DDR Holdings: A New Perspective On Patenting Internet Processes?

The Supreme Court’s decision in Alice Corp. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014) created perplexing issues for those hoping to patent computer-implemented processes and associated systems. The Court described a potentially broad (but effectively undefined) notion of “abstract ideas,” and held that a patent that implicates an abstract idea is eligible for patenting under 35 U.S.C. § 101 only if the claims recite an “inventive concept” that restricts the claimed subject matter to something significantly different from the abstract idea per se. Routine and conventional computer hardware and functions are insufficient to provide this inventive concept.

Following Alice, a series of cases have invalidated patents covering computer-implemented inventions as ineligible abstract ideas. Ultramercial, Inc. v. Hulu, LLC, ___ F.3d ___, 2014 WL 5904902 (Fed. Cir. Nov. 14, 2014)(process for using advertising as a currency for accessing media content over internet); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350 (Fed. Cir. 2014)(use of computer to create a transaction performance guaranty); Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d 1336 (Fed. Cir. 2013)(system to perform insurance-policy-related tasks on a computer); Bancorp Servs. LLC v. Sun Life Assur. Co. of Canada, 687 F.3d 1266 (Fed. Cir. 2012)(use of computer to perform repetitive insurance value computations). In light of those decisions, the outlook for internet-related computer patents appeared bleak.

On December 5, however, the Federal Circuit signaled that some hope still exists by affirming the eligibility of a software patent involving commerce on the internet. DDR Holdings, LLC v. Hotels.com, LP, No. 2013-1505 (Fed. Cir. Dec. 5, 2014). Slip opinion HERE. In a 2-1 decision written by Circuit Judge Chen, the Federal Circuit ruled that an invention directed to merchandising on the internet was patent-eligible.

DDR concerned U.S. Patent No. 7,818,399 (entitled “Methods of expanding commercial opportunities for internet websites through coordinated offsite marketing”). The ‘399 patent addressed the problem facing internet stores with websites that include ads for third-party merchants. In prior art systems, a customer clicking on an ad on a host website would be directed to a third-party site, often being lost to the host site forever. The ‘399 patent claims a process involving stored data concerning the visual elements responsible for the “look and feel” of the host website, so that upon clicking an ad the customer is directed to a webpage on the host website that is a composite of the third-party merchant’s product information and the look and feel elements of the host website.

The Federal Circuit applied the two-step test for patentability set forth in Alice. First, it considered whether the ‘399 patent claims were directed to a patent-ineligible abstract idea. It noted that distinguishing between a patentable invention and an abstract idea “can be difficult, as the line separating the two is not always clear.” Slip op. at 16. After reviewing Supreme Court cases characterizing (without defining) abstractness, the Federal Circuit side-stepped the issue by noting that, even if the ‘399 patent claims included abstract ideas, they nonetheless were saved by step two of the Alice analysis.

In step two, the court must “consider the elements of each claim—both individually and as an ordered combination — to determine whether the additional elements transform the nature of the claim into a patent-eligible application of that abstract idea. This second step is 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. 16, quoting Alice, 134 S. Ct. at 2355.

The Federal Circuit ruled that, although the ‘399 patent was directed to internet commerce, it was limited to a particular application of any broad, abstract concept: 

As an initial matter, it is true that the claims here are similar to the claims in [earlier cases finding patents ineligible] 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.  

In particular, the ’399 patent’s claims address the problem of retaining website visitors that, if adhering to the routine, conventional functioning of Internet hyperlink protocol, would be instantly transported away from a host’s website after “clicking” on an advertisement and activating a hyperlink. For example, asserted claim 19 recites a system that, among other things, 1) stores “visually perceptible elements” corresponding to numerous host websites in a database, with each of the host websites displaying at least one link associated with a product or service of a third-party merchant, 2) on activation of this link by a website visitor, automatically identifies the host, and 3) instructs an Internet web server of an “outsource provider” to construct and serve to the visitor a new, hybrid web page that merges content associated with the products of the third-party merchant with the stored “visually perceptible elements” from the identified  host website. 

Slip op. at 20. The court distinguished Ultramercial, a recent case holding that an-Internet based process was ineligible: 

Unlike 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. Instead of the computer network operating in its normal, expected manner by sending the website visitor to the third-party website that appears to be connected with the clicked advertisement, the claimed system generates and directs the visitor to the above-described hybrid web page that presents product information from the third-party and visual “look and feel” elements from the host website. When the limitations of the ’399 patent’s asserted claims are taken together as an ordered combination, the claims recite an invention that is not merely the routine or conventional use of the Internet. 

Id. at 22-23. As a result, the court ruled that the process was eligible under §101. Circuit Judge Mayer dissented, arguing that the ‘399 patent was “long on obfuscation but short on substance[,]” and that the invention disclosed was “so rudimentary that it borders on the comical.” He interpreted Alice to create a “technological arts” test for eligibility, which was not met because the ‘399 patent was not rooted in any new computer technology.