PACKET INTELLIGENCE LLC V NETSCOUT SYSTEMS, INC (FORMERLY TEKTRONIX), FEDERAL CIRCUIT 2020 (SOFTWARE PATENTS)

NetScout Systems appealed from a judgment of the U.S. District Court for the Eastern District of Texas which held that NetScout willfully infringed various claims of U.S. Patent No. 6,665,725; 6,839,751; and 6,954,789 and held that the claims were valid under 35 U.S.C. §101.

The patents disclose a method for monitoring packets ex-changed over a computer network. A stream of packets between two computers is called a connection flow. Monitoring connection flows cannot account for disjointed sequences of the same flow in a network. The specifications explain that it is more useful to identify and classify “conversational flows,” defined as “the sequence of packets that are ex-changed in any direction as a result of an activity.” Conversational flows provide application-specific views of network traffic and can be used to generate helpful analytics to understand network load and usage.

Claim 19 of the ‘789 patent is representative and recites:

A packet monitor for examining packets passing through a connection point on a computer net-work, each packet conforming to one or more protocols, the monitor comprising:

(a) a packet acquisition device coupled to the connection point and configured to receive packets passing through the connection point;
(b) an input buffer memory coupled to and configured to accept a packet from the packet acquisition device;
(c) a parser subsystem coupled to the input buffer memory and including a slicer, the parsing subsystem configured to extract selected portions of the accepted packet and to output a parser record containing the selected portions;
(d) a memory for storing a database comprising none or more flow-entries for previously encountered conversational flows, each flow-entry identified by identifying in-formation stored in the flow-entry;
(e) a lookup engine coupled to the output of the parser subsystem and to the flow-entry memory and configured to lookup whether the particular packet whose parser record is output by the parser subsystem has a matching flow-entry, the looking up using at least some of the selected packet portions and determining if the packet is of an existing flow; and
(f) a flow insertion engine coupled to the flow-entry memory and to the lookup engine and configured to create a flow-entry in the flow-entry database, the flow-entry including identifying information for future packets to be identified with the new flow-entry, the lookup engine configured such that if the packet is of an existing flow, the monitor classifies the packet as belonging to the found existing flow; and if the packet is of a new flow, the flow insertion engine stores a new flow-entry for the new flow in the flow-entry database, including identifying information for future packets to be identified with the new flow-entry,
wherein the operation of the parser subsystem de-pends on one or more of the protocols to which the packet conforms.

NetScout claimed that the patents cover ineligible subject matter under 35 U.S.C. §101.

In evaluating patent eligibility, the Federal Circuit first determines whether the claims at issue are directed to a patent-ineligible concept in accordance with Alice Corp. v. CLS Bank.

The district court first made a series of factual findings about the claimed inventions’ advantages over the prior art. According to the district court, to measure the amount or type of information being transmitted by a particular application or protocol, a network monitor must measure “all of the connection flows through which that application or protocol transmits packets.” The lower court found that prior art monitors could not identify disjointed connection flows as belonging to the same conversational flow. The patents addressed this “problem” in the art by parsing packets to extract information that can be used to associate packets with single conversational flows, which correspond to particular applications or protocols. The Alice analysis was thus really partly a novelty analysis.

With this factual background, the court applied the Alice framework. First, the court rejected NetScout’s argument that claim 19 is directed to the collection, comparison, and classification of information. The court instead held that the claim was directed to “solving a discrete technical problem: relating disjointed connection flows to each other.” The court determined that the claim was directed to “specific technological solutions, such as identifying and refining a conversational flow so that different connection flows can be associated with each other and ultimately an underlying application or protocol.”

At step one, the district court also rejected NetScout’s argument that the claims are directed to an abstract idea because they do not explain how to determine whether packets belong to a conversational flow. According to the district court, NetScout’s argument focused on the claims in isolation instead of the claims as read in light of the specification.

Packet Intelligence faults NetScout for oversimplifying the claims and maintains that the district court was correct to consider the specification in its analysis.

The Federal Circuit agreed with Packet Intelligence that claim 19 is not directed to an abstract idea. In the eligibility analysis, the courts are to consider the claim as a whole, in view of Diamond v. Diehr, and read it in light of the specification. The Federal Circuit has recognized that software-based innovations can make ‘non-abstract improvements to computer technology’ and be deemed patent-eligible subject matter at Alice step 1, as they did in Finjan, Inc. v. Blue Coat Sys., Inc.

According to the Federal Circuit, the asserted patents’ specifications make clear that the claimed invention presented a technological solution to a technological problem. The specifications explain that known network monitors were unable to identify disjointed connection flows to each other, and the focus of the claims is a specific improvement in computer technology: a more granular, nuanced, and useful classification of network traffic.

This was one of the few cases of 2020 in which “pure” software patents were held to be patent-eligible under 35 U.S.C. §101.

SOLUTRAN, INC. v ELAVON, INC., FEDERAL CIRCUIT 2019 (SOFTWARE PATENTS)

This decision involves U.S. Patent No. 8,311,945, assigned to Solutran, Inc.

The patent explains that in the past, the payee would transport the check to his or her own bank to be read and processed, then the payee’s bank would transport the check to the payor’s bank,where it also would be read and processed. At this point, the payor’s bank would debit the payor’s account and transfer the money to the payee’s bank, which would credit the payee’s account.

The digital age ushered in a faster approach to processing checks, where the transaction information—e.g., amount of the transaction, routing and account number—on the check is turned into a digital file at the merchant’s point of sale (POS) terminal.

The digital check information is sent electronically over the Internet or other network, and the funds are then transferred electronically from one account to another. By converting the check information into digital form, it no longer was always necessary to physically move the paper check from one entity to another to debit or credit the accounts. But retaining the checks was still useful for, among other things, verifying accuracy of the transaction data entered into the digital file.The patent also discloses a method proposed by the National Automated Clearing House Association (NACHA) for “back office conversion” where merchants scan their checks in a back office, typically at the end of the day, “instead of at the purchase terminal,” A scanner captures an image of the check, and MICR data from the check is stored with the image. An image file containing this information can be transferred to a bank or third-party payment processor.

The patent describes its invention as a system and method of electronically processing checks in which (1) data from the checks is captured at the point of purchase, (2) this data is used to promptly process a deposit to the merchant’s account, (3) the paper checks are moved elsewhere “for scanning and image capture,” and (4) “the image of the check is matched up to the data file.” The proffered benefits include “improved funds availability”for merchants and allegedly “relieving merchants] of the task, cost, and risk of scanning and destroying the paper checks themselves, relying instead on a secure, high-volume scanning operation to obtain digital images of the checks.” Solutran explains that its method allows merchants to get their accounts credited sooner, without having to wait for the check scanning step.

Claim 1 is representative and recites:

1. A method for processing paper checks, comprising:

a) electronically receiving a data file containing data captured at a merchant’s point of purchase, said data including an amount of a transaction associated with MICR information for each paper check, and said data file not including images of said checks;
b) after step a), crediting an account for the merchant;
c) after step b), receiving said paper checks and scanning said checks with a digital image scanner thereby creating digital images of said checks and, for each said check, associating said digital image with said check’s MICR information; and
d) comparing by a computer said digital images, with said data in the data file to find matches.

The (lower) district court concluded that the claims were not directed to an abstract idea and the patent was therefore patent-eligible. The district court found a previous covered business method (CBM) review of the patent by the Patent Trial and Appeal Board (Board) persuasive in reaching its determination. The Board issued a decision denying a petition as to a §101 challenge, concluding that claim 1 of the patent was not directed to an abstract idea. The Board reasoned that “the basic, core concept of independent claim 1 is a method of processing paper checks, which is more akin to a physical process than an abstract idea.”

To determine whether claimed subject matter is patent-eligible, the Federal Circuit applied the two-step framework explained in Alice v CLS. First, the Federal Circuit is to “determine whether the claims at issue are directed to a patent-ineligible concept” such as an abstract idea. Second, if so, the Federal Circuit is to “examine the elements of the claim to determine whether it contains an ‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.” At each step, the claims are considered as a whole.

With regard to Step One, the Federal Circuit agreed with U.S. Bank that the claims of the patent are directed to an abstract idea. The Federal Circuit concluded that the claims are directed to the abstract idea of crediting a merchant’s account as early as possible while electronically processing a check. The Federal Circuit noted that they had previously ruled that certain transaction claims performed in a particular order or sequence are directed to abstract ideas in Ultramercial, Inc. v. Hulu, LLC. In Ultramercial, the claims at issue were drawn to a method for distribution of copyrighted content over the Internet including the steps of receiving media from a content provider, selecting an ad, offering the media to the consumer in exchange for watching the ad, displaying the ad, then allowing the consumer to access the media. The Federal Circuit in Ultramercial determined that the ordered combination of steps recited “an abstraction—an idea, having no particular concrete or tangible form.” Id.at 715. We defined the abstract idea as “showing an advertisement be-fore delivering free content. Because the innovative aspect of the claimed invention in Ultramercial was an entrepreneurial rather than a technological one, the Federal Circuit deemed that invention patent-ineligible.

The Federal Circuit stated that, aside from the timing of the account crediting step, the ’945 patent claims recite elements similar to those in Content Extraction & Transmission LLC v. Wells Fargo Bank, NationalAss’n. There, they held that a method of extracting and then processing information from hard copy documents, including paper checks, was drawn to the abstract idea of collecting data, recognizing certain data within the collected data set, and storing that recognized data in a memory. In Content Extraction, the Federal Circuit explained that the concept of data collection, recognition, and storage is undisputedly well-known; indeed, humans have always performed these functions. Here, too, the claims recite basic steps of electronic check processing. In its background, the ’945 patent explains that “there has been an industry transition to the electronic processing of checks, including the recordation of the data… presented by the check into a digital format which can then be transferred electronically.” It had become standard for the merchant to capture the check’s transaction amount and MICR data at the point of purchase. Further, the patent’s background explains that verifying the accuracy of the transaction information stored in the digital file against the check was already common.

The Federal Circuit then analogized to other prior decisions. Crediting a merchant’s account as early as possible while electronically processing a check is a concept similar to those determined to be abstract by the Supreme Court in Bilski v. Kappos, and Alice itself. In Bilski, the Supreme Court determined that claims directed to “the basic concept of hedging, or protecting against risk” recited “a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class” and therefore “an unpatentable abstract idea.” In Alice, the Supreme Court deemed “a method of exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk” to be an abstract idea. The desire to credit a merchant’s account as soon as possible is an equally long-standing commercial practice. Solutran argued that the claims “as a whole” are not directed to an abstract idea. The ’945 patent articulates two benefits of its invention: (1) “improved funds availability” because the merchant’s account is credited before the check is scanned or verified; and (2) relieving merchants of the task, cost, and risk of scanning and destroying paper checks by out-sourcing those tasks. The only advance recited in the asserted claims is thus crediting the merchant’s account before the paper check is scanned. The Federal Circuit concluded that this is an abstract idea.

