The Software IP Report

Internet Business Method Claims Are and Are Not Patent-Eligible, Says Federal Circuit

By Charles Bieneman

Categories: Patent Eligibility, Software Patents, The Software IP Report

A Federal Circuit panel has found that patent claims directed to managing the look and feel of e-commerce web pages are patent-eligible under 35 U.S.C. § 101. DDR Holdings, LLC v., L.P., No. 2013-1505 (Fed. Cir. Dec. 5, 2014). The majority opinion was authored by Judge Chen, and joined by Judge Wallach. Judge Mayer filed a strong dissent. The DDR Holdings decision comes just weeks after a different Federal Circuit panel (Judges Lourie, Mayer, and O’Malley) took the Supreme Court’s strong hint and invalidated internet advertising patent claims at issue in the long running case of Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544 (Nov. 14, 2014) (“Ultramercial III”). The common thread in these seemingly irreconcilable cases seems to be Judge Mayer, who thought patent claims in both cases were not patent-eligible.

Ultramercial III

The Federal Circuit had twice previously held that claims of U.S. Patent No. 7,346,545 were patent-eligible under 35 U.S.C. § 101, the second such holding coming after the Supreme Court’s remand in the wake of Mayo v. Prometheus. Following its decision in CLS Bank v. Alice Corp., the Supreme Court vacated the Federal Circuit’s second Ultramercial decision, and again remanded. The third time around, the Federal Circuit, in an opinion authored by Judge Lourie, held that the claims of the ’545 patent were not patent-eligible.

The claims of the ’545 patent were directed to “distribution of products over the Internet via a facilitator,” i.e., an online advertising method that associated sponsor content with product displays. Independent claim 1 of the ’545 patent recited 11 steps for carrying out this method. Applying the Alice test, the court found that claim 1 first, recited an “abstract idea,” and second, did not recite any further limitations to transform the abstract idea into patent-eligible subject matter.

In particular, Judge Lourie’s opinion found that steps of this “process of receiving copyrighted media, selecting an ad, offering the media in exchange for watching the selected ad, displaying the ad, allowing the consumer access to the media, and receiving payment from the sponsor of the ad all describe an abstract idea, devoid of a concrete or tangible application.”  The claims did not recite any further inventive concept to transform these abstract ideas into patentable subject matter. Moreover, the claims recited their steps at a high level of generality; merely invoking the Internet did not confer patentability. The machine-or-transformation test was of no avail, because the claims recited only a general-purpose computer.

Judge Mayer’s Ultramercial III Concurrence

Judge Mayer wrote a twelve page concurrence to make points that he nicely summed up in his first paragraph:

First, whether claims meet the demands of 35 U.S.C. § 101 is a threshold question, one that must be addressed at the outset of litigation. Second, no presumption of eligibility attends the section 101 inquiry. Third, [Alice], for all intents and purposes, set out a technological arts test for patent eligibility. Because the purported inventive concept in Ultramercial’s asserted claims is an entrepreneurial rather than a technological one, they fall outside section 101.

The U.S .Supreme Court has stated that the section 101 question is a threshold legal inquiry, but Judge Mayer goes further, emphasizing that it should be resolved at the outset of litigation. And Judge Mayer could be correct about a trend in when Section 101 questions are decided. However, while many district judges have agreed with this approach, taking the opportunity to remove patent cases from their dockets, there is of course no legal requirement that patent-eligibility questions need to be resolved before claim construction, discovery, etc.

Judge Mayer’s second point is more interesting. The presumption that a patent is valid rests on the assumption that the United States Patent and Trademark Office has considered validity issues during prosecution of the patent application. However, it is hard to disagree with Judge Mayer that “the PTO has for many years applied an insufficiently rigorous subject matter eligibility standard.” Moreover, some of us in the prosecution trenches would say that the PTO is still not applying the same patent-eligibility standard as the federal courts, nor are individual technology centers or examiners necessarily consistent with one another. As Judge Mayer acknowledges, the Supreme Court has not addressed whether there is a presumption of patent-eligibility in Section 101 cases; nonetheless, this is a point worth bearing in mind.

Finally, as the DDR Holdings case, discussed below, makes clear, not everyone agrees with Judge Mayer that the applicable patent-eligibility test is now a “technological arts” test.

