RaceTech, LLC v. Ky. Downs, LLC

167 F.Supp.3d 853

RaceTech, LLC, Plaintiff

v.Kentucky Downs, LLC, Encore Gaming, LLC, Defendants

CIVIL ACTION NO. 1:15-CV-00059-GNS

United States District Court, W.D. Kentucky, Bowling Green Division.

Signed February 29, 2016

Filed March 01, 2016

E. Kenly Ames, English, Lucas, Priest & Owsley LLP, Bowling Green, KY, Mark A. Thomas, Richard L. Brophy, Armstrong Teasdale, LLP, St. Louis, MO, for Plaintiff.

Mark A. Thurmond, Timothy J. Crocker, Crocker & Wilkey, Franklin, KY, Spiro Bereveskos, William A. McKenna, Woodard, Ernhardt, Moriarty, Mcnett & Henry, LLP, Indianapolis, IN, for Defendants.

MEMORANDUM OPINION AND ORDER

Greg N. Stivers, Judge, United States District Court

This matter is before the Court on Defendants' Motion to Dismiss (DN 21), Defendants' Motion to Dismiss for Failure to State a Claim (DN 22), and Defendants' Motion to Dismiss Amended Complaint (DN 29). The motions have been fully briefed and are ripe for decision. For the reasons stated below, the motions are GRANTED.

I. BACKGROUND

In 2002, the United States Patent and Trademark Office (“USPTO”) issued two patents to Plaintiff RaceTech, LLC (“RaceTech”): U.S. Patent Nos. 6,358,150 (“the '150 patent”) and 6,450,887 (“the '887 patent”). (Am. Compl. 3). Both patents granted RaceTech ownership in “methods and apparatus for pari-mutuel historical gaming.” U.S. Patent No. 6,358,150, at [54] (issued Mar. 19, 2002); U.S. Patent No. 6,450,887, at [54] (issued Sept. 17, 2002). In 2015, the USPTO issued a third patent—U.S. Patent No. 9,047,737 (“the '737 patent”), which claims “web based methods and apparatus for parimutual (sic) historical gaming.”¹ See U.S. Patent No. 9,047,737, at [54] (issued June 2, 2015).

Prior to the issuance of the '737 patent, RaceTech entered into a contract with Defendant Kentucky Downs, LLC (“Kentucky Downs”) licensing wagering devices utilizing the '150 and '887 patents. (Am. Compl. 3). Kentucky Downs later terminated the contract and entered into an agreement with Defendant Encore Gaming, LLC (“Encore”) for similar systems offering pari-mutuel gaming. (Am. Compl. 3).

On April 3, 2015, RaceTech filed its Complaint alleging infringement of the '887 and '150 patents. (Compl. 1, DN 1). On June 19, 2015, RaceTech amended its Complaint to add a claim for infringement of the '737 patent. (Am. Compl. 6). In the present motions, Defendants move to dismiss all claims pursuant to Fed. R. Civ. P. 12(b)(6), attacking the validity of the Asserted Patents under 35 U.S.C. § 101 on the basis that the patents claim the invention of an abstract idea or the implementation of an abstract idea with generic computer equipment. (Defs.' Mot. to Dismiss 1, DN 21; Defs.' Mot. to Dismiss 1, DN 22; Defs.' Mot. to Dismiss 2, DN 29).

II. JURISDICTION

The Court has subject matter jurisdiction over this action under 28 U.S.C. §§ 1331 and 1338(a) because it arises under the patent laws of the United States.

III. STANDARD OF REVIEW

In order to survive a challenge for failure to state a claim under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted) (citation omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). “[A] district court must (1) view the complaint in the light most favorable to the plaintiff and (2) take all well-pleaded factual allegations as true.”

Tackett v. M & G Polymers, USA, LLC , 561 F.3d 478, 488 (6th Cir.2009) (citation omitted). “But the district court need not accept a bare assertion of legal conclusions.” Id. (internal quotation marks omitted) (citation omitted). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.”² Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted) (citation omitted).