This is not a situation where the claims “are directed to a specific improvement to the way computers operate”as in cases such as Enfish, LLC v. Microsoft Corp. Enfish is an example of a software patent that was held to be patent-eligible. Patent applicants considering filing a new patent application should always ask themselves whether their invention can be framed in terms of somehow improving operation of the computer.

The physicality of the paper checks being processed and transported is not by itself enough to exempt the claims from being directed to an abstract idea. As the Federal Circuit explained in In re Marco Guldenaar Holding B.V., 911 F.3d 1157, 1161 (Fed. Cir. 2018), “the abstract idea exception does not turn solely on whether the claimed invention comprises physical versus mental steps.” In fact, “[t]he claimed methods in Bilski and Alice also recited actions that occurred in the physical world.”

Similarly, the Federal Circuit has determined that a method for voting that involved steps of printing and handling physical election ballots, Voter Verified, Inc. v. Election Sys. & Software LLC, 887 F.3d 1376 (Fed. Cir. 2018), and a method of using a physical bankcard, Smart Sys. Innova-tions, LLC v. Chi.Transit Auth., 873 F.3d 1364 (Fed. Cir. 2017), were abstract ideas. And the Supreme Court has concluded that diagnostic methods that involve physical administration steps are directed to a natural law. Mayo, 566 U.S. at 92. The physical nature of processing paper checks in this case does not require a different result, where the claims simply recite conventional actions in a generic way (e.g., capture data for a file, scan check, move check to a second location, such as a back room) and do not purport to improve any underlying technology.

The district court’s and Solutran’s reliance on the paper checks being processed in two“different location[s]”via two paths as preventing the claims from being directed to an abstract idea is also misplaced. The claims on their face are broad enough to allow the transaction data to be captured at the merchant’s point of purchase and the checks to be scanned and compared in the merchant’s back office. The location of the scanning and comparison—whether it occurs down the hallway, down the street, or across the city—does not detract from the conclusion that these claims are, at bottom, directed to getting the merchant’s account credited from a customer’s purchase as soon as possible, which is an abstract idea.

With regard to Step Two of the Alice test, the Federal Circuit disagreed with the district court that the patent claims “contain a sufficiently transformative inventive concept so as to be patent eligible.” Even when viewed as a whole, these claims “do not, for example, purport to improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field.” (see Alice v CLS). To the contrary, as the claims in Ultramercial did, the claims of the ’945 patent “simply instruct the practitioner to implement the abstract idea with routine, conventional activity.” As was noted above, the background of the ’945 patent describes each individual step in claim 1 as being conventional. Reordering the steps so that account crediting occurs before check scanning (as opposed to the other way around) represents the abstract idea in the claim, making it insufficient to constitute an inventive concept. Any remaining elements in the claims, including use of a scanner and computer and “routine data-gathering steps” (i.e.,receipt of the data file),have been deemed insufficient by the Federal Circuit in the past to constitute an inventive concept.

To the extent Solutran argues that these claims are patent-eligible because they are allegedly novel and non-obvious, the Federal Circuit has previously explained that merely reciting an abstract idea by itself in a claim—even if the idea is novel and non-obvious—is not enough to save it from ineligibility. See, e.g., Synopsys, Inc. v. Mentor Graphics Corp., 839 F.3d 1138, 1151 (Fed. Cir. 2016)

Solutran also argued that its claims pass the machine-or-transformation test—i.e., “transformation and reduction of an article ‘to a different state or thing.’” While the Supreme Court has explained that the machine-or-trans-formation test can provide a “useful clue” in the second step of Alice, passing the test alone is insufficient to overcome Solutran’s failings under step two. Merely using a general-purpose computer and scanner to perform conventional activities in the way they always have, as the claims do here, does not amount to an inventive concept. Because the claims of the ’945 patent recite the abstract idea of using data from a check to credit a merchant’s account before scanning the check, and because the claims do not contain an inventive concept sufficient to transform this abstract idea into a patent-eligible application, the claims were held to not be directed to patent-eligible subject matter.

In summary, using conventional hardware, such as a scanner, in a conventional manner in method claim is not sufficient to make a claim patent-eligible. In addition, the Bilski “machine or transformation” test is dead and should not be relied upon.

TRADING TECHNOLOGIES INTERNATIONAL, INC. v. IBG LLC, INTERACTIVE BROKERS, LLC, FEDERAL CIRCUIT 2019 (SOFTWARE PATENTS)

This decision involves Trading Technologies U.S. Patent Nos. 7,533,056; 7,212,999; and 7,904,374 covering graphical user interfaces for electronic trading.

U.S. Patent Nos. 7,533,056 and 7,212,999 disclose a user interface for an electronic trading system that allows a re-mote trader to view trends in the orders for an item, and provides the trading information in an easy to see and interpret graphical format. U.S. Patent No. 7,904,374 discloses a display and trading method to ensure fast and accurate execution of trades by displaying market depth on a vertical or horizontal plane, which fluctuates logically up or down, left or right across the plane as the market prices fluctuate.

