As noted in our previous client update, judicial rulings on the patent-eligibility of software and business method patents under section 101 of the U.S. Patent Act have run heavily against patent owners since Alice Corp. v. CLS Bank International, 573 U.S. ___, 134 S. Ct. 2347 (2014). (See 11/17/2014 Client Update). On Friday December 5, 2014, however, the U.S. Court of Appeals for the Federal Circuit issued its first post-Alice opinion upholding the validity of computer-implemented business method claims under section 101. In DDR Holdings, LLC v. Hotels.com, L.P. (Fed. Cir. December 5, 2014), Circuit Judge Chen, writing for the majority in a 2-1 decision, affirmed the Eastern District of Texas’s denial of Defendant’s motion for judgment as a matter of law of invalidity under 35 U.S.C. § 101 of a patent covering systems and methods of generating composite web pages combining visual elements of a host website and content of a third-party merchant.

In its section 101 analysis, the Court focused on DDR’s ’399 Patent. Introducing the analysis and echoing the concerns of many in the patent community, Judge Chen wrote, “[d]istinguishing 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.” Slip op. at 16. After reviewing prior software and business method patent related precedent, including State Street Bank, Alappat, Bilski, Benson, and Mayo, Judge Chen noted that the Alice court did not “delimit the precise contours of the ‘abstract ideas’ category,” but provided guiding principles to determine the existence of an abstract idea. For example, mathematical algorithms are abstract ideas, as are “fundamental economic and conventional business practices.” Slip op. at 17-18. Judge Chen also reviewed recent section 101 Federal Circuit decisions, including Ultramercial, buySAFE, Accenture, and others, in which the “patent-ineligible abstract ideas” were “plainly identifiable and divisible from the generic computer limitations recited by the remainder of the claim.” Slip op. at 18.

Turning to the ’399 Patent claims, the Court noted that “identifying the precise nature of the abstract idea” of the ’399 Patent was not as easy as in Alice or other previous cases, as evidenced in part by the defendant’s own difficulties in characterizing the claims as no more than an abstraction. Slip op. at 19-20. Further, the majority found that the asserted claims did not recite a mathematical algorithm, fundamental economic practice, or longstanding commercial practice, categories of abstract ideas specifically mentioned in Alice. Slip op. at 19. Judge Chen also found inadequate the dissent’s characterization of the patent as merely an entrepreneurial goal. The only similarity Judge Chen found between Alice, Ultramercial, and other recent precedent was the use of a computer and the Internet. In contrast to those cases, however, Judge Chen stated that the ’399 Patent claims recite a solution “necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks” that involves more than merely the “performance of some business practice known from the pre-Internet world.” Slip op.at 21-22. Judge Chen repeated this sentiment several times in the decision, stating that “[a]lthough the claims address a business challenge (retaining website visitors), it is a challenge particular to the Internet,”Slip op. at 19, and “[u]nlike 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,” Slip op. at 22.

Further, Judge Chen found particular features of the claim to satisfy the “significantly more” prong of step two of the Mayo/Alice analysis, including the use of an “outsource provider” having a web server that automatically generates a hybrid web page containing content from a host website and third-party merchant’s website. Further distinguishing the claims from the dissent’s abstract concept of a “store within a store” was the fact that the concept “did not have to account for the ephemeral nature” and “near-instantaneous transport” issues introduced by the Internet and not present in the “brick and mortar” context. Slip op. at 21-22.

Judge Chen cautioned that, as in Ultramercial, not all claims addressing Internet-centric challenges would pass section 101 muster. Slip op. at 22. But the ’399 Patent claims did not “broadly and generically claim ‘use of the Internet’ to perform an abstract business practice” and did not recite an invention that was merely the routine or conventional use of the Internet, and thus did not fall to the abstract idea exception to patent-eligible subject matter. Slip op. at 22-23. Finally, under a preemption analysis, Judge Chen found the ’399 Patent’s claims to not preempt every application of the challenger’s various abstract ideas, but rather recited a specific process and additional features to ensure the claims were more than a mere effort to monopolize the abstract idea. Slip op. at 23. Thus, although the invention was not as “technologically complex” as data compression, it was more than a common business method applied to the technological environment of the Internet, and was found to be patent-eligible under section 101. Slip op. at 23-24.

As stated above, Judge Mayer’s dissent in response to the majority’s section 101 analysis characterized the claims as no more than the idea of a “store within a store,” applied using a generic computer and the Internet. Dissenting Slip op. at 3-4. Echoing his concurring opinion in Ultramercial, Judge Mayer reiterated his interpretation of Alice as articulating a “technological arts” test for patent eligibility, and his categorical exclusion of claims directed to “entrepreneurial” advances. Dissenting Slip op. at 4-5. It remains to be seen whether these concepts will have broader uptake with other judges on the court.

Key Takeaways

• As the Supreme Court held in both Bilski and Alice, there is no categorical exclusion of either business methods or computer software from patent eligibility. DDR Holdings confirms the viability of such claims so long as a viable inventive concept can be found.
• Patent drafters and prosecutors should consider framing the claims and the invention as a solution to a technical challenge that is rooted in computer technology to overcome a problem specifically arising in the realm of the computer technology or as interactions that manipulate the computer technology to yield a desired result that differs from the routine and conventional sequence of events that are ordinarily triggered.
• Success under section 101 at the Federal Circuit, whether from the patentee or patent-challenger’s perspective, may remain somewhat panel-dependent.

If you have any questions regarding these matters, please contact us.