Federal Circuit Finds Software Patent Claim Patent Eligible

Judge Ray Chen

Earlier today the United States Court of Appeals for the Federal Circuit issued a ruling in DDR Holdings, LLC v. Hotels.com, L.P. The appeal was brought by defendants National Leisure Group, Inc. and World Travel Holdings, Inc. (collectively, NLG), who appealed from a final judgment of the United States District Court for the Eastern District of Texas entered in favor of DDR Holdings. Following trial, a jury found that NLG infringed the asserted claims of U.S. Patent Nos. 6,993,572 and 7,818,399. The jury also found the asserted claims of the ’572 and ’399 patents were not invalid and awarded $750,000 in damages.

On appeal to the Federal Circuit, in an opinion written by Judge Chen and joined by Judge Wallach, determined that the asserted claims of the ’572 patent were anticipated under 35 U.S.C. § 102(a) and, therefore, vacated the award of damages and prejudgment interest to DDR, which had been collectively premised on infringement of the ’572 and ’399 patents and without apportionment.

Of particular interest, the Federal Circuit found that the ‘399 patent constituted patent eligible subject matter, was not invalid and was infringed. This is big news because in the wake of the Supreme Court’s decision in Alice v. CLS Bank software patents have been falling at alarming rate. Assuming this decision stands any further review we finally have some positive law to draw from that will provide clues into how to tailor patent claims to make them capable of overcoming what has become a significant hurdle to patentability— namely the abstract idea doctrine.

A Patent Eligible Software Claim

The ’399 patent’s claims address the problem of retaining website visitors. In the routine scenario, a website visitor who comes across a hyperlink they wish to follow would click on the link and would be instantly transported away from a host’s website. With the invention at issue deployed, a user who would activate a hyperlink would not be transported away, but rather would be directed to an “outsource provider” having a web server which directs the visitor to an automatically-generated hybrid web page that combines visual “look and feel” elements from both the host website and the third-party merchant’s website. Therefore, the host website does not instantly losing visitors to the third-party’s website.

System claim 19 of the ’399 was deemed to be representative and recites:

A system useful in an outsource provider serving web pages offering commercial opportunities, the system comprising:

(a) a computer store containing data, for each of a plurality of first web pages, defining a plurality of visually perceptible elements, which visually perceptible elements correspond to the plurality of first web pages;

(i) wherein each of the first web pages belongs to one of a plurality of web page owners;

(ii) wherein each of the first web pages displays at least one active link associated with a commerce object associated with a buying opportunity of a selected one of a plurality of merchants; and

(iii) wherein the selected merchant, the outsource provider, and the owner of the first web page displaying the associated link are each third parties with respect to one other;

(b) a computer server at the outsource provider, which computer server is coupled to the com- puter store and programmed to:

(i) receive from the web browser of a computer user a signal indicating activation of one of the links displayed by one of the first web pages;

(ii) automatically identify as the source page the one of the first web pages on which the link has been activated;

(iii) in response to identification of the source page, automatically retrieve the stored data corresponding to the source page; and

(iv) using the data retrieved, automatically generate and transmit to the web browser a second web page that displays: (A) information associated with the commerce object associated with the link that has been activated, and (B) the plurality of visually perceptible elements visually corresponding to the source page.

According to Judge Chen, the claims of the ‘399 patent stand apart from other software patent claims because these claims “do not merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet. Instead, the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.”

This broad statement seemingly stands in contrast to the Federal Circuit’s recent ruling in Ultramercial v. Hulu. Obviously mindful of this fact, Judge Chen quickly cautioned that this ruling was not to be interpreted as saying that all patent claims that address an Internet-centric problem are patent eligible. Judge Chen then attempted to distinguish the ruling in Ultramercial, saying:

The ’399 patent’s claims are different enough in sub- stance from those in Ultramercial because they do not broadly and generically claim “use of the Internet” to perform an abstract business practice (with insignificant added activity). Unlike the claims in Ultramercial, the claims at issue here specify how interactions with the Internet are manipulated to yield a desired result—a result that overrides the routine and conventional sequence of events ordinarily triggered by the click of a hyperlink… When the limitations of the ’399 patent’s asserted claims are taken together as an ordered combination, the claims recite an invention that is not merely the routine or conventional use of the Internet.