DDR Holdings

DDR Holdings involved U.S. Patent Nos. 6,993,572 and 7,818,399. The Court found that the ‘572 patent was invalid as anticipated by prior art under 35 U.S.C. § 102(a), and therefore focused on the ’399 patent. Claim 19 of the ’399 patent, which it is worth reproducing in whole, was cited as representative of the that patent’s claims at issue:

19.  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.

After much preamble, Judge Chen’s majority opinion dived into the now-familiar two-part test of Alice: (1) do the claims recite an “abstract idea,” and (2) if so, do the claims recite additional elements to make the abstract idea patent-eligible? Judge Chen began by stating that characterizing the “abstract idea” at issue here was “not as straightforward as in Alice or some of [the Court’s] other recent abstract idea cases.” Indeed, Judge Chen noted that the Appellant (“NLG”) and the dissent had characterized the alleged 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.’”

However, Judge Chen did not resolve the question of what, if any, abstract idea the ’399 patent claims recited because under “any of these characterizations of the abstract idea, the ’399 patent’s claims satisfy Mayo/Alice step two.”

The Court thought the claims here stood apart from other recent cases where patent claims “involve[d] both a computer and the Internet” because, the Court said, the ’399 patent 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.

That problem was “the problem of retaining website visitors that, if adhering to the routine, conventional functioning of Internet hyperlink protocol, would be instantly transported away from a host’s website after ‘clicking’ on an advertisement and activating a hyperlink.” Contrary to the dissent’s argument, this problem had no analog in the bricks and mortar world because it was the “challenge of retaining control over the attention of the customer in the context of the Internet that the ’399 patent’s claims address.”

Judge Chen then strove to distinguish the DDR Holdings result with the result in Ultramercial III. He explained that the ‘399 patent claims differed from the claims at issue in Ultramercial III because they “do not broadly and generically claim ‘use of the Internet’ to perform an abstract business practice (with insignificant added activity).” Ultramercial III presents claims lacking a characteristic present here: specifying “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.”

In part, as the foregoing suggests, the majority seems to be saying that the present claims are patent-eligible because they are narrower than other patent claims that were found not to be patent eligible, the claims in Ultramercial III being the most recent example. Judge Chen bolstered this notion by concluding his Section 101 patent-eligibility analysis with an explanation that the ’399 patent claims “do not attempt to preempt every application of the idea of increasing sales by making two web pages look the same.” Instead, the ’399 patent claims recited

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. As a result, the ’399 patent’s claims include “additional features” that ensure the claims are “more than a drafting effort designed to monopolize the [abstract idea].” Alice, 134 S. Ct. at 2357. In short, the claimed solution amounts to an inventive concept for resolving this particular Internet-centric problem, rendering the claims patent-eligible.

Hmm . . . weren’t the claims in Ultramercial also directed to “to an inventive concept for resolving [a] particular Internet-centric problem?”

Judge Mayer’s Dissent

Judge Mayer would have held that DDR Holdings’ patent claims “fall outside 35 U.S.C. § 101 because they simply describe 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.”

Judge Mayer objected that “DDR’s patents are long on obfuscation but short on substance,” and that “much of what they disclose is so rudimentary that it borders on the comical,” such as the disclosure that webpages using similar colors, layouts, and logos will look similar. The patent claims simply took the old and well-known idea of having a “store within a store” and applied it to the Internet.

Further, reiterating his Ultramercial III concurrence, Judge Mayer asserted that “Alice articulated a technological arts test for patent eligibility.”  The patents’ solution to the problem of Internet merchants losing hard-won traffic was not technological, but “entrepreneurial.” The patents describe the advantages of “making two webpages look alike,” but did not disclose or claim any special technology for doing so.

That “[t]he potential scope of DDR’s patents is staggering, arguably covering vast swaths of Internet commerce,” was clearly of great concern to Judge Mayer. Nonetheless, under any reading of the law after Alice, Mayo, and Bilski, it is a stretch to say that “DDR’s claims are patent-ineligible because their broad and sweeping reach is vastly disproportionate to their minimal technological disclosure.” Likewise, even if the Supreme Court in Alice did consider the technological reach of the claims, a district court saying that it had applied a “technological arts” test for patent-eligibility surely would be presenting good grounds for appeal.

In the end, then, perhaps the best lesson of Judge Mayer’s dissent is the overall lesson to be drawn from Ultramercial III and DDR Holdings viewed side-by-side: even if, as I have contended elsewhere, Alice has brought a sea-change to patent-eligibility questions, the road to clarity on this issue still has twists and turns that cannot be reconciled to one another.