DDR Holdings: The Federal Circuit Leaves a Software Patent Standing

Bruce D. Sunstein

By Bruce Sunstein. A member of our Patent Practice Group

February 2015 IP Update

A recent decision by the Federal Circuit, DDR Holdings, LLC v. Hotels.com, L.P, offers a glint of hope for protecting some software inventions after the same court’s discouraging decision  in Ultramercial Inc. v. Hulu, Inc. (our article here), which in turn followed the negative decision of the Supreme Court in Alice Corp. v. CLS Bank (our article here). Ultramercial and Alice held that computer programs that are deemed directed to an abstract idea are not eligible to be patented, and the decisions ruled that the patents in question were invalid.

If the decisions in Ultramercial and Alice were not bad enough, they followed two other Supreme Court decisions holding patents invalid: Mayo v. Prometheus (involving medical diagnostics), about which we wrote here, and Ass’n for Molecular Pathology v. Myriad (involving biotechnology; our article here). All of these rulings have furthered the judicial trend of narrowing the scope of 35 U.S.C. § 101, the provision by which Congress defined a vast universe of patent-eligible subject matter.

In DDR Holdings, the Federal Circuit ruled that the abstract-idea exception to patent eligibility created by the Supreme Court did not apply to the software inventions that were the subject of the litigation. The court reached this result even though the software patentslike the patents in Ultramercial and Alice—concerned a business method practiced over the Internet. The technology at issue has applicability to a host website that is made available to third party merchants, each of whom would place a link to its own site on the host website, allowing a user of the host website to conduct business with the merchant.

The concern of the host website owner is that when the user seeks to do business on the merchant site, the user experiences a shift away from the host website, and thus the host website loses the attention of the user. The solution offered by the patents at issue in DDR Holdings was that “instead of taking the visitor to the merchant’s website, the system generates and directs the visitor to a composite web page that displays product information from the third-party merchant, but retains the host website’s ‘look and feel.’”

The court held:

[T]hese 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.

The court distinguished these claims from those in Ultramercial as not “broadly and generically” claiming “‘use of the Internet’ to perform an abstract business practice (with insignificant added activity).” “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.”

Specifically, the court held that “[w]hen 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.” Moreover, the court held that “the claims at issue do not attempt to preempt every application of the idea of increasing sales by making two web pages look the same, or of any other variant suggested by” the accused infringer.

As an extra dividend, on January 27, 2015, the United States Patent and Trademark Office (the “PTO”) issued additional examples for its guidelines on implementation of the Supreme Court’s decisions in Alice and related cases, and these examples give guidance for determining whether the claims are directed to an abstract idea that would make them patent-ineligible under Alice.

These examples include a discussion of DDR Holdings (cited favorably), which points out that “[t]he claim does not recite a mathematical algorithm; nor does it recite a fundamental economic or longstanding commercial practice. The claim addresses a business challenge (retaining website visitors) that is particular to the Internet.” Moreover, “[n]o idea similar to those previously found by the courts to be abstract has been identified in the claim.”

The PTO, therefore, at least in these examples, takes the position that not all ideas incorporated in software are “abstract ideas” within the meaning of the Alice decision. In particular, the PTO refers to “abstract ideas such as a fundamental economic practice, a method of organizing human activity, an idea itself (standing alone), or a mathematical relationship.” An applicant can use the PTO’s analysis as authority for the principle that only certain ideas, such as those enumerated, qualify as “abstract ideas.”

Even DDR Holdings, however, is not unmitigated sunshine. Citing Ultramercial, the court cautioned that “not all claims purporting to address Internet-centric challenges are eligible for patent.”

Moreover, the judges were not unanimous. Judge Mayer dissented on the ground that the claims “simply describe an abstract concept—that an online merchant’s sales can be increased if two web pages have the same ‘look and feel’—and apply that concept using a generic computer.” He repeated the arguments he had made in Ultramercial, that Alice “articulated a technological arts test for patent eligibility.” He further argues—remarkably in the view of this author—that claim breadth, by itself, is evidence that the claims are directed to a patent ineligible abstract idea:

The potential scope of DDR’s patents is staggering, arguably covering vast swaths of Internet commerce. DDR has already brought infringement actions against ten defendants, including Digital River, Inc., Expedia, Inc., Travelocity.com, L.P., and Orbitz Worldwide, LLC. DDR’s claims are patent ineligible because their broad and sweeping reach is vastly disproportionate to their minimal technological disclosure. See Mayo, 132 S.Ct. at 1303 (In assessing patent eligibility, “the underlying functional concern … is a relative one: how much future innovation is foreclosed relative to the contribution of the inventor.”).

Although the extent to which Judge Mayer’s views on section 101 will hold sway remains to be determined, the mere fact that these views exist is a monument to the power of the Alice analysis in eviscerating patents. We can only hope that the majority opinion in DDR Holdings will not be overruled.