It is also clear that he claims at issue do not attempt to preempt every application of the idea of increasing sales by making two web pages look the same, or of any other variant suggested by NLG. Rather, they recite a specific way to automate the creation of a composite web page by an “outsource provider” that incorporates elements from multiple sources in order to solve a problem faced by websites on the Internet.

While I agree with the ruling on patent eligibility in this case, I’m not entirely sure how one could reach different outcomes in this case versus Ultramercial. The representative claim in Ultramercial was claim 1 of U.S. Patent 7,346,5455, which reads as follows:

A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;

a third step of providing the media product for sale at an Internet website;

a fourth step of restricting general public access to said media product;

a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;

a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;

a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;

an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;

a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;

a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and

an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

I suppose it is somewhat fair to say that the claim language used in the ‘545 patent is more typical, generic method language (i.e, selecting, providing, offering, allowing, etc.) and the claim language used in the ‘399 patent is at least marginally more specific (i.e., “in response… automatically retrieving”), but this seems like a very thin difference and a difference that is not at all likely to lead to a repeatable and consistent test that can be applied in a predictable way. I don’t think it is fair to say that the claim language describes “how interactions with the Internet are manipulated to yield a desired result.” That level of detail would require code, or at least detailed algorithms. Therefore, I think the difference Judge Chen is seeing is more about philosophy than about anything else.

Judge Mayer in Dissent

There was a dissent filed in this case, authored by Judge Mayer, who continues to make a name for himself as the most anti-patent Judge on the Federal Circuit. His considered opinion was that the claims asserted are not patent eligible because they cover no more than “an abstract concept—that an online merchant’s sales can be increased if two web pages have the same ‘look and feel’—and apply that concept using a generic computer.”

Mayer also further wrote: “Alice made clear that claims untethered to any advance in science or technology do not pass muster under section 101.” This is not the first time that Judge Mayer has taken a similar stand. In his concurring opinion in I/P Engine, Judge Mayer wrote: “Alice thus made clear that abstract ideas untethered to any significant advance in science and technology are ineligible for patent protection…” Recently in The California Institute of Technology v. Hughes Communications (Case No. 2:13-cv-07245-MRP-JEM), Judge Mariana Pfaelzer of the United States Federal District Court for the Central District of California, Western Division, pointed out that the Supreme Court Alice decision said nothing of the kind. Judge Pfaelzer correctly wrote:

[Judge Mayer’s] view overstates Alice’s holding. Alice held that an abstract business method remains abstract even if it is implemented on a generic computer performing generic functions. But Bilksi refused to hold that business method patents are ineligible, and a technological requirement seems to contradict [the Bilski] holding. At the very least, reading a technological requirement into § 101 is inconsistent with the section’s plain language.

Put aside for a moment that there is absolutely no support for what Judge Mayer writes in the statute, which I realize doesn’t mean much because it is apparent from Supreme Court decisions that they don’t actually read the statute before interpreting it. That notwithstanding, if you actually take the time to read Bilski you should reach the inescapable conclusion that the Supreme Court specifically left open the possibility that a business method that did not satisfy the machine-or-transformation test could still be patent eligible. This is significant because the transformation prong dealt with real-world tangible methods, which could not be applicable to business methods. Thus, the Supreme Court explicitly explained that a business method may be patent eligible even if not tethered to a machine! Thus, Judge Mayer is simply incorrect when he says the Supreme Court has required a technological requirement. They have not. Not in Bilski and not in Alice. In fact, if there were a technology requirement at least the system claims in Alice would have been found to be patent eligible because the inventor created a system to solve a problem.

Conclusion

While this decision today will hardly settle the law as applied to software patent claims and computer implemented methods and associated system claims, one thing we can know with great certainty is that Judge Mayer will rule against the patent owner and say that the claims in question are patent ineligible. He might as well have a rubber stamp made. We also know that he will continue to say that there is some scientific and technology requirement that only he seems to see. Even the Judges who otherwise agreed with him in Ultramercial weren’t willing to go out on that limb, which is telling. So no matter how many times he writes it won’t make it true.