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.

Pre-natal diagnostic claims employing conventional DNA techniques held unpatentable under Myriad

In Ariosa Diagnostics Inc. v Sequenom Inc., the US District Court for the Northern District of California held that several claims of a US patent disclosing a method to detect the presence of paternally inherited DNA of fetal origin (cffDNA), through the screening of maternal serum or plasma, do not constitute eligible subject matter and are invalid under 35 USC 101.

In 2011, Ariosa had filed a declaratory judgment action, seeking a declaration that its non-invasive prenatal test 'Harmony' did not infringe US Patent No. 6,258,540, exclusively licensed by Sequenom from Isis Innovation Ltd. Sequenom had filed a counterclaim for infringement, seeking a preliminary injunction against Ariosa. The court had denied the motion for a preliminary injunction, but the Federal Circuit had vacated the court's order, remanding the case for further proceedings and directing the court to examine subject matter eligibility of the asserted claims in light of the Supreme Court’s recent decision in Association for Molecular Pathology v Myriad Genetics Inc. Both Ariosa and Sequenom had filed motions for summary judgment of whether claims 1, 2, 4, 5, 8, 19-22, 24 and 25 of the '540 patent were drawn to patent-eligible subject matter.

The independent claims at issue in the case were the following:

1. A method for detecting a paternally inherited nucleic acid of fetal origin performed on a maternal serum or plasma sample from a pregnant female, which method comprises amplifying a paternally inherited nucleic acid from the serum or plasma sample and detecting the presence of a paternally inherited nucleic acid of fetal origin in the sample.
24. A method for detecting a paternally inherited nucleic acid on a maternal blood sample, which method comprises:
removing all or substantially all nucleated and anucleated cell populations from the blood sample,
amplifying a paternally inherited nucleic acid from the remaining fluid and
subjecting the amplified nucleic acid to a test for the Paternally [sic] inherited fetal nucleic acid.
25. A method for performing a prenatal diagnosis on a maternal blood sample, which method comprises:
obtaining a non-cellular fraction of the blood sample
amplifying a paternally inherited nucleic acid from the non-cellular fraction and
performing nucleic acid analysis.

The court highlighted that, although the patent law has a wide scope (Diamond v. Chakrabarty), 'laws of nature, natural phenomena, and abstract ideas are not patentable' (Mayo Collaborative Servs. v Prometheus Labs. Inc.). Then it proceeded to examine the case law of the Supreme Court on subject matter eligibility:

• in Funk Bros. Seed Co. v. Kalo Inoculant Co., the Supreme Court held that 'patent cannot issue for the discovery of the phenomena of nature', explaining that the aggregation of specific strains of bacteria in a product, in light of the absence of harmful effects to the properties of either, does not constitute eligible subject matter;
• in Gottschalk v. Benson, the Supreme Court ruled that a method for converting binary-coded decimal numerals into pure binary numerals was ineligible subject matter, as the formula was an abstract idea and would have conferred a patent on the underlying algorithm itself;
• in Parker v Flook, the court stated that a mathematical formula 'cannot support a patent unless there is some other inventive concept in its application'; even if the claim does not wholly preempt the formula and discloses it as a solution for a specific purpose, it remains ineligible for patent protection;
• in Diamond v Diehr, instead, a process that employed a well-known mathematical equation was deemed patentable, as the claim merely sought 'to foreclose from others the use of that equation in conjunction with all the other steps in their claimed process';
• in Bilski v Kappos, dealing with a patent application claiming a procedure for instructing buyers and sellers of commodities in the energy market on how to best deal with price fluctuations, the Supreme Court ruled that the concept of hedging is an unpatentable abstract idea;
• in Mayo v Prometheus, the court rejected the patentability of a process that helped doctors determine whether a given dosage of thiopurine drug was too low or too high, relying on the presence of certain metabolites in the blood, as the claim merely recited a law of nature;
• in Association for Molecular Pathology v Myriad Genetics Inc., concerning claims directed towards the human genes BRCA1 and BRCA2 and related diagnostic tests, the Supreme Court held that 'a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but that cDNA is patent eligible because it is not naturally occurring'.

In the case decided by Judge Susan Illston, the parties agreed on the fact that neither cffDNA, nor its discovery in maternal plasma or serum is patentable, because its presence is a natural phenomenon. The court thus identified the key issue: 'whether the steps of the claimed methods in the ’540 patent, applied to that natural phenomenon, are sufficient to render the claims patentable'. Ariosa argued that the limitations embedded in the claims essentially applied well-understood, routine, and conventional activity to the natural phenomenon. The court agreed, noting that Ariosa had proved that the amplification and detection of DNA sequences in plasma or serum was well known by 1997, as confirmed by Sequenom's own expert. Thus, '[b]ecause the claimed processes at issue - apart from the natural phenomenon of paternally inherited cffDNA - involve no more than well-understood, routine, conventional activity, previously engaged in by those in the field, they are not drawn to patent eligible subject matter and are invalid under § 101'.

Judge Susan Illston
© Jason Doly/The Recorder

The judge dismissed Sequenom's arguments aimed at drawing a distinction between patentability of cffDNA, not permitted, and of its use, allegedly allowed. The decision noted that the Supreme Court has never stated that the use of a naturally occurring phenomenon in patentable. To the contrary, it has clarified that only an innovative or inventive use is entitled to patent protection: such use cannot rely on the simple addition of conventional steps to a non-eligible subject matter. Further, citing Flook, the court held that 'use of a newly discovered natural phenomenon, law of nature, or abstract idea will not render a claim patentable if the use of that natural phenomenon, law of nature or abstract idea is the only innovation contained in the patent'. Applying this reasoning to the case, the judge found that paternally inherited cffDNA does not become patentable just because the claims assert that it can be detected using conventional methods.

