and Aatrix’s second amended complaint, contained factual allegations that, taken as true, would have affected the District Court’s eligibility analysis, a dismissal pursuant to Rule 12(b)(6) was not appropriate.

The Federal Circuit then analyzed the allegations within Aatrix’s proposed amended complaint, finding that Aatrix’s patents disclosed a tangible system. The Federal Circuit provided that the ‘615 Patent was directed to “a data processing system which clearly requires a computer operating software, a means for viewing and changing data, and a means for viewing forms and reports.” As a result, the Federal Circuit concluded that the District Court erred in holding claim 1 ineligible and even if it found claim 1 to be abstract, the District Court should have instead performed an Alice/Mayo analysis of claim 1. The Federal Circuit also found, within the second amended complaint, arguments that the claimed “data file” is “an improvement in the importation of data from third-party software applications.” Because of this, the District Court could not conclude at the Rule 12(b)(6) stage that the claimed elements were well-understood, routine, or conventional.

Because Aatrix’s factual allegations in its amended complaint should have prevented a dismissal pursuant to Rule 12(b)(6), the Federal Circuit vacated the District Court’s dismissal pursuant to Rule 12(b)(6) and reversed its denial of Aatrix’s motion for leave to file a second amended complaint.

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