Post-Alice Decision on 35 U.S.C. 101, Software Patent Held Statutory, DDR Holdings, LLC v. Hotels.com, L.P. , Federal Circuit 2014
This is an important recent case in the history of software patents.
Defendants National Leisure Group, Inc. and World Travel Holdings, Inc. (collectively “NLG” hereafter) appealed from a judgment of the U.S. District Court for the Eastern District of Texas in which a judgment was entered in favor of DDR. A jury found that defendants infringed U.S. Patent Nos. 6,993,572 and 7,818,399, that the claims were valid, and awarded $750,000 in damages. On appeal to the Federal Circuit, the asserted claims of the ‘572 patent were held to be anticipated and vacated the award of damages and prejudgment interest.
On the other hand, the Federal Circuit found that the ‘399 patent included patent-eligible subject matter under 35 U.S.C. 101, and that the claims were valid and infringed. The ‘399 patent relates to the problem of retaining website visitors. Claim 19 was 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 computer 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.
Claim 19 of the ’399 patent requires that a “data store” hold “visually perceptible elements” (or “‘look and feel’ elements”) that “visually. . . correspond” to a host web page. The host web page must include a link associated with a “buying opportunity” with a merchant.
Once a visitor activates this link, the claimed system generates and transmits to the website visitor’s web browser a composite web page that includes product information of the merchant and the “look and feel” of the host website (i.e., “the plurality of visually perceptible elements visually corresponding to the [host web] page”).
Claim 19 further requires that the data store must store “look and feel” descriptions for multiple hosts and that each link must be associated with a particular merchant’s product catalog.
Claim 19 also requires that the merchant, system operator, and host website be “third parties with respect to one another.” When a website visitor activates a link associated with a merchant’s product catalog, the claimed system identifies the host web page and then transmits a composite web page using the proper “look and feel” elements of the host website in the data store and the product information from the associated merchant.
The Federal Circuit noted that in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1294 (2012), the Supreme Court set forth an analytical framework under §101 to distinguish patents that claim patent-ineligible laws of nature, natural phenomena, and abstract ideas—or add too little to such underlying ineligible subject matter—from those that claim patent-eligible applications of those concepts. First, given the nature of the invention in this case, the Federal Circuit must determine whether the claims at issue are directed to
a patent-ineligible abstract idea of the type described in Alice Corp. v. CLS Bank Int’l (see below). If so, the Federal Circuit should then 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 of that abstract idea. This second step is the search for an “inventive concept,” or some element or combination of elements sufficient to ensure that the claim in practice amounts to “significantly more” than a patent on an ineligible concept.
The Federal Circuit recognized that distinguishing between claims that recite a patent-eligible invention and claims that add too little to a patent-ineligible abstract concept can be difficult, as the line separating the two is not always clear. At one time, a computer-implemented invention was considered patent-eligible so long as it produced a “useful, concrete and tangible result.” This was the test of State St. Bank & Trust Co. v. Signature Fin. Grp., Inc. (Fed. Cir. 1998) (finding a machine that transformed data by a series of mathematical calculations to a final share price to be patent-eligible); see also In re Alappat (Fed. Cir. 1994) (en banc). This understanding rested, in large part, on the view that such inventions crossed the eligibility threshold by virtue of being in the technological realm, the historical arena for patented inventions. See, e.g. , In re Bilski (Fed. Cir. 2008) (en banc) (concluding that a patent-eligible process must either be “tied to a particular machine or apparatus” or transformed into a different state or thing, i.e., the “machine-or-transformation test”).
While the Supreme Court in Bilski v. Kappos noted that the machine-or-transformation test is a “useful and important clue” for determining patent eligibility, 130 S. Ct. 3218, 3227 (2010), it is clear today that not all machine implementations are created equal. For example, in Mayo, the Supreme Court emphasized that satisfying the machine-or-transformation test, by itself, is not sufficient to render a claim patent-eligible, as not all transformations or machine implementations infuse an otherwise ineligible claim with an “inventive concept.” “[S]imply implementing a mathematical principle on a physical machine, namely a computer, [i]s not a patentable application of that principle.”) (describing Gottschalk v. Benson, 409 U.S. 63, 64 (1972)). And after Alice, there can remain no doubt: recitation of generic computer limitations does not make an otherwise ineligible claim patent-eligible. The bare fact that a computer exists in the physical rather than purely conceptual realm “is beside the point.”
Against this background, the Federal Circuit turned to the ’399 patent’s asserted claims. They began their §101 analysis at Mayo/Alice step one: determining whether the computer-implemented claims at issue here are “directed to” a patent-ineligible abstract idea. Here, they noted that the ’399 patent’s asserted claims do not recite a mathematical algorithm. Nor do they recite a fundamental economic or longstanding commercial practice. Although the claims address a business challenge (retaining website visitors), it is a challenge particular to the Internet.
The Federal Circuit noted that, indeed, identifying the precise nature of the abstract idea is not as straightforward as in Alice or some other recent abstract idea cases. NLG’s own varying formulations of the underlying abstract idea illustrate this difficulty. NLG characterizes the allegedly abstract idea in numerous ways, including “making two web pages look the same,” “syndicated commerce on the computer using the Internet,” and “making two e-
commerce web pages look alike by using licensed trademarks, logos, color schemes and layouts.” The dissent characterizes DDR’s patents as describing the entrepreneurial goal “that an online merchant’s sales can be increased if two web pages have the same ‘look and feel.’”
The Federal Circuit stated that under any of these characterizations of the abstract idea, the ’399 patent’s claims satisfy Mayo/Alice step two.
As an initial matter, it is true that the claims here are similar to the claims in the cases discussed above in the sense that the claims involve both a computer and the Internet. But these claims stand apart because they 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.
In particular, the ’399 patent’s claims address the problem of retaining website visitors that, if adhering to the routine, conventional functioning of Internet hyper-link protocol, would be instantly transported away from a host’s website after “clicking” on an advertisement and activating a hyperlink.
For example, asserted claim 19 recites a system that, among other things, 1) stores “visually perceptible elements” corresponding to numerous host websites in a database, with each of the host web-sites displaying at least one link associated with a product or service of a third-party merchant, 2) on activation of this link by a website visitor, automatically identifies the host, and 3) instructs an Internet web server of an “out-source provider” to construct and serve to the visitor a new, hybrid web page that merges content associated with the products of the third-party merchant with the stored “visually perceptible elements” from the identified host website.
The dissent argued that the “store within a store” concept, such as a warehouse store that contains a kiosk for selling a third-party partner’s cruise vacation packages, is a pre-Internet analog of the ‘399 patent’s asserted claims. While that concept may have been well-known by the relevant timeframe, that practice did not have to account for the ephemeral nature of an Internet location or the near-instantaneous transport between these locations, which introduces a problem that does not arise in the brick and mortar context.
The Federal Circuit cautioned that not all claims purporting to address Internet-centric challenges are eligible for patent. The claims in Ultramercial merely recited the abstract idea of “offering media content in exchange for viewing an advertisement” along with “routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet.”
The ‘399 patent’s claims are different enough in substance from those in Ultramercial because they do not broadly and generically claim “use of the Internet” to perform an abstract business practice. 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. Instead of the computer network operating in its normal, expected manner by sending the website visitor to the third-party website that appears to be connected with the clicked advertisement, the claimed system generates and directs the visitor to the above-described hybrid web page. The claims recite an invention that is not merely the routine or conventional use of the Internet.
This case is helpful in that it is a post-Alice decision that finds software claims to be statutory subject matter. The key seems to be in not using the Internet or a computer to perform a business practice known from the pre-Internet world.