How a Fractured Federal Circuit is Applying the Supreme Court’s Alice Decision to Software Patents

Originally appeared in InsideCounsel on February 2, 2015.

—By Aaron Stiefel and David Soofian

The Supreme Court’s June 2014 decision in Alice Corp. v. CLS Bank marked a turning point in the debate over the eligibility of software (i.e., inventions implemented on a computer or the Internet) for patent protection. The Federal Circuit has ruled, post-Alice, on seven software inventions challenged as “abstract ideas” and has found six of them to be ineligible for patent protection. Only in DDR Holdings, LLC v. Hotels.com, L.P. did the Federal Circuit find a software invention patent eligible in the face of a challenge, based on Alice, that the invention is an “abstract idea.”

Background

In 2013, sitting en banc in the Alice case, the Federal Circuit described itself as “irreconcilably fractured” over whether an abstract idea implemented on a computer via software is patentable. The judges issued six separate opinions, leaving the technology sector to wonder whether software patents are invalid, open to challenges, or valid if the invention is described in relation to a computer (i.e., a thing). The disarray was such that then-Federal Circuit Chief Judge Rader has since described the result as the “greatest failure” of his judicial career.

The Supreme Court’s Alice decision

In Alice, on appeal from the Federal Circuit, the Supreme Court unanimously held that if an idea is unpatentably abstract, then merely implementing the idea using a computer does not transform the idea into something that is patent eligible. According to the Supreme Court, in order to be patentable either the invention must be more than an abstract idea or the implementation of the idea on a computer must be something beyond the “routine,” “conventional” or “generic.”

The DDR case

In the DDR case, the patents at issue claimed an invention that intercepts the request of a visitor to a host website who clicked on an advertisement from a third party web merchant. Rather than sending the visitor away from the host page to the merchant’s web page, as ordinarily happens on the Internet, the invention responds to the visitor’s click by generating a hybrid page that sells the web-merchant’s product, but has the “look and feel” of the host website. The visitor to the host site is thus able to purchase the third party’s product without the host site losing the visitor to the third party’s website.

The Federal Circuit acknowledged that the invention could be characterized as an abstract idea, such as “making two e-commerce web pages look alike.” The Federal Circuit nonetheless found that the invention was patentable for several reasons.

The Federal Circuit held that the “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 invention “is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.” In other words, the invention solved a problem unique to the Internet. The nature of a hyperlink is such that a visitor to a host website who clicks on a third party link is whisked away from to the third party’s site. The original host website loses the visitor entirely. That problem does not exist in the “brick and mortar” world.

Furthermore, the Federal Circuit noted that the claims at issue in the DDR case did not employ the ordinary use of a computer or the Internet. As described by the Federal Circuit, the invention “overrides the routine and conventional sequence of events ordinarily triggered by the click of a hyperlink.”

Finally, the court concluded that the invention in DDR was more than an abstract idea. The patent claims recited “a specific way to automate the creation of a composite web page ... that incorporates elements from multiple sources in order to solve a problem faced by websites on the Internet.” Thus, the Federal Circuit held that the invention claimed in DDR Holdings was patent eligible.

The Ultramercial case

It is noteworthy, though, that the Federal Circuit had earlier reached a different outcome in a similar case, Ultramercial, Inc. v. Hulu. There, the court addressed a claim directed to a method for distributing copyrighted media products over the Internet where the consumer receives the content, paid for by an advertiser, in exchange for viewing an advertisement. Although the problem solved by the invention arguably was particular to the Internet, the court concluded that the steps of the claims are “an abstraction – an idea, having no particular concrete or tangible form.” The court further held that the limitations of the claims “do not transform the abstract idea ... into patent-eligible subject matter because the claims simply instruct the practitioner to implement the abstract idea with routine, conventional activity.”

While the Federal Circuit’s DDR decision distinguished Ultramercial, the inventions in the cases are not so different; both cases claimed software inventions that operated over the Internet, both addressed a problem created by the Internet, and both arguably provided a solution that was not a straightforward, conventional use of computers or the Internet. Yet, the Federal Circuit reached very different conclusions as to the patentability of the inventions in the two cases. (Ultramercial has, in fact, asked the Federal Circuit to review the case en banc.)

Conclusion

While many thought that Alice spelled doom for all computer or Internet-enabled software patents, in DDR the Federal Circuit drew a line between what is and is not patent eligible. The Ultramercial case underscores, however, that the line between what is and is not patentable is not yet clear. Plainly, DDR will not be the final word on software patent eligibility. 

Reprinted with permission from the February edition of the InsideCounsel© 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com.