Claim 1 of U.S. Patent No. 7,212,999 is representative and recites:

A computer based method for facilitating the placement of an order for an item and for displaying transactional information to a user regarding the buying and selling of items in a system where orders comprise a bid type or an offer type, and an order is generated for a quantity of the item at a specific value, the method comprising:

displaying a plurality of bid indicators, each corresponding to at least one bid for a quantity of the item, each bid indicator at a location along a first scaled axis of prices corresponding to a price associated with the at least one bid;
displaying a plurality of offer indicators, each corresponding to at least one offer for a quantity of the item, each offer indicator at a location along the first scaled axis of prices corresponding to a price associated with the at least one offer;
receiving market information representing a new order to buy a quantity of the item for a specified price, and in response to the received market information, generating a bid indicator that corresponds to the quantity of the item bid for and placing the bid indicator along the first scaled axis of prices corresponding to the specified price of the bid;
receiving market information representing a new order to sell a quantity of the item for a specified price, and in response to the received market information, generating an offer indicator that corresponds to the Quantity of the item for which the offer is made and placing the offer indicator along the first scaled axis of prices corresponding to the specified price of the offer;
displaying an order icon associated with an order by the user for a particular quantity of the item;
selecting the order icon and moving the order icon with a pointer of a user input device to a location associated with a price along the first scaled axis of prices;
and sending an order associated with the order icon to an electronic trading exchange, wherein the order is of a bid type or an offer type and the order has a plurality of order parameters comprising the particular quantity of the item and the price corresponding to the location at which the order icon was moved.

Claim 1 of U.S. Patent No. 7,533,056 is similar and recites:

A method of operation used by a computer for displaying transactional information and facilitating trading in a system where orders comprise a bid type or an offer type, the method comprising:

receiving bid and offer information for a product from an electronic exchange, the bid and offer information indicating a plurality of bid orders and a plurality of offer orders for the product;
displaying a plurality of bid indicators representing quantity associated with the plurality of bid orders, the plurality of bid indicators being displayed at locations cor-responding to prices of the plurality of bid orders along a price axis;
displaying a plurality of offer indicators representing quantity associated with the plurality of offer orders, the plurality of of-fer indicators being displayed at locations corresponding to prices of the plurality of-fer orders along the price axis;
receiving a user input indicating a default quantity to be used to determine a quantity for each of a plurality of orders to be placed by the user at one or more price levels;
receiving a user input indicating a desired price for an order to be placed by the user, the desired price being specified by selection of one of a plurality of locations corresponding to price levels along the price axis; and
sending the order for the default quantity at the desired price to the electronic exchange.

Claim 1 of U.S. Patent No. 7,904,374 recites:

A method for facilitating trade order entry, the method comprising:

receiving, by a computing device, market data for a commodity, the market data com-prising a current highest bid price and a current lowest ask price available for the commodity;
identifying, by the computing device, a plurality of sequential price levels for the commodity based on the market data, where the plurality of sequential price levels includes the current highest bid price and the current lowest ask price;
displaying, by the computing device, a plurality of graphical locations aligned along an axis, where each graphical location is configured to be selected by a single action of a user input device to send a trade order to the electronic exchange, where a price of the trade order is based on the selected graphical location;
mapping, by the computing device, the plurality of sequential price levels to the plurality of graphical locations, where each graphical location corresponds to one of the plurality of sequential price levels, where each price level corresponds to at least one of the plurality of graphical locations, and where mapping of the plurality of sequential price levels does not change at a time when at least one of the current highest bid price and the current lowest ask price changes; and
setting a price and sending the trade order to the electronic exchange in response to receiving by the computing device commands based on user actions consisting of: (1) placing a cursor associated with the user input device over a desired graphical location of the plurality of graphical locations and (2) selecting the desired graphical location through a single action of the user input device

The Federal Circuit agreed with the U.S. Patent and Trademark Office’s Appeals Board that these claims are directed to a covered business method and thus CBM review was appropriate. The Federal Circuit found that they were all eligible for covered business method (CBM) review. In a CBM review, a patent can be attacked under 35 U.S.C. 101 for being non-patent eligible after an analysis in accordance with Alice v CLS Bank. Having found that the claims were eligible for a CBM review, the Federal Circuit then performed an Alice analysis to determine if the software patents for graphical user interfaces were patent-eligible.

For U.S. Patent No. 7,212,999, the Federal Circuit first noted that at Alice step one, they must “determine whether the claims at issue are directed to a patent-ineligible concept.” Under this inquiry, they evaluate “the focus of the claimed advance over the prior art” to determine if the character of the claim as a whole, considered in light of the specification, is directed to excluded subject matter.

The Appeals Board at the U.S. Patent and Trademark Office determined claim 1 is directed to “the abstract idea of graphing (or displaying) bids and offers to assist a trader to make an order.” The Federal Circuit agreed. The claim’s preamble states that it is a “computer based method for facilitating the placement of an order for an item and for displaying transactional information to a user regarding the buying and selling of items.” The method steps require “displaying” a plurality of bid and of-fer indicators along a “scaled axis of prices,” “receiving market information,” displaying that information along the axis, and “displaying” information pertaining to a user’s order. This essentially describes receiving information, which the specification admits was already available to “market makers,” and displaying that information. The Federal Circuit noted that they have treated collecting information, including when limited to particular content (which does not change its character as information), as within the realm of abstract ideas, citing to Electric Power Grp., LLC v. Alstom S.A.

Claim 1 also recites sending an order by “selecting” and “moving” an order icon to a location along the price axis. According to the Federal Circuit, this does not change our determination that the claims are directed to an abstract idea. As the Board determined, placing an order based on displayed market information is a fundamental economic practice. The fact that the claims add a degree of particularity as to how an order is placed in this case does not impact the analysis at Alice step one.