Relying on the recent judgment in Myriad, the court held that:

[E]ven though Myriad involved composition claims rather than method claims, that decision also supports the Court’s conclusion. The claims in Myriad gave the patentees the exclusive right to isolate the BRCA1 and BCRA2 genes. Although the Supreme Court was not presented with method claims, the Court explained "[h]ad Myriad created an innovative method of manipulating genes while searching for the BRCA1 and BRCA2 genes, it could possibly have sought a method patent. But the processes used by Myriad to isolate DNA were well understood by geneticists at the time of Myriad’s patents". Similarly, had the inventors of the ’540 patent created an innovative method of performing DNA detection while searching for paternally inherited cffDNA, such as a new method of amplification or fractionation, those claims would be patentable. But, the claims presently before the Court simply rely on processes to detect DNA that - as Sequenom concedes - were conventional techniques by those in the field at the time of the invention.

Evaluating the risk that the claims may preempt the underlying natural phenomenon, judge Illston accepted Ariosa's arguments, observing that preemption is not only triggered by the absence of practicable alternative methods, but also by the lack of commercially viable alternatives. In this perspective, although practicable alternatives for detecting cffDNA existed, the court found that Sequenom's failure to provide evidence of the existence of commercially viable alternative methods suggested that 'the claims at issue pose a substantial risk of preempting the natural phenomenon of paternally inherited cffDNA', supporting the court's conclusion on the unpatentability of the asserted claims.

Accenture v Guidewire : another chapter in the saga of eligible subject matter

Following in the footsteps of Bilski, CLS Bank, and Ultramercial, another case on subject matter eligibility was decided by the US Court of Appeals for the Federal Circuit last Thursday. The court's opinion, delivered by Judge Lourie, and the dissenting opinion, filed by Chief Judge Rader, show that there is still significant disagreement on the rules to be applied when evaluating abstractness in light of the substantial limitations embedded in claims.

In 2007, Accenture sued Guidewire alleging infringement of US Patent 7,013,284, which describes a computer program for handling insurance related tasks, comprising several software components for storing and manipulating data, enabling their transmission and receipt, and managing program events. In particular, claim 1 discloses a system for generating and assigning the tasks to be performed in an insurance organisation when a specific event happens, and claim 8 describes a method that has the same objective and employs many of the same software components.

The defendant argued that Accenture's patent embodied abstract ideas which failed the machine-or-transformation test. The District Court for the District of Delaware agreed, finding that the patent was 'directed to concepts for organizing data rather than to specific devices or systems, and [that] limiting the claims to the insurance industry does not specify the claims sufficiently to allow for their survival'. The court found that method claim 8 was patent-ineligible, as the limitations contained therein did not restrict it to a concrete application of the abstract idea. Consequently, it held that system claim 1, which closely resembled claim 8, was equally patent-ineligible.

On appeal, Accenture challenged the District Court's conclusions on system claims 1-7, but did not appeal the findings concerning claim 8 and the related method claims. The Federal Circuit affirmed the District Court's decision. 

The majority first noted that, in order to evaluate abstractness, it is necessary to determine whether a claim preempts an abstract idea. To this aim, under Ultramercial's two-step process, the court should identify the fundamental concept wrapped up in the claim, and assess whether there are substantive limitations which restrict it to an application, in such a way that it does not cover the full abstract idea. 

The court recalled CLS Bank, explaining that '[a]lthough CLS Bank issued as a plurality opinion, in that case a majority of the court held that system claims that closely track method claims and are grounded by the same meaningful limitations will generally rise and fall together'. The judges analysed the limitations contained in system claim 1 and method claim 8, finding that they required performance of the same basic process, and contained only minor differences in terminology, to the effect that both claims 'should rise or fall together'. Accordingly, in light of the District Court's unchallenged findings of invalidity on method claim 8, the court affirmed the patent-ineligibility of all system claims. 

The decision also found that the system claims were ineligible for patenting irrespective of the status of the method claims. The majority argued that system claim 1 referred to an abstract concept ('generating tasks [based on] rules...to be completed upon the occurrence of an event'), providing only two limitations: its application in a computer environment and within the insurance industry. These limitations, according to the court, were insufficient to avoid preempting the abstract idea of system claim 1. Citing Bancorp, the judgment clarified that 'the complexity of the implementing software or the level of detail in the specification does not transform a claim reciting only an abstract concept into a patent-eligible system or method'.

In his dissenting opinion, Judge Rader questioned the majority's reliance on CLS Bank ('no part of CLS Bank, including the plurality opinion, carries the weight of precedent'), and contested its application, noting that both CLS Bank and Ultramercial actually endorsed the evaluation of eligible subject matter on a claim-by-claim basis. Further, Judge Rader argued that the system described in the patent 'does not preempt anything beyond the specific claims, let alone a broad and undefined concept', observing that it would be possible to rely on various non-infringing methods to generate tasks based on rules to be completed upon the occurrence of an event. Concluding his dissenting opinion, the judge touched the heart of the issue that the Federal Circuit hasn't still settled:

In conclusion, I note that prior to granting en banc review in CLS Bank, this court commented: “no one understands what makes an idea abstract.” [CLS Bank Int’l v. Alice Corp.] After CLS Bank, nothing has changed. “Our opinions spend page after page revisiting our cases and those of the Supreme Court, and still we continue to disagree vigorously over what is or is not patentable subject matter.” [MySpace, Inc. v. GraphOn Corp.] Indeed, deciding what makes an idea “abstract” is “reminiscent of the oenologists trying to describe a new wine.” [MySpace, Inc. v. GraphOn Corp.]