United States: For The First Time Since Alice, The Federal Circuit Upholds The Eligibility Of A Software Patent

On December 5, 2014, the Court of Appeals for the Federal Circuit in DDR Holdings, LLC v. Hotels.com, L.P., et al. (Docket No. 2013-1505) held that a software patent constituted patent-eligible subject matter under 35 U.S.C. § 101 for the first time following the Supreme Court's ruling in Alice Corp. v. CLS Bank Int'l, 134 S. Ct. 2347 (2014). In Alice, the Supreme Court set forth a two-part framework under § 101 to determine whether a patent properly claimed patent-eligible subject matter. Under the Alice test, the patent claims should first be analyzed to determine whether that claim is directed to an abstract idea. If yes, the "additional elements" of the claim should be evaluated to determine whether those elements "transform the nature of the claim into a patent-eligible application of that abstract idea." DDR Holdings at 16 (quoting Alice, 124 S. Ct at 2355). The Federal Circuit described this second step as "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." Id.

In DDR Holdings, the patents-in-suit were directed to systems and methods of generating a composite web page that combines visual elements of a host website with the content of a third-party merchant. Id. at 3. To do so, the claimed technology copied the "look-and-feel" of the host website and displayed to a user the visual elements that make up the "look-and-feel" of the host website while offering the third-party merchant's wares. Id. While the Court held that one of the patents-in-suit, U.S. Patent No. 6,993,572 ("the '572 patent"), was anticipated under 35 U.S.C. § 102, the other patent, U.S. Patent No. 7,818,399 ("the '399 patent"), was under no such challenge. Id. at 15. Instead, one of the defendants, NLG, asserted that the '399 patent constituted patentineligible subject matter under 35 U.S.C. § 101 in view of the Supreme Court's Alice decision.

Judge Chen, writing for the majority, noted that, under the current § 101 analysis, distinguishing between patent-eligible and ineligible subject matter "can be difficult, as the line separating the two is not always clear." Id. at 16. Nevertheless, the Court applied Alice's two-part test to the '399 patent and found that the patent satisfied both parts of the test. Although defendants offered various differing characterizations of the abstract idea encompassed by the claims, the Court determined that under any characterization of the allegedly abstract idea, the claims included an "inventive concept" that brought the claims within the realm of patent eligibility. Id. at 23.

Notably, the majority found that the claims-at-issue "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." Id. at 20. Rather, the claims were "necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks." Id. The Court viewed this distinction crucial, as the claimed technology could not exist anywhere other than on the Internet, such as a brick-and-mortar retail store. Id. at 22.

The Court also cautioned that "not all claims purporting to address Internet-centric challenges are eligible for patent." Id. In the Federal Circuit's recent Ultramercial decision, the patentee claimed that the patent-in-suit was directed to a specific method "that was previously unknown and never employed on the Internet before." Ultramercial, Inc. v. Hulu, LLC, 2014 WL 5904902, at *3 (Fed. Cir. Nov. 14, 2014). In DDR Holdings, Judge Chen wrote that the claims of the '399 patent were "different enough in substance" from those in Ultramercial because, rather than claiming generic "use of the Internet," the claims of the '399 patent yield a "result that overrides the routine and conventional sequence of events ordinarily triggered by the click of a hyperlink"—thus adding the necessary "inventive concept" under § 101. DDR Holdings at 22.

The Court then continued its analysis to find that the '399 patent was also valid under 35 U.S.C. § 112. Id. at 27. And though the Court found that the defendants did infringe the '399 patent, the Court ultimately vacated and remanded the award of damages and prejudgment interest to the plaintiff due to the jury's failure to apportion damages between the invalidated '572 patent and upheld '399 patent. Id. at 29.

Judge Mayer, writing in dissent, disagreed with the majority's view of the claimed invention, and instead framed the invention as "tak[ing] a wellknown and widely-applied business practice and apply[ing] it using a generic computer and the Internet." DDR Holdings (Mayer, J. dissenting) at 4. Judge Mayer further wrote that his interpretation of Alice was that the Supreme Court articulated a "technological arts test" for patent eligibility. Id. While Judge Mayer noted that the majority "correctly recognize[d] Alice's technological arts standard," the majority failed to properly apply it to the '399 patent. Instead, Judge Mayer wrote that the claims of the '399 patent violate the standard set forth in Alice, as they "contain no more than an abstract idea for increasing sales implemented via 'some unspecified, generic computer."Id. at 7.

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