The fact that this is a “computer-based method” does not render the claims non-abstract. The specification indicates the claimed GUI is displayed on any computing device. As a general rule, “the collection, organization, and display of two sets of information on a generic display device is abstract.” Relying principally on Core Wireless Licensing S.A.R.L. v. LG Electronics, Inc., Trading Tech argued the claimed invention provides an improvement in the way a computer operates. The Federal Circuit did not agree. The claims of the ’999 patent do not improve the functioning of the computer, make it operate more efficiently, or solve any technological problem. Instead, they recite a purportedly new arrangement of generic information that assists traders in processing information more quickly. The Federal Circuit concluded that the claims are directed to the abstract idea of graphing bids and offers to assist a trader to make an order.

At step 2 of the Alice analysis, the Federal Circuit is to 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.” The Board held that the claims do not contain an inventive concept. It determined that receiving market in-formation is simply routine data gathering, and displaying information as indicators along a scaled price axis is well-understood, routine, conventional activity that does not add something significantly more to the abstract idea. It likewise determined that selecting and moving an icon is well-understood, routine, conventional activity. It considered the elements both individually and as an ordered combination and concluded they did not transform the claim into a patent eligible application of the abstract idea. The Federal Circuit agreed.

With regard to U.S. Patent No. 7,533,056, like the ’999 patent, the Board at step one determined claim 1 is directed to “the abstract idea of graphing (or displaying) bids and offers to assist a trader to make an order.” The Federal Circuit agreed.

At step two, the Board held the elements, both individually and as an ordered combination, do not recite an inventive concept. Trading Technologies argued the claims improve computer functionality by improving on the intuitiveness and efficiency of prior GUI tools. The specification makes clear that this invention helps the trader process information more quickly. This is not an improvement to computer functionality. The Federal Circuit saw no merit to Trading Tech’s argument.

Regarding U.S. Patent No. 7,904,374, at step one, the Appeals Board held that claim 1 of the patent is directed to the abstract idea of receiving user input to send a trade order. It explained that claim 1 only minimally requires collecting and analyzing information and includes no requirement that any of that information is displayed. This is because the claims require “displaying . . . graphical locations along an axis” but do not require the graphical locations to display the price levels that are mapped to them. Based on the Board’s understanding, the graphical locations need not provide any information to the user.

At step two, the Board held the elements of claim 1, individually or as an ordered combination, do not add an inventive concept. It noted that the specification discloses that the invention can be implemented “on any existing or future terminal or device” and describes the programming as insignificant. It also noted that Trading Technologies acknowledged that conventional GUIs for electronic trading permitted a trader to send an order electronically. Trading Tech repeats its argument that claim 1 improves computer functionality by solving technological problems with prior art electronic trading interfaces. But as previously explained, claim 1 does not solve any purported technological problem. The Federal Circuit agreed with the Board.

This case is unfortunate because a previous, non-precedential, Trading Technologies decision found a patent covering a stock trading graphical user interface to be patent-eligible. That decision gave hope to patent practitioners that software could be patentable if graphical user interfaces were described and claimed. Some commentators argued that many or even all graphical user interfaces should be patentable for reasons similar to those described in that case. Unfortunately, the different judges of the Federal Circuit have different understandings of Alice, leading to the case law being inconsistent. This decision makes clear that the only safe harbor is if there is unique hardware or if the software somehow improves operation of the computer. These claims were fairly narrow but the software limitations were not enough to carry the day.

Trading Technologies argued that because non-precedential decisions of this court held that other Trading Technologies patents were for technological inventions or claimed eligible subject matter, this court should have too. The Federal Circuit declined, stating that they are not bound by non-precedential decisions at all, much less ones to different patents, different specifications, or different claims. Each panel must evaluate the claims presented to it. It is unfortunate that the previous Trading Technologies decision was not precedential but this one was.

Intellectual Ventures I LLC v. Symantec Corp., Trend Micro Incorporated, Federal Circuit 2016 (Software Patents)

It is bad enough that the Supreme Court doesn’t know what it is doing when it comes to software patents. In Alice v CLS, they considered a financial patent that could have easily been invalidated on the grounds of obviousness, and instead invalidated it based on subject matter (35 U.S.C. 101). They didn’t say that financial methods cannot be patented. They did not say that all software patents are invalid. They used a vague framework from a biotech decision. The courts now use an unclear test that involves considering whether the subject matter of the claim is “too abstract” and, if so, whether the claims add “significantly more”. Neither of these concepts were well defined. I suppose they were hoping for judicial efficiency in having courts decide that some patents were of subject matter types that aren’t worthy of claim construction or obviousness analyses.

We can forgive the Supreme Court. They are usually dealing with completely different types of cases. They have been waiting for congress to legislate since Gottschalk v. Benson in 1972.

The Federal Circuit, on the other hand, our court of appeals for patent cases, is supposed to have specialized knowledge of patent law. They were formed to bring consistency to the law, an improvement over the inconsistent decisions that were being issued from the various circuit courts of appeal, who were more experienced with criminal law than patent law.

But the Federal Circuit just can’t make up its mind on when software should or should not be patentable. After the recent decision in McRo, which seemed to be taking us towards a “technical effect,” European-style test, that also considers preemption and non-obviousness (as I had predicted when I wrote my summary of Alice v CLS), we get Intellectual Ventures v Symantec. The main opinion, by Judge Dyk, isn’t entirely unreasonable, but just wait until you read Judge Mayer’s concurrence (summarized below, after the discussion of the opinion).

Intellectual Ventures I LLC (“IV”) sued Symantec Corp. and Trend Micro for infringement of various claims of U.S. Patent Nos. 6,460,050, 6,073,142, and 5,987,610. The district court held the asserted claims of the ’050 patent and the ’142 patent to be ineligible under § 101, and the asserted claim of the ’610 patent to be eligible. The Federal Circuit didn’t find any asserted claims to be patent-eligible.

Claim 9 is representative of the ‘050 patent:

9. A method for identifying characteristics of data files, comprising:

receiving, on a processing system, file content identifiers for data files from a plurality of file content identifier generator agents, each agent provided on a source system and creating file content IDs using a mathematical algorithm, via a network;
determining, on the processing system, whether each received content identifier matches a characteristic of other identifiers; and
outputting, to at least one of the source systems responsive to a request from said source system, an indication of the characteristic of the data file based on said step of determining.

The Federal Circuit agreed with the lower court that filtering files/e-mail—is an abstract idea. Looking a bit at the obviousness question, and conflating 103 and 101 like the Supreme Court did in Alice v CLS, the Federal Circuit stated that it was long-prevalent practice for people receiving paper mail to look at an envelope and discard certain letters, without opening them, from sources from which they did not wish to receive mail based on characteristics of the mail. The list of relevant characteristics could be kept in a person’s head. Characterizing e-mail based on a known list of identifiers is no less abstract. The patent merely applies a well-known idea using generic computers “to the particular technological environment of the Internet.”

The Federal Circuit then proceeded to the Mayo/Alice step two to determine whether the claims contain an “inventive concept” that renders them patent-eligible.

The Federal Circuit noted that Indeed, “[t]he ‘novelty’ of any element or steps in a process, or even of the process itself, is of no relevance in determining whether the subject matter of a claim falls within the § 101 categories of possibly patentable subject matter”, quoting Diamond v. Diehr, 450 U.S. 175, 188–89 (1981).

They also cite the Mayo Supreme Court decision for a rejection of the Government’s invitation to substitute §§ 102, 103, and 112 inquiries for the better established inquiry under § 101. Better established? Really?

The Federal Circuit notes that the steps of the asserted claims of the ’050 patent do not “improve the functioning of the computer itself.” This gives us a big hint on how to draft software patent applications in the future. Look for ways that the software is improving the computer. Perhaps less memory is being used.

IV argued that the ’050 patent “shrink[s] the protection gap and moot[s] the volume problem.” According to IV, the protection gap is “the period of time between identification of a computer
virus by an anti-malware provider and distribution of that knowledge to its users.” The volume problem is the “exponential growth in malware and spam,” increasing the amount of antivirus signatures to be downloaded. However, the asserted claims do not contain any limitations that address the protection gap or volume problem, e.g., by requiring automatic updates to the
antivirus or antispam software or the ability to deal with a large volume of such software. So a practice pointer is to be sure to add limitations to the claims that solve a technological problem.

Claim 1 is representative of how the ’142 patent screens e-mail, and recites:

1. A post office for receiving and redistributing email messages on a computer network, the post
office comprising:

a receipt mechanism that receives an e-mail message from a sender, the e-mail message having at least one specified recipient;
a database of business rules, each business rule specifying an action for controlling the delivery of an e-mail message as a function of an attribute of the e-mail message;
a rule engine coupled to receive an e-mail message from the receipt mechanism and coupled to the database to selectively apply the business rules to the e-mail message to determine from selected ones of the business rules a set of actions to be applied to the e-mail message; and
a distribution mechanism coupled to receive the set of actions from the rule engine and apply at least one action thereof to the e-mail message to control delivery of the e-mail message and which in response to the rule engine applying an action of deferring delivery of the e-mail message, the distribution engine automatically combines the email message with a new distribution list specifying at least one destination post office for receiving the e-mail message for review by an administrator associated with the destination post office, and a rule history specifying the business rules that were determined to be applicable to the e-mail message by at least one rule engine, and automatically delivers the e-mail message to a first destination post office on the distribution list instead of a specified recipient of the e-mail message.

The district court held that the asserted claims of the ’142 software patent are directed to human practicable concepts, which could be implemented in, for example, a brick-and-mortar post office. The Federal Circuit agreed, and found the district court’s analogy to a corporate mailroom to also be useful.

IV itself informed the district court, in its technology tutorial, that in the typical environment, the post office resides on a mail server, where the company’s emails are received, processed, and routed to recipients. IV stupidly added that, conceptually, this post office is not much different than a United States Postal Service office that processes letters and packages, except that the process is all computer implemented and done electronically in a matter of seconds.

Again conflating 103 and 101 issues, the Federal Circuit found the concept to be well-known and abstract.

Proceeding to step 2, the Federal Circuit considered whether each step does no more than require a generic computer to perform generic computer functions as in Alice. They found that here, that is the case.

Claim 7 was is the only asserted claim of the ’610 patent. The district court held eligible claim 7 of the ’610 patent.
Claim 7 depends from claim 1, which provides:

1. A virus screening method comprising the steps
of:

routing a call between a calling party and a called party of a telephone network;
receiving, within the telephone network, computer data from a first party selected from the group consisting of the calling party and the called party;
detecting, within the telephone network, a virus in the computer data; and
in response to detecting the virus, inhibiting communication of at least a portion of the computer data from the telephone network to a second party selected from the group consisting of the calling party and the called party.

Claim 7 recites:

7. The virus screening method of claim 1 further comprising the step of determining that virus screening is to be applied to the call based upon at least one of an identification code of the calling party and an identification code of the called party.

Unlike the asserted claims of the ’050 and ’142 patents, claim 7 involves an idea that originated in the computer era—computer virus screening.