IV. DISCUSSION

A. Patent Eligibility under35 U.S.C. § 101

Under 35 U.S.C. § 101, patent protection is granted to “[whomever] invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, ... subject to the conditions of this title.” As an implicit limitation on this statutory standard, the U.S. Supreme Court has long recognized that laws of nature, natural phenomena, and abstract ideas are not patentable because these represent “the building blocks of human ingenuity” which should not be inhibited by the grant of monopolistic patents. Le Roy v. Tatham , 55 U.S. (14 How.) 156, 174–175, 14 L.Ed. 367 (1853) ; Mayo Collaborative Servs. v. Prometheus Labs., Inc. , ––– U.S. ––––, 132 S.Ct. 1289, 1293, 182 L.Ed.2d 321 (2012) (“[M]onopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it.”). On the other hand, the Supreme Court has expressed caution in application of the exclusionary principle, “lest it swallow all of patent law.” Alice Corp. Pty. Ltd. v. CLS Bank Int'l , ––– U.S. ––––, 134 S.Ct. 2347, 2354, 189 L.Ed.2d 296 (2014) (citing Mayo , 132 S.Ct. at 1293–94 ). As the Supreme Court has noted, “in applying the Section 101 exception, we must distinguish between patents that claim the ‘buildin[g] block[s]’ of human ingenuity and those that integrate the building blocks into ‘something more’, thereby ‘transform[ing]’ them into a patent-eligible invention.” Id. (alterations in original) (internal citation omitted) (citation omitted).

In Alice Corp. Pty. Ltd. v. CLS Bank International, the Supreme Court articulated a two-step process for evaluating whether patent claims are directed to patent-eligible concepts versus laws of nature and abstract ideas, embodying “the longstanding rule that [a]n idea of itself is not patentable ....” Id. at 2355 (internal quotation marks omitted) (citation omitted). The Supreme Court explained:

[W]e determine [first] whether the claims at issue are directed to one of those patent-ineligible concepts. If so, we then ask “[w]hat else is there in the claims before us?” To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application.

Id. at 2355 (third alteration in original) (internal citations omitted) (quoting Mayo , 132 S.Ct. at 1296–98 ). This second step is a “search for an ‘inventive concept’—i.e., an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent on the [ineligible concept] itself.’ ” Id. (alteration in original) (quoting Mayo , 132 S.Ct. at 1294 ).

The Court in Alice initially determined that the patent claims before it—a method of exchanging financial obligations between parties through “shadow accounts” managed by a third party using generic computer equipment—was equivalent to intermediated settlement, a practice “long prevalent in our system of commerce ....” Id. at 2356 (quoting Bilski v. Kappos , 561 U.S. 593, 611, 130 S.Ct. 3218, 177 L.Ed.2d 792 (2010) ). In describing the method before it as a “fundamental economic practice,” the Court held that the intermediated settlement claims constituted an abstract idea. Id. at 2357 (citation omitted). The Court further found the patent lacking any transformation sufficient to elevate the abstract idea into a patent-eligible application. See id. at 2357–58. “Taking the claim elements separately, the function performed by the computer at each step of the process is ‘[p]urely conventional.’ Using a computer to create and maintain ‘shadow’ accounts amounts to electronic recordkeeping—one of the most basic functions of a computer.” Id. at 2359 (citation omitted). Utilizing computers to obtain data, adjust account balances, and issue automated instructions did “no more than require a generic computer to perform generic computer functions.” Id.

The Supreme Court concluded that the methods claims “amount[ed] to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer. Under our precedents, that is not ‘enough ’ to transform an abstract idea into a patent-eligible invention.” Id. at 2359–60 (internal citation omitted) (citations omitted). Reaching the same conclusion with respect to the system claims, the Court stated:

[T]he system claims are no different from the method claims in substance. The method claims recite the abstract idea implemented on a generic computer; the systems recite a handful of generic computer components to implement the same idea. ... Because [the] system and media claims add nothing of substance to the underlying abstract idea, we hold that they too are patent ineligible under § 101.

Id. at 2360.

The Supreme Court has not delineated the precise parameters for determining what constitutes an abstract idea or what additional “something” will suffice to boost the abstraction over the patentability threshold. One formulation that has been used to identify non-patentable abstract ideas is the “machine-or-transformation test.” Under this analysis, a process is patentable “only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” Bilski , 561 U.S. at 602, 130 S.Ct. 3218 (citation omitted). Although the Supreme Court rejected this as an exclusive test in Bilski v. Kappos, the Court also indicated that “the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes...