Federal Circuit and USPTO Turn Corner on Software Patent Eligibility

In May 2016, the U.S. Court of Appeals for the Federal Circuit decided Enfish, LLC v. Microsoft Corp and TLI Communications LLC v. A.V. Automotive. These decisions, along with related guidance from the U.S. Patent and Trademark Office (USPTO), may help clarify the law of software patent eligibility.

The law regarding patent eligibility of software has been unclear, and in many cases, patents on inventions previously thought to be protectable have been invalidated. For example, after the Alice decision of 2014, more than 70% of motions to invalidate patents under the Alice decision were granted.

Alice sets forth a two-step test for evaluating the patent eligibility of a claim. The first step is determining whether the claim is directed to an abstract idea. If the claim is not directed to an abstract idea, the claim is patent eligible, and the inquiry ends. If the claim is directed to an abstract idea, the second step is determining whether the claim elements amount to significantly more than the abstract idea, in which case the claim is patent eligible.

In 2012, Enfish sued Microsoft for infringement of two patents with claims directed to self-referential tables in a computer database. Microsoft filed for summary judgment, arguing the patents were ineligible as being directed to abstract ideas. The district court agreed, and Enfish appealed. On May 12, 2016, the Federal Circuit reversed its decision, noting that step one of the Alice test should assess whether the focus of the claims is on a specific improvement of an existing technology, as compared to merely applying computer components to well-known business practices. Following this guidance, the Federal Circuit found that the claims at issue do indeed focus on an improvement to computer functionality and are therefore patent eligible.

The Federal Circuit noted that the specification emphasized the particularity of the claimed invention and clearly explained the invention’s improvements over the prior art. The Federal Circuit also differentiated the claims from other claims previously found to be directed to abstract ideas that merely added conventional computer components to well-known business practices (for example, those in Alice and Versata Dev. Grp. v. SAP America). Significantly, for software inventions, the Federal Circuit found that claims may be patent eligible even when the claim limitations are not defined by reference to physical components. In particular, the Federal Circuit stated, “[m]uch of the advancement made in computer technology consists of improvements to software that, by their very nature, may not be defined by particular physical features but rather by logical structures and processes.” The Federal Circuit also admonished the district court for describing the claims “at such a high level of abstraction” and “untethered from the language of the claims,” noting that such description “all but ensures that the exceptions to § 101 swallow the rule.”

In a parallel case, TLI sued A.V. Automotive, et al. for patent infringement in 2014 over claims directed to recording, storing and administering digital images using a telephone unit. The district court dismissed the complaint, finding that the asserted patent fails to claim patent eligible subject matter. On May 17, 2016, the Federal Circuit affirmed. In step one of the Alice test, the Federal Circuit concluded that the claims were directed to “the abstract idea of taking, organizing, classifying, and storing photographs.” Continuing to step two, the Federal Circuit concluded that the additional claim elements of a telephone unit and a server do not add significantly more to the abstract idea because “they merely provide a generic environment in which to carry out the abstract idea.” In its opinion, the Federal Circuit differentiates the asserted claims from the claims at issue in Enfish by noting that the asserted claims “are not directed to a specific improvement to computer functionality.” In addition, the Federal Circuit noted the asserted claims “are directed to the use of conventional or generic technology in a nascent but well-known environment, without any claim that the invention reflects an inventive solution to any problem presented by combining the two.” The Federal Circuit noted that, in contrast to Enfish, “[t]he specification fails to provide any technical details for the tangible components, but instead predominately describes the system and methods in purely functional terms.”

Following these decisions, on May 19, 2016, Robert Bahr, Deputy Commissioner for Patent Examination Policy at the USPTO, issued a memorandum to the Patent Examining Corps. In the memorandum, Bahr explains that Enfish “provides additional information and clarification . . . for identifying abstract ideas.” Bahr notes that the Enfish decision is consistent with previous guidance issued by the USPTO. In particular, he points to the Federal Circuit’s caution in Enfish “against describing a claim at a high level of abstraction untethered from the language of the claim when determining the focus of the claimed invention,” and the Federal Circuit’s finding that “an invention’s ability to run on a general purpose computer does not automatically doom the claim.” Bahr also instructs that “an examiner may determine that a claim directed to improvements in computer-related technology is not directed to an abstract idea under [step one] of the subject matter eligibility examination guidelines (and is thus patent eligible), without the need to analyze the additional elements under [step two].” Bahr concludes by instructing that “examiners are to continue to determine if the claim recites (i.e., sets forth or describes) a concept that is similar to concepts previously found abstract by the courts. The fact that a claim is directed to an improvement in computer-related technology can demonstrate that the claim does not recite a concept similar to previously identified abstract ideas.”

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Ultramercial Seeks En Banc Review by Federal Circuit

The “wave of decisions finding software patents ineligible,” brought about by the Alice decision in 2014 continues in 2015.  According to Docket Navigator analytics, 2015 has already seen 13 motions seeking to invalidate patents for ineligible subject matter.  If this rate continues, there could be over ten times that amount by the end of the year – up from just 8 in 2010.  Docket Navigator reports that the success rate of summary judgment motions based on invalidity is 69% so far in 2015, up from 58% in 2014, and just 25% in 2010.

In the midst of this, and in light of the DDR Holdings decision, Ultramercial has pushed back against the November 2014 Federal Circuit decision invalidating its online advertising patent (U.S. Patent 7,346,545).  Ultramercial accused various internet content providers of infringing the ’545 patent.  After several rounds with the Federal Circuit (and the Alice decision), the defendants succeeded with their motion to dismiss on the basis that Ultramercial’s claims were patent-ineligible.  Noting that courts, including the Federal Circuit, are conflicted “as to when computer-implemented inventions are ineligibly abstract under the Alice test,” Ultramercial petitioned the Federal Circuit for an en banc review of the decision (i.e., a review by all the judges of the appeals court).

The petition focuses on the conflict between the outcomes of the Ultramercial  case and DDR Holdings.  The claims in both cases, according to Ultramercial, do not recite fundamental practices from the pre-Internet world, yet opposite decisions were reached in the cases.  This illustrates “a critical issue left open in Alice: whether claims reciting new and useful computer-based innovations, as opposed to merely implementing on a computer known, fundamental, and routine economic or commercial practices, pass the abstractness test.”

In its petition, Ultramercial argues that, like the limitations in DDR, its limitations also “override the routine and contrary sequence of events ordinarily triggered by the click of a hyperlink.”  In Ultramercial, the limitations in the claims (restricting access to a media product with a paired advertisement) were characterized as “insignificant pre-solution activity” by the Court.  However, in DDR, the limitations (creating a hybrid webpage to prevent a user from leaving a website when clicking on an outside ad link) were seen by the Court as limitations that provided an inventive concept, satisfying step two of the Alice/Mayo test.  Ultramercial asks the court to provide some explanation as to when programming-based claim limitations are either insignificant or concrete, in order to prevent “significant confusion for both lower courts and the public.”

The petition concludes by calling on the Court to use this case as a vehicle to address these issues.  In doing so, the Federal Circuit will hopefully provide more insight into what exactly an abstract idea is, or when, as in DDR, “a business challenge . . . is a challenge particular to the Internet,” and when it is not.

USPTO Announces New Guidance on Post-Alice Subject Matter Eligibility

On December 15, 2014, the United States Patent and Trademark Office released its 2014 Interim Guidance on Patent Subject Matter Eligibility. The new guidance supplements the June 24, 2014 Preliminary Examination Instructions that were issued shortly after the Alice Corp decision, and supersedes the examination procedures issued on March 4, 2014 in response to Mayo and Myriad.

The new Guidance states that it “offers a comprehensive view of subject matter eligibility in line with Alice Corp, Myriad, Mayo, and the related body of case law.”  We are reviewing the new Guidance, and will have more insights in future posts.

The new Guidance takes effect on December 16, 2014, when it is set to publish in the Federal Register, and will apply to all applications filed before, on, or after that date.

The USPTO is seeking comments on the new Guidance, and will accept them until March 15, 2015.

DDR Holdings v. Hotels.com: Federal Circuit Affirms Patent Eligibility for Some Types of Internet-based Claims

On December 5, 2014, the Federal Circuit affirmed a district court’s decision that DDR Holdings’ system for generating composite webpages is patent eligible under Section 101. The patent claims at issue are directed to a system for generating composite webpages, which combine product information from third-party merchants with elements of a host website to preserve the “look and feel” of the host website.  This system allows the host website to offer its customers products from outside sources, without forcing those customers to leave the host website.  Representative claim 19 of U.S. patent No. 7,818,399 recites:

19. A system useful in an outsource provider serving web pages offering commercial opportunities, the system comprising:

(a) a computer store containing data, for each of a plurality of first web pages, defining a plurality of visually perceptible elements, which visually perceptible elements correspond to the plurality of first web pages;

(i) wherein each of the first web pages belongs to one of a plurality of web page owners;

(ii) wherein each of the first web pages displays at least one active link associated with a commerce object associated with a buying opportunity of a selected one of a plurality of

merchants; and

(iii) wherein the selected merchant, the outsource provider, and the owner of the first web page displaying the associated link are each third parties with respect to one other;

(b) a computer server at the outsource provider, which computer server is coupled to the computer store and programmed to:

(i) receive from the web browser of a computer user a signal indicating activation of one of the links displayed by one of the first web pages;

(ii) automatically identify as the source page the one of the first web pages on which the link has been activated;

(iii) in response to identification of the source page, automatically retrieve the stored data corresponding to the source page; and

(iv) using the data retrieved, automatically generate and transmit to the web browser a second web page that displays: (A) information associated with the commerce object associated with the link that has been activated, and (B) the plurality of visually perceptible elements visually corresponding to the source page.

Under the Alice/Mayo framework, the first step of a § 101 analysis is determining whether the claims at issue are directed to an abstract idea.  The second step considers whether the claim limitations contain an “inventive concept” sufficient to “transform” the claimed abstract idea into patent-eligible subject matter.

The court began its analysis by listing some recent decisions, including Ultramercial v. Hulu, and summarizing the holdings of these decisions as stating that the patent-ineligible claims in those cases “were recited too broadly and too generically to be considered sufficiently specific and meaningful applications of their underlying abstract ideas. . . . [T]hese 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.”

Turning to the claims of the ’399 patent, in step one of the Alice/Mayo test, the court found that the claimed system was directed to an abstract idea, although the opinion noted that “identifying the precise nature of the abstract idea is not as straightforward as in Alice or some of our other recent abstract ideas cases.”

Applying step two of the Alice/Mayo test, the court found that the claims do not recite a “fundamental economic or longstanding commercial practice,” noting that the patent addresses a “business . . . challenge particular to the Internet.”  However, the court cautioned that “not all claims purporting to address Internet-centric challenges are eligible for patent.”  The claims at issue here “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.”  DDR’s “claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks,” and “is not merely the routine or conventional use of the Internet.”

Accordingly, the court concluded that the claims of the ’399 patent “include ‘additional features’ that ensure the claims are ‘more than a drafting effort designed to monopolize the [abstract idea].’”  In particular, the claims “recite 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.”

The court’s decision was not unanimous.  Judge Mayer offered a strong dissent to the opinion, in which he referred to the claims as “no more than an abstract idea for increasing sales” implemented on a computer.  Judge Mayer also takes issue with the test used by the court.  Judge Mayer states that “Alice articulated a technological arts test for patent eligibility,” and believes the DDR claims patent ineligible because they “[are] not rooted in any new computer technology,” and “they do not disclose any non-conventional technology for capturing the “look and feel” of a host website or for giving two web pages a similar appearance.”

For now, it appears that Internet-based business method patents that solve problems that arise from business or technological challenges particular to the internet may be patent-eligible.  However, at least one commentator believes that this decision will not stand up to likely en banc or Supreme Court review. Inventors and practitioners looking for some concrete guidance in this area will have to wait a while longer.

Federal Circuit Downs Internet Advertising Patent in Ultramercial v. Hulu

On November 14, the Federal Circuit issued another in a series of decisions striking down computer-based patent claims following the Supreme Court’s June 2014 opinion in Alice Corp. v. CLS Bank. The decision, Ultramercial Inc. v. Hulu, LLC, illustrates the magnitude of Alice and provides further ammunition for parties challenging patents to computer software and computer-implemented commercial activities.

The Federal Circuit’s decision caps a long-running dispute over the validity of Ultramercial’s U.S. Patent 7,346,545, which claimed ad-based methods for distributing copyrighted media over the internet by (i) offering consumers free access to the media in exchange for viewing a sponsor’s advertisement and (ii) receiving payment from the sponsor for displaying the advertisement. Claim 1 of the ’545 patent is representative of the claims at issue:

1.  A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual-property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;

a third step of providing the media product for sale at an Internet website;

a fourth step of restricting general public access to said media product;

a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;

a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;

a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;

an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;

a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;

a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and

an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

Ultramercial accused various internet content providers of infringing the ’545 patent, and the defendants moved to dismiss on the basis that the claims were invalid under 35 U.S.C. § 101 for covering patent-ineligible subject matter. The district court granted that motion in 2010.

On appeal, the Federal Circuit initially reversed, concluding that the claims were valid under § 101. Ultramercial I, 657 F.3d 1323 (Fed. Cir. 2011). But the Supreme Court vacated that judgment and ordered the Federal Circuit to reconsider in light of Mayo v. Prometheus, in which the Supreme Court addressed patent eligibility in the context of medical diagnostic methods. Having considered Mayo on remand, the Federal Circuit declined to change its ruling and entered another decision reversing the district court. Ultramercial II, 722 F.3d 1335 (Fed. Cir. 2013). Once again, the Supreme Court ordered the Federal Circuit to reconsider, having by then issued the Alice decision regarding patent eligibility for computerized inventions. In taking up the case for the third time, the Federal Circuit concluded that Alice compels an opposite result.

The Federal Circuit’s analysis closely tracked Alice in holding Ultramercial’s claims invalid. The court concluded that the asserted claims described “only the abstract idea of showing an advertisement before delivering free content,” a concept that was “devoid of a concrete or tangible application.” Having concluded that the claims involved an abstraction, the court moved to the second step in the Alice analysis—determining whether the claims “do significantly more than simply describe that abstract method.” On that issue, the court held that most of the claim’s steps set forth the basic abstract idea of offering media content in exchange for viewing an advertisement. None of the specific steps recited in the claims, such as updating an activity log, restricting public access to media content, and using internet communication, added anything but “conventional steps, specified at a high level of generality,” which was insufficient to transform the underlying abstract idea into patent-eligible subject matter. The court also noted that (i) nothing tied the claims to a particular “novel machine or apparatus,” as neither the internet nor a general-purpose computer qualified as such, and (ii) the claim methods failed to “transform any article to a different state or thing” because the claimed exchange of content permissions and payment obligations were themselves abstract. Accordingly, the Federal Circuit affirmed the lower court decision invalidating the claims.

On close reading, the Federal Circuit’s latest Ultramercial decision is notable in at least three regards.

First, the court affirmed a decision invalidating the ’545 patent on a pre-answer motion to dismiss, which provides a clear path for accused infringers to attack similar patents early and without expending discovery costs.

Second, Ultramercial is only one among a wave of post-Alice decisions invalidating similar claims, but the case nonetheless uniquely demonstrates the impact of the Alice decision. Before Alice, the Federal Circuit twice considered the same case and twice held upheld the ’545 patent’s claims under § 101, and it did so the second time even after considering Mayo. Alice quite clearly tipped the scales and led the Federal Circuit to reach the opposite result.

Finally, Ultramercial provides additional guidance in applying the Alice standard for assessing patent eligibility of computer-implemented, and particularly internet-based, inventions. In determining whether the ’545 patent’s claims involved an abstraction under the first Alice prong, the court described an abstract idea as one “having no particular concrete or tangible form.” The court hinted that certain limitations, such as consulting an activity log “add[ed] a degree of particularity” but in this case failed to turn the abstract idea into something concrete. The message, it would seem, is that adding highly specific, well-defined, and, if possible, tangible steps or limitations might shield a claim from being abstract. For example, claim 1 of the ’545 patent might have been narrowed to require an interactive sponsor message and a consumer response to a particular query (steps 8-9). In addition, the specific entries required in the claimed activity log might have been defined in more depth (step 10). The court indicated that not all software-based patents will “necessarily be directed to an abstract idea” and that “[f]uture cases may turn out differently,” but patentees should assume that Alice has raised that bar substantially. Under the second Alice prong, the court reasoned that conventional, generically claimed steps would not transform an abstract idea into patent-eligible subject matter. Notably, the court also applied the “machine or transformation” test, assessing the claims for reliance on a specific machine or performance of a tangible transformation of an article. Here again, the court’s analysis emphasizes the importance of tying the claims to a tangible device or object and including specific, detailed limitations rather than broad, generalized language.

After Ultramercial, the test for subject matter eligibility under § 101 still remains difficult to understand and apply. But the decision does provide some guidance (noted in the previous paragraph) for drafting viable claims to computer-implemented inventions.