But the idea of virus screening was well known at the time the application was filed. Here again, 103 analysis creeps in to the 101 analysis. A sensible court would skip the 101 analysis altogether and just use obviousness analysis as the real test. But the Federal Circuit is stuck with the mess that the Supreme Court has created.

The Federal Circuit noted that virus screening is well-known and constitutes an abstract idea. At step two of Mayo/Alice, the Federal Circuit found no other aspect of the claim that is anything but conventional. They stated that just as performance of an abstract idea on the Internet is abstract, so too the performance of an abstract concept in the environment of the telephone network is abstract.

Nor does the asserted claim improve or change the way a computer functions. Claim 7 recites no more than generic computers that use generic virus screening technology.

Judge Meyer wrote separately to make his two points: (1) patents constricting the essential channels of online communication run afoul of the First Amendment; and (2) claims directed to software implemented on a generic computer are categorically not eligible for patent.

He wrote that the Constitution protects the right to receive information and ideas. . . . This right to receive information and ideas, regardless of their social worth, is fundamental to our free society, quoting the Supreme Court decision in Stanley v. Georgia. According to Judge Meyer, patents, which function as government-sanctioned monopolies, invade core First Amendment rights when they are allowed to obstruct the essential channels of scientific, economic, and political discourse.

According to Judge Mayer, although the claims at issue here disclose no new technology, they have the potential to disrupt, or even derail, large swaths of online communication. Suppression of free speech is no less pernicious because it occurs in the digital, rather than the physical, realm. “[W]hatever the challenges of applying the Constitution to ever-advancing technology, the basic principles of freedom of speech and the press, like the First Amendment’s command, do not vary when a new and different medium for communication appears.” Brown v. Entm’t Merchs. Ass’n.

According to Judge Meyer, like all congressional powers, the power to issue patents and copyrights is circumscribed by the First Amendment. Just as the idea/expression dichotomy and the fair use defense serve to keep copyright protection from abridging free speech rights, restrictions on subject matter eligibility can be used to keep patent protection within constitutional bounds. Section 101 creates a “patent-free zone” and places within it the indispensable instruments of
social, economic, and scientific endeavor. Section 101, if properly applied, can preserve the Internet’s open architecture and weed out those patents that chill political expression and impermissibly obstruct the marketplace of ideas.

According to Judge Meyer, most of the First Amendment concerns associated with patent protection could be avoided if the Federal Circuit were willing to acknowledge that Alice sounded the death knell for software patents.

The problem with Judge Meyer’s analysis is that you can’t have a marketplace without property rights. You would have cheap overseas versions of software that developers spent good money to develop. Software is one of the few industries in which the U.S. is a net exporter. Copyright is only effective for protecting against outright copies, not for protecting inventive concepts within software.

Yes, the Internet is an open framework as Judge Meyer notes. However, it started as ARPANET funded by the Department of Defense. Why would a private company put R&D money into a new technology and then give it away? Do we really want the government developing our software? That might be how things end up if the venture capital firms decide that they will not recoup their investments and if they stop investing in software startups. When you take away the profit motive for startups, you are left with government or consolidation by large multinationals that happily move jobs overseas. Well, maybe having the government develop software wouldn’t be all that bad. It couldn’t be worse than Windows 8.

Hopefully Judge Meyer will not be involved in writing too many software patent decisions.

McRo, Inc., dba Planet Blue v. Bandai Namco Games America, post-Alice decision finding software invention patentable, Federal Circuit 2016 (Software Patents)

This was an appeal from a grant of judgment on the pleadings that the asserted claims of two software patents, U.S. Patent Nos. 6,307,576 (‘‘the ’576 patent’’) and 6,611,278 (‘‘the ’278 patent’’) were invalid.

The software patents relate to automating part of a preexisting 3-D animation method. A prior art method uses multiple 3-D models of a character’s face to depict various facial expressions made during speech. To animate the character as it speaks, the method morphs the character’s expression between the models. The “neutral model” is the 3-D representation of the resting, neutral facial expression of an animated character. The other models of the character’s face are known as “morph targets,” and each one represents that face as it pronounces a phoneme, i.e., makes a certain sound. This visual representation of the character’s face making a sound is also called a “viseme.” Animation of the character and lip synchronization preexisting the invention was generally accomplished by a human animator with the assistance of a computer.

Animators used a ‘keyframe’ approach, where the artist set the appropriate morph weights at certain important times (‘keyframes’)” instead of at every frame. Animators knew what phoneme a character pronounced at a given time from a “time aligned phonetic transcription” (“timed transcript”). This listed the “occurrence in time” of each phoneme the character pronounced.

The patents automate a 3-D animator’s tasks, specifically, determining when to set keyframes and setting those keyframes. This automation is accomplished through rules that are applied to the timed transcript to determine the morph weight outputs. The patents describe many exemplary rule sets that go beyond simply matching single phonemes from the timed transcript with the appropriate morph target. Instead, these rule sets aim to produce more realistic speech by taking into consideration the differences in mouth positions for similar phonemes based on context.

Claim 1 of the ’576 software patent is representative:

1. A method for automatically animating lip synchronization and facial expression of three-dimensional characters comprising:

obtaining a first set of rules that define output morph weight set stream as a function of phoneme sequence and time of said phoneme sequence;
obtaining a timed data file of phonemes having a plurality of sub-sequences;
generating an intermediate stream of output morph weight sets and a plurality of transition parameters between two adjacent morph weight sets by evaluating said plurality of sub-sequences against said first set of rules;
generating a final stream of output morph weight sets at a desired frame rate from said intermediate stream of output morph weight sets and said plurality of transition parameters; and
applying said final stream of output morph weight sets to a sequence of animated characters to produce lip synchronization and facial expression control of said animated characters.

The Federal Circuit noted, as an initial matter, that claim construction is helpful to resolve the question of patentability under §101. (Malhotra Law Firm PLLC does not see how a §101 can be performed without claim analysis). Specifically, the parties’ dispute about whether the “first set of rules” must evaluate sequential phonemes or can evaluate individual phonemes is resolved by the claim language. The Federal Circuit agreed with McRO that the claims are limited to rules that evaluate sub-sequences consisting of multiple sequential phonemes. This limitation is apparent on the face of the claims.

The defendants did not dispute that processes that automate tasks that humans are capable of performing are patent eligible if properly claimed; instead, they argued that the claims are abstract because they do not claim specific rules.

The Federal Circuit noted that the claimed rules here, however, are limited to rules with certain common characteristics, i.e., a genus, and observed that claims to the genus of an invention, rather than a particular species, have long been acknowledged as patentable. See, for example, the Supreme Court’s decision in Diamond v. Chakrabarty. Patent law has evolved to place additional requirements on patentees seeking to claim a genus; however, these limits have not been in relation to the abstract idea exception to §101. Rather they have principally been in terms of whether the patentee has satisfied the tradeoff of broad disclosure for broad claim scope implicit in 35 U.S.C. §112. E.g., Carnegie Mellon Univ. v. Hoffmann-La Roche Inc., 541 F.3d 1115, 1122 (Fed. Cir. 2008).

According to the Federal Circuit, the preemption concern arises when the claims are not directed to a specific invention and instead improperly monopolize “the basic tools of scientific and technological work.” Alice, 134 S. Ct. at 2354 (quoting Myriad, 133 S.Ct. at 2116). The abstract idea exception has been applied to prevent patenting of claims that abstractly cover results where “it matters not by what process or machinery the result is accomplished.” Morse, 56 U.S. at 113; see also Mayo, 132 S. Ct. at 1301. “A patent is not good for an effect, or the result of a certain process” because such patents “would prohibit all other persons from making the same thing by any means whatsoever.” Le Roy v. Tatham, 55 U.S. 156, 175 (1853).

A patent may issue “for the means or method of producing a certain result, or effect, and not for the result or effect produced.” Diehr, 450 U.S. 175, 182 n.7. The Federal Circuit then looked to their recent Enfish decision and stated that they, therefore, look to whether the claims in these patents focus on a specific means or method that improves the relevant technology or are instead directed to a result or effect that itself is the abstract idea and merely invoke generic processes and machinery. Enfish,
LLC v. Microsoft Corp.; see also Rapid Litig. Mgmt. Ltd. v. CellzDirect, Inc., No. 2015-1570, 2016 WL 3606624, at *4 (Fed. Cir. July 5, 2016).

Claim 1 of the ’576 patent is focused on a specific asserted improvement in computer animation, i.e., the automatic use of rules of a particular type. The Federal Circuit disagreed with Defendants’ arguments that the claims simply use a computer as a tool to automate conventional activity. While the rules are embodied in computer software that is processed by general-purpose computers, Defendants provided no evidence that the process previously used by animators is the same as the process required by the claims.

It is the incorporation of the claimed rules, not the use of the computer, that “improved [the] existing technological process” by allowing the automation of further tasks. Alice.

This was unlike Flook, Bilski, and Alice, where the claimed computer-automated process and the prior method were carried out in the same way. Flook, 437 U.S. at 585–86; Bilski, 561 U.S. at 611; Alice, 134 S. Ct. at 2356.

Further, the automation goes beyond merely “organizing [existing] information into a new form” or carrying out a fundamental economic practice. Digitech, 758 F.3d at 1351; see also Alice, 134 S. Ct. at 2356. The claimed process uses a combined order of specific rules that renders information into a specific format that is then used and applied to create desired results: a sequence of synchronized, animated characters. While the result may not be tangible, there is nothing that requires a method “be tied to a machine or transform an article” to be patentable. Bilski, 561 U.S. at 603 (discussing 35 U.S.C. § 100(b)). The concern underlying the exceptions to § 101 is not tangibility, but preemption. Mayo, 132 S. Ct. at 1301.

Even so, the Federal Circuit has recognized that “the absence of complete preemption does not demonstrate patent eligibility.” Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1379 (Fed. Cir. 2015). The narrower concern here is whether the claimed genus of rules preempts all techniques for automating 3-D animation that rely on rules. Claim 1 requires that the rules be rendered in a specific way: as a relationship between sub-sequences of phonemes, timing, and the weight to which each phoneme is expressed visually at a particular timing (as represented by the morph weight set). The specific structure of the claimed rules would prevent broad preemption of all rules-based means of automating lip synchronization, unless the limits of the rules themselves are broad enough to cover all possible approaches. There was no showing that any rules-based lip-synchronization process must use rules with the specifically claimed characteristics.

The only information cited to the court about the relationship between speech and face shape points to the conclusion that there are many other possible approaches to automating lip synchronization using rules.

The Federal Circuit concluded that, when looked at a whole, claim 1 is directed to a patentable, technological improvement over the existing, manual 3-D animation techniques. The claim uses the limited rules in a process specifically designed to achieve an improved technological result in conventional industry practice. Alice, 134 S. Ct. at 2358 (citing Diehr, 450 U.S. at 177). Claim 1 of the ’576 patent, therefore, is not directed to an abstract idea.

Because the Federal Circuit found that claim 1 is not directed to ineligible subject matter, the Federal Circuit did not reach Alice step two. Enfