[00:00:24] Speaker 02:
Okay, our last case this morning is number 16-1521, America's Collectibles Network versus the Jewelry Channel.

[00:00:34] Speaker 02:
Mr. Jones.

[00:00:36] Speaker 04:
Thank you, Your Honor, and may it please the Court.

[00:00:38] Speaker 04:
I hate starting off oral arguments this way, but I need to make an apology first.

[00:00:42] Speaker 04:
There is a mistake in our brief that I didn't find until I was prepared for the argument.

[00:00:47] Speaker 04:
It's page 17, the middle paragraph in the brief under Section C.

[00:00:53] Speaker 03:
Every time we say ACN, it should really be the jewelry channel.

[00:00:57] Speaker 03:
And every time we say the jewelry channel, it should really be ACN.

[00:01:01] Speaker 03:
But I think it's fairly clear that it's an obvious mistake.

[00:01:05] Speaker 02:
So why isn't this an abstract idea, using preliminary indicators to adjust the amount being sold?

[00:01:12] Speaker 02:
I mean, like, you read in the newspaper right now that OPEC does that.

[00:01:17] Speaker 02:
They look at preliminary indicators.

[00:01:19] Speaker 02:
They decide how much oil to sell.

[00:01:21] Speaker 02:
and because this is going to affect the price.

[00:01:25] Speaker 02:
And why isn't that sort of a common thing that's been done for years, decades, centuries perhaps?

[00:01:34] Speaker 02:
And what's involved here is applying that in the context of a reverse auction.

[00:01:39] Speaker 04:
Yes, Your Honor, and that's exactly the point.

[00:01:42] Speaker 04:
It's not conventional.

[00:01:44] Speaker 04:
It's never been done.

[00:01:45] Speaker 04:
It's unique in the context of a reverse auction.

[00:01:49] Speaker 04:
We're not saying that these

[00:01:51] Speaker 04:
these components, these preliminary indicators never existed.

[00:01:55] Speaker 02:
But what we're saying is that the inventive concept here is the way that these... So you're saying this well-established method of dynamic pricing is patentable because for the first time you're applying it in reverse auctions?

[00:02:11] Speaker 04:
No, Your Honor.

[00:02:11] Speaker 04:
We're saying that it's unique and it's patent eligible and it's an inventive concept because it's applied in reverse auctions

[00:02:21] Speaker 04:
solely confined to the TV and internet.

[00:02:24] Speaker 04:
And that's the key.

[00:02:25] Speaker 04:
Just like this court's previous cases, and I think it's the DDR Holdings case, which found an internet-centric solution to a problem, that's exactly what this is here, Your Honor.

[00:02:43] Speaker 04:
It's a TV and internet-centric solution, an inventive concept that's confined to reverse options

[00:02:51] Speaker 04:
and a particular type of reverse auction that only is conducted over the internet and over television.

[00:03:00] Speaker 04:
And one of the things that I would ask that Your Honors do, if one of the most important things here is to understand what a reverse auction is, and particularly to understand what this reverse auction that's claimed in the 211 patent is.

[00:03:15] Speaker 04:
And I would direct Your Honor's attention if you want to

[00:03:18] Speaker 04:
get a really good background on this and see one in action, go to the website www.shoplc.com and click on the watch live TV link that's on that page and you will see this type of reverse auction which our expert witness deemed to be, he calls it a

[00:03:39] Speaker 04:
multiple same item reverse auction.

[00:03:43] Speaker 04:
That's an extremely narrow field, an extremely narrow and extremely unique type of reverse auction.

[00:03:52] Speaker 04:
And it's our belief that there's only a handful of those auctions that exist in the world, at least over the TV and internet, as required in the claims.

[00:04:04] Speaker 04:
And the auctions that do exist

[00:04:08] Speaker 04:
that use this type of reverse auction, this MSIRA auction, are confined generally to the sale of jewelry.

[00:04:18] Speaker 04:
And it's why we're here today.

[00:04:20] Speaker 04:
And Your Honors, the abstract idea, Judge Dyke, you went immediately to accepting, I believe, or at least stating the question as, why is the use of preliminary indicators not the abstract idea?

[00:04:36] Speaker 04:
And the reason why it's not is because that's not the abstract idea.

[00:04:41] Speaker 04:
This court's cases, Bascom, Rapid Litigation Management, the CLS Bank case, which came out before Alice was decided, and another one, Electric Power Group, as well as a recent case that came out after our briefs were filed, the Affinity Labs versus Direct TV case, they all say,

[00:05:05] Speaker 04:
that the abstract idea that you have to identify first in this Section 101 analysis is the basic underlying concept of the patent.

[00:05:15] Speaker 04:
It's not what's claimed.

[00:05:17] Speaker 04:
If you look at Alice, what the Supreme Court said is that the abstract idea was the intermediated settlement.

[00:05:26] Speaker 04:
That's from the preamble of the Alice patent.

[00:05:29] Speaker 04:
This court has said in Bascom, an electric power group

[00:05:35] Speaker 04:
rapid litigation management, you've identified the abstract idea.

[00:05:40] Speaker 04:
And every single time, the statement of what the abstract idea is comes directly out of the preamble and the claim.

[00:05:49] Speaker 00:
Can I just ask this?

[00:05:51] Speaker 00:
And this is, I guess, maybe more of a doctrinal question.

[00:05:54] Speaker 00:
I'm not sure we've actually said, and part of my question is, I'm not sure it actually makes any sense to say that we always have to identify

[00:06:04] Speaker 00:
a particular abstract idea in step one in order to move to step two.

[00:06:10] Speaker 00:
It seems to me that there are large categories of activities that constitute, that fall under the abstract idea category.

[00:06:18] Speaker 00:
Selecting information, manipulating information, entering into legal contracts, and you can define those in any given

[00:06:28] Speaker 00:
case at an infinite variety of levels of generality.

[00:06:33] Speaker 00:
And I'm not sure what the point is of spending a lot of energy defining the proper level of generality for step one.

[00:06:40] Speaker 00:
The question is always, what is the affirmative set of steps or set of physical structures or set of something

[00:06:51] Speaker 00:
that is outside that category.

[00:06:54] Speaker 00:
It's a search for something affirmative so that it doesn't really advance the inquiry to say, well, the abstract idea is something extremely general, and now let's look at all the details in the claim where all of those details are themselves abstract.

[00:07:09] Speaker 00:
You haven't done anything.

[00:07:11] Speaker 00:
Why is this not a case in which everything going on here is formation of

[00:07:20] Speaker 00:
terms of contracts, sales offers, based on information you think is relevant.

[00:07:27] Speaker 00:
Full stop, every bit of that is abstract.

[00:07:30] Speaker 04:
And your honor, you must be referring to an analogy with the OIP case, which the board used and which your channel does here, because that's the kind of cost issue, the contract issue that's being raised.

[00:07:44] Speaker 04:
This is not a contract formation issue.

[00:07:46] Speaker 00:
This is- You're deciding

[00:07:48] Speaker 00:
How many units to offer and at what price?

[00:07:52] Speaker 04:
No, Your Honor.

[00:07:54] Speaker 04:
Ultimately, that is what is being decided.

[00:07:56] Speaker 04:
But the effect is not the formation of the contract.

[00:08:00] Speaker 04:
The effect is minimizing the amount of time, the amount of internet time, the amount of TV time that it takes that the auctioneer has to purchase before they can move on to selling the next item.

[00:08:19] Speaker 04:
determining the amount of time it takes to sell all of the lot, all the quantity of the product that's being sold.

[00:08:29] Speaker 04:
And that's why I want to take you to what this type of auction is and what it does.

[00:08:34] Speaker 04:
Let's say you start out with 100 necklaces for sale.

[00:08:38] Speaker 04:
And the auctioneer will set a bidding price, a starting price of, let's say, $100 each.

[00:08:45] Speaker 04:
and you get 10 people either clicking in through the internet or calling in on the telephone line who say, I'll buy at $100.

[00:08:55] Speaker 04:
I'll buy at $100.

[00:08:56] Speaker 04:
And you get 10 of them.

[00:08:58] Speaker 04:
Well, the sale is not completed until that person's credit card is charged.

[00:09:05] Speaker 04:
And this is not like a formal

[00:09:07] Speaker 04:
Ford auction where people walk in, they give a credit card to the people running the auction, and so they know that if you bid and if you ultimately win the auction for the highest bid on something, you're going to pay.

[00:09:21] Speaker 04:
The sale's going to be completed.

[00:09:23] Speaker 04:
In the context of the internet and TV, there is no guarantee that when I go click in and say, I want to buy that necklace, or I call in and say, I want to buy that necklace,

[00:09:34] Speaker 04:
that I'm going to actually complete the sale.

[00:09:37] Speaker 04:
My credit card could be declined.

[00:09:39] Speaker 04:
I could decide during the whole discussion that I'm not really interested in that necklace.

[00:09:45] Speaker 04:
I could decide to close my web browser.

[00:09:47] Speaker 04:
My computer could go haywire, and I lose it.

[00:09:50] Speaker 04:
So those first 10 people that call in, there's no guarantee that they're going to actually go through and complete a sale.

[00:09:58] Speaker 04:
So what does the auctioneer do?

[00:10:00] Speaker 04:
The auctioneer has three options.

[00:10:02] Speaker 04:
The auctioneer can say, okay, I'm going to take them all in order and I'm going to charge everyone's credit card and that way I know that I have sold 10 items.

[00:10:13] Speaker 04:
And as soon as I have charged 10 credit cards, then I can reduce the available quantity to 40 and the auction continues.

[00:10:21] Speaker 04:
And ultimately you get down to zero.

[00:10:24] Speaker 04:
This goes on and the price drops because the auctioneer is trying to encourage people to buy at lower prices because everyone's going to end up buying at a lower price.

[00:10:34] Speaker 04:
And that's another unique problem in this area.

[00:10:38] Speaker 04:
When I call in and charge my credit card $100, well, if the falling price on the auction actually ends up at $5, then there has to be a refund or a release on my card or a new charge on my card at $5 as opposed to the $100.

[00:10:57] Speaker 04:
So that's one option for the auctioneer.

[00:10:59] Speaker 04:
The auctioneer can wait.

[00:11:00] Speaker 04:
until a sale is completed before reducing the quantity.

[00:11:07] Speaker 04:
And so it reduces the quantity one by one as each credit card is charged.

[00:11:12] Speaker 04:
Well, Your Honor, imagine the time that that takes.

[00:11:15] Speaker 04:
The auctioneer, they're only 24 hours in a day, and most of these auctions run 24 hours a day.

[00:11:21] Speaker 04:
And the auctioneer's desire is to go forward with as many auctions as possible during the day, to put out as many products.

[00:11:32] Speaker 04:
And if they have to wait on the credit card being charged, that's going to slow it down.

[00:11:37] Speaker 04:
Now, what the auctioneer could do is the first 10 callers say, OK, all those are going to be good.

[00:11:43] Speaker 04:
So I'm going to keep accepting bids.

[00:11:46] Speaker 04:
So let's say 10 people call in.

[00:11:48] Speaker 04:
The auctioneer says, OK, I'm going to sell 10 products now.

[00:11:52] Speaker 04:
I'm going to keep taking calls and internet clicks.

[00:11:55] Speaker 04:
And let's say 100 people actually click in before they can complete the sale of 50.

[00:12:04] Speaker 04:
Well, all those people who click in or call in are expecting to get a necklace.

[00:12:10] Speaker 04:
Well, what's going to happen to the auctioneer's reputation

[00:12:14] Speaker 04:
If I happen to be number 78 and I clicked in and I thought I had bought this necklace at $5 or $100 or whatever it is, but the auctioneer is now in an oversold situation.

[00:12:29] Speaker 04:
Eventually, nobody's going to use that auction website any longer because the auctioneer is going to have a reputation that they sell products that they don't have.

[00:12:39] Speaker 04:
And then finally, the third option that the auctioneer could do

[00:12:43] Speaker 04:
is they could say, OK, I'm only going to count 10.

[00:12:48] Speaker 04:
I'm going to do it really slowly.

[00:12:50] Speaker 04:
And at some point, I'm going to get to zero showing on the available quantity.

[00:12:56] Speaker 04:
But I really have a bunch of products still left because I never completed the sales.

[00:13:01] Speaker 04:
So then they're in an undersold situation.

[00:13:04] Speaker 04:
And they have lots of inventory.

[00:13:06] Speaker 04:
Instead of having 100 necklaces, and they thought they'd sell out of 100 necklaces,

[00:13:11] Speaker 04:
Now they actually have 25 or 30 still laying around that they're going to have to resell at a later auction.

[00:13:17] Speaker 04:
That's the inventive concept.

[00:13:18] Speaker 04:
That's the problem.

[00:13:19] Speaker 04:
And this, Your Honors, is unique, unique to television and internet.

[00:13:25] Speaker 04:
And it's also unique.

[00:13:27] Speaker 04:
And this is where the preemption issue, the preemption concern, comes into play.

[00:13:32] Speaker 04:
It's unique.

[00:13:33] Speaker 04:
in terms of the fact that this is a very rare form of auction.

[00:13:38] Speaker 04:
A multiple same item reverse auction is a unique thing.

[00:13:43] Speaker 04:
You're well into your little... I see that, Your Honor, and I'll reserve the rest of my time for rebuttal.

[00:13:48] Speaker 04:
Thank you.

[00:13:48] Speaker 02:
Mr. Turner.

[00:13:52] Speaker 01:
Good morning, Your Honors.

[00:14:02] Speaker 01:
May it please the court?

[00:14:05] Speaker 01:
The patented issue in this case is an abstract idea with no meaningful limitation on that idea.

[00:14:11] Speaker 01:
And we would ask that this court affirm the board's decision below finding the unpatentability.

[00:14:19] Speaker 01:
The focus of our analysis in this case has been

[00:14:25] Speaker 01:
about the human mental processes that are apparent, that are described by this patent.

[00:14:32] Speaker 01:
And that's the way we've described the abstract idea.

[00:14:35] Speaker 01:
And we did that because the patent says that all of the concepts here can be carried out by a person.

[00:14:43] Speaker 01:
And during prosecution, when they originally filed these claims, the claims were originally written so that all of the elements, the use of these preliminary indicators, all of that,

[00:14:54] Speaker 01:
would have been carried out by what the patent calls a TV producer, and as the patent says, the TV producer could be a person.

[00:15:04] Speaker 01:
This concept that the use of preliminary indicators can be carried out entirely by human mental steps, this was something that

[00:15:13] Speaker 01:
ACN's expert, Dr. Weil, that he agreed with, that he mentions in his declaration, and that he agreed with during his deposition.

[00:15:20] Speaker 01:
And this is something that ACN's counsel even acknowledged before the board below.

[00:15:25] Speaker 01:
And of course, there are a line of cases from this court and from the Supreme Court referring to human mental processes as being an abstract idea.

[00:15:39] Speaker 01:
In this case, on this point, the only rebuttal that we've gotten from ACN on this point is that the claims literally recite a system for carrying out some of these steps, the use of preliminary indicators to decrement the number of available units.

[00:15:58] Speaker 01:
And our position is that the mere recitation of a system doesn't change the fact that the underlying concept is something that can be carried out by human mental steps.

[00:16:06] Speaker 01:
And the idea that

[00:16:08] Speaker 01:
reciting a system would somehow excuse or allow the claiming of human mental processes goes against what the courts have said in Mayo and in Alice that this has to be more than just a draftsman's art.

[00:16:26] Speaker 01:
And in the opening portion of this argument, there was some discussion about

[00:16:32] Speaker 01:
the scope of the abstract idea, whether it is just a reverse auction or whether it includes the claimed use of preliminary indicators.

[00:16:43] Speaker 01:
And it was discussed that maybe the scope of this abstract idea isn't the most critical question here.

[00:16:49] Speaker 01:
But what I would say is that we agree that it's important to identify the fundamental concepts that are wrapped up in the claims here.

[00:17:00] Speaker 01:
But the approach that ACN has proposed that would only address, let's say, the field of the invention or the preambles of the invention and essentially ignore the rest of the claim language or ignore the rest of the specification, that approach, there's no basis for a rule in that regard.

[00:17:21] Speaker 01:
And certainly that approach would then exclude any allegedly inventive concepts from a patent,

[00:17:29] Speaker 01:
being considered as part of the abstract idea.

[00:17:31] Speaker 01:
If you're only going to look at the field of the invention, you're only going to look at the preambles, then not only has this court not done that.

[00:17:38] Speaker 01:
And I think ACN's counsel mentioned the Bazcom case.

[00:17:42] Speaker 01:
The Bazcom case expressly said that some courts will include the detailed claim limitations in the abstract concept that they find.

[00:17:51] Speaker 01:
And in that particular case, this court said that it was a close call, but they weren't going to do it there.

[00:17:58] Speaker 01:
So I don't think there's any basis for saying there's some sort of rule that the nuances of the claims can't be considered the abstract idea.

[00:18:06] Speaker 01:
Here, because they can be carried out by human mental steps, they are abstract.

[00:18:10] Speaker 01:
And that takes us through, excuse me, that takes us through at least step one of the Alice inquiry.

[00:18:18] Speaker 01:
Once we've decided that the, excuse me,

[00:18:24] Speaker 01:
Once we've identified that there are abstract concepts here, if you agree with our position, as we've laid out in our briefs, that the use of preliminary indicators to decrement the number of items, if you agree with us that that is an abstract human mental process, then in this particular case, that ends the inquiry because ACN has not pointed to any other aspect of the claimed invention here that would

[00:18:52] Speaker 01:
somehow grant some eligibility.

[00:18:55] Speaker 01:
So if the use of preliminary indicators is abstract, there really isn't that much more to discuss here.

[00:19:01] Speaker 01:
So I think in the end, if for some reason that the abstract idea were not to include that use of preliminary indicators, we would agree, as Judge Turenda pointed out, that the precise definition of the abstract idea here is not

[00:19:23] Speaker 01:
entirely critical because what we're talking about is being able to guess when a customer is going to buy an item.

[00:19:32] Speaker 01:
And as ACN's council just said, there is no guarantee that a customer is going to buy.

[00:19:37] Speaker 01:
And what they've described here is somewhat of this idea that preliminary indicators, which they've described as anything that indicates that a customer is actually going to buy.

[00:19:48] Speaker 01:
What they're describing here is a human auctioneer being able to just say,

[00:19:53] Speaker 01:
I think this customer is going to buy based on what I know about that customer.

[00:19:57] Speaker 01:
That concept is a human mental process that is abstract and cannot somehow confer eligibility on these claims.

[00:20:08] Speaker 01:
I do want to touch quickly on ACN mentioned the DDR case.

[00:20:14] Speaker 01:
They are trying to draw a comparison between the internet-centric claims in that case and what's going on here.

[00:20:22] Speaker 01:
They mentioned it too.

[00:20:23] Speaker 01:
This patent describes televised auctions that are communicated by telephone as well as auctions that are performed over the internet.

[00:20:32] Speaker 01:
The DDR holding is specifically about internet-centric problems.

[00:20:35] Speaker 01:
That was, as you know, that was about website pop-up ads and it dealt with problems that specifically relate to the internet age.

[00:20:46] Speaker 00:
This is not the... Even more than that, to the

[00:20:51] Speaker 00:
physical and programming structure of the particular set of networks that make up the internet.

[00:20:58] Speaker 00:
It's not just the internet page, not just, you know, this is sort of about the internet, but about the actual technical way the internet works, whether you can put on a screen information from two different sources on the internet.

[00:21:15] Speaker 01:
Yes, that's correct, Your Honor.

[00:21:16] Speaker 01:
I was shorthanding it a bit, but I agree with you.

[00:21:19] Speaker 01:
It's much more detailed than that.

[00:21:20] Speaker 01:
And certainly in this situation, that's not what we have here.

[00:21:25] Speaker 01:
It can be done online.

[00:21:26] Speaker 01:
That doesn't mean that the DDR Holdings case somehow controls the outcome here.

[00:21:37] Speaker 01:
The last thing I would say is that Your Honor mentioned the affirmative elements in this case.

[00:21:49] Speaker 01:
What we're talking about here at bottom is a business solution to a business problem.

[00:21:54] Speaker 01:
Can we sell enough items?

[00:21:55] Speaker 01:
Do we know that our customers are going to buy this product?

[00:21:58] Speaker 01:
In the end, those are business decisions that are made guessing as to whether a customer is actually going to buy.

[00:22:03] Speaker 01:
And that doesn't confer patent eligibility here.

[00:22:07] Speaker 02:
OK.

[00:22:07] Speaker 02:
Thank you, Mr. Chairman.

[00:22:07] Speaker 02:
Thank you.

[00:22:11] Speaker 04:
Your honor, I'm not aware of any law that says merely because something may be performed in a human's mind, it's not patentable.

[00:22:21] Speaker 04:
If that were the law, then no business method would ever be patentable.

[00:22:27] Speaker 04:
Now, I understand that there is a push in some sectors to outlaw business method patents altogether.

[00:22:35] Speaker 04:
But that's a question for Congress and not a question for this court.

[00:22:39] Speaker 00:
But can you give us an example of any cases where a method that was solely performable and a human mind has been sustained as eligible?

[00:22:47] Speaker 04:
Your Honor, I would have to go back and look, but I can't think of any off the top of my head.

[00:22:52] Speaker 04:
But that's never been the test.

[00:22:54] Speaker 04:
That is not mentioned in the Alice case, which is what now controls Section 101.

[00:23:02] Speaker 04:
Obviously, the way people used to do it and the way this patent was prosecuted

[00:23:07] Speaker 04:
because it was pre-ALIS, was whoever prosecuted the case added the element of it being conducted, the reverse auction being conducted by a system.

[00:23:17] Speaker 04:
That's what the examiner required.

[00:23:18] Speaker 04:
The examiner even made a section 101 rejection.

[00:23:22] Speaker 04:
But I'm not aware of any case that says every time a process, a method, can be performed in the human mind, it is per se patent and eligible.

[00:23:35] Speaker 04:
I'm not aware of a case that says that.

[00:23:37] Speaker 04:
Certainly, it's a consideration.

[00:23:39] Speaker 04:
But your honors, if that were the black letter rule, then I submit to you, there would not be a single business method that would be upheld as patent eligible.

[00:23:52] Speaker 04:
Now, I think the court here has an opportunity to do two things.

[00:23:55] Speaker 04:
And let me quickly say this.

[00:23:58] Speaker 04:
One, make it clear that you have to choose the right abstract idea first.

[00:24:04] Speaker 04:
I think you have to do that.

[00:24:06] Speaker 04:
And secondly,

[00:24:07] Speaker 04:
I think this is a perfect opportunity for this court to determine whether or not the second step of Alice, the transformation test, into something significantly more is a question of law or a question of fact.

[00:24:22] Speaker 02:
OK.

[00:24:22] Speaker 02:
Thank you, Mr. Jones, for the time.

[00:24:25] Speaker 02:
Thank you.

[00:24:25] Speaker 02:
I thank both counsel.

[00:24:26] Speaker 02:
The case is submitted.

[00:24:27] Speaker 02:
That concludes our session for today.