Determining Patent Eligibility Now Requires a Monthly Watch

Last month, the Federal Circuit changed course on the eligibility of software patent claims in Ultramercial, Inc. v. Hulu, LLC, 2010-1544 (Fed. Cir. Nov. 14, 2014) (“Ultramercial III”). The Court in Ultramercial III rejected software claims under 35 U.S.C. § 101 that the Court had previously found to be eligible—twice. The Supreme Court’s decision in Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), roughly six months earlier, precipitated this change by the Federal Circuit. An analysis of Ultramercial III can be found here.

Less than one month later, the Federal Circuit issued another opinion in which a panel considered the eligibility of software claims, but this time a majority of the three-judge panel found the claims at issue patent eligible under § 101. DDR Holdings v. Hotels.com, 2013-1505 (Fed. Cir. Dec. 5, 2014).

At issue: representative claim 19 of U.S. Patent No. 7,818,399 (the ’399 patent) 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.

Circuit Judge Chen, writing for the majority, explained that the ’399 patent claims address the problem of retaining website visitors that are instantly transported away from a host’s website after “clicking” on an advertisement and activating a hyperlink, according to routine, conventional hyperlink protocol. In contrast, according to Judge Chen, the ’399 patent provides that, upon the click of an advertisement for a third-party product displayed on a host’s website, the visitor is no longer transported to the third party’s website. Instead, the patent claims call for 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 the host website and product information from the third-party merchant’s website related to the clicked advertisement.

Judge Chen provided his view that, unlike the claims in cases like Alice, Ultramercial III, and other recent cases from the Supreme Court and Federal Circuit that have rejected software claims under § 101, the claims of the ’399 patent are patent eligible subject matter. The key difference appears to be—according to Judge Chen—that the “claimed solution [in the ’399 patent] is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.”

This difference, however, does not precisely follow the Supreme Court’s guidance in Alice. In Alice, the Supreme Court explained that the § 101 analysis requires consideration of the claim elements separately and as an ordered combination. When considering claim elements separately, purely conventional use of a computer does not save a claim. And when considering claim elements as an ordered combination, computer components add nothing that is not already present when the steps are considered separately. As the Supreme Court explained in Alice:

(i) The claims do not, for example, purport to improve the functioning of the computer itself.
(ii) Nor do they effect an improvement in any other technology or technical field.

Setting aside whether Judge Chen’s analysis comports with the Supreme Court’s guidance, Judge Chen’s opinion suggests two ways for software developers to better their chances of securing patent-eligible claims for their software inventions.

First, the inventor should draft claims that recite an invention that is not merely the routine or conventional use of a computer or the Internet. Nor should claims “broadly and generically claim ‘use of the Internet’ to perform an abstract business practice (with insignificant added activity).” For example, DDR’s claims were directed to a mechanism that worked differently than how routine clicking on a hyperlink operates. This change in operation from the norm seemed to help make a difference on the patent eligibility question for Judge Chen.

Second, the inventor should avoid claims that attempt to “preempt every application of the idea.” Judge Chen seemed to weigh heavily how the ’399 patent claims were only directed to a specific way to automate the creation of a composite web page through an outsource provider, as opposed to claiming the idea of redirecting links to third-party websites to a created page generally. This difference satisfied Judge Chen that the Supreme Court's concern in Alice about the risk that patent protection of software would not be an issue for the ’399 patent.

But not everyone on the panel agreed with Judge Chen’s analysis and conclusion. Judge Mayer dissented and expressed his skepticism of software patents in general.

Stay tuned over the next few months. On December 3, 2014, the Federal Circuit heard the appeal in Versata Software v. SAP, the first appeal from a Patent Trial and Appeal Board (PTAB) decision in a first covered business method (CBM) patent trial (CBM2012-00001), where the PTAB cancelled the claims under § 101. The Court’s decision is expected soon.