Ending The Open Season on Software Patents

By: Kyle J. Trout  |   December 10, 2014

DDR Holdings v. Hotels.com

In the months following the Supreme Court’s decision in Alice Corp v. CLS Bank, the Federal Circuit has made liberal use of the two-pronged abstract idea test to find software and business method patents invalid under 35 U.S.C. § 101. Under Alice, the test for determining whether a patent claim encompasses an ineligible abstract idea is to 1) determine that the claim involves such an abstract idea, and 2) determine whether that claim recites something “significantly more” than the abstract idea.

This less-than-objective test has proven malleable enough that, until its decision in DDR, the Federal Circuit has found every single patent to which it applied the Alice test to be invalid under §101. As the Federal Circuit summarizes the progeny of Alice in DDR:

In some instances, patent-ineligible abstract ideas are plainly identifiable and divisible from the generic computer limitations recited by the remainder of the claim. For example, the Supreme Court in Alice determined that the claims at issue “simply instruct[ed] the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” 134 S. Ct. at 2359. In Ultramercial, Inc. v. Hulu, LLC, ___ F.3d ___, 2014 WL 5904902, at *5 (Fed. Cir. Nov. 14, 2014), the claims merely recited the abstract idea of using advertising as a currency as applied to the particular technological environment of the Internet. In buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1355 (Fed. Cir. 2014), the claims recited no more than using a computer to send and receive information over a network in order to implement the abstract idea of creating a “transaction performance guaranty.” In Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336, 1344–45 (Fed. Cir. 2013), the claims merely recited “generalized software components arranged to implement an abstract concept [of generating insurance-policy-related tasks based on rules to be completed upon the occurrence of an event] on a computer.” And in Bancorp Servs., L.L.C. v. Sun Life Assur. Co. of Canada (U.S.), 687 F.3d 1266, 1278 (Fed. Cir. 2012), the claims recited no more than the use of a computer “employed only for its most basic function, the performance of repetitive calculations,” to implement the abstract idea of managing a stable-value protected life insurance policy. Under Supreme Court precedent, the above claims were recited too broadly and generically to be considered sufficiently specific and meaningful applications of their underlying abstract ideas. Although many of the claims recited various computer hardware elements, these claims in substance were directed to nothing more than the performance of an abstract business practice on the Internet or using a conventional computer. Such claims are not patent eligible.

DDR Holdings v. Hotels.com, No. 2013-1505, slip op at 18-19 (Fed. Cir. Dec. 5, 2014).

Following this line of precedents, practitioners were left with little confidence as to what software-based claims (if any) could be found patent-eligible under Alice. While the Court in Alice suggested that claims to an improvement to “the functioning of a computer itself” or another “technology or technical field” would pass the second prong of the test, no prior holding established any example of what might qualify as such an improvement under the so-called “technological arts” test. See Alice Corp v. CLS Bank, 573 U.S. ___, slip op. at 15 (2014).

With the holding in DDR, however, the Federal Circuit has provided its first guidance as to what type of claim might pass the second prong of the Alice test. Almost entirely skipping the first prong of the test, the panel reasoned that whatever the abstract idea was, the claims held significantly more than an abstract idea. Distinguishing the prior cases holding the opposite, the panel explained:

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.

DDR, slip op. at 20.

The panel went on to elaborate that, rather than “broadly and generically claim[ing] ‘use of the Internet’ to perform an abstract business practice,” the claims at issue recite “specify how interactions with the Internet are manipulated to yield a desirable result” and therefore “recite an invention that is not merely the routine or conventional use of the Internet.” Id at 22-23.

In so holding, the Federal Circuit has at last found a patent that is directed to software yet nonetheless patent-eligible. While § 101 and Alice will continue to be used to invalidate business method and some software patents, practitioners are now provided with an important guidepost in arguing patentability of software patents that are directed to technological improvements.

It is worth noting that the PTO has already recognized the “technological arts” subtest in its current guidance to the Examining Corps. with regard to Alice. Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al., Memorandum to Examining Corps. dated June 25, 2014, pg. 3, available at http://www.uspto.gov/patents/announce/alice_pec_25jun2014.pdf (explaining that limitations that present “improvements to another technology or technical field” or “to the functioning of a computer itself” “may be enough to qualify as ‘significantly more’”).  Prior to DDR, however, the practitioner had little more than this noncommittal language to support an argument. Now, in prosecution arguments to the PTO, the Federal Circuit’s language explaining that “the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks” may be adapted to the facts of each case to lend the authority of the Federal Circuit to the attorney’s argument.

In the coming months, the PTO is likely to provide an updated set of instructions to the Examining Corps based on the comments received on the June instructions. Ideally, the new instructions will mention the holding in DDR and thereby increase Examiner receptiveness to arguments based on this Federal Circuit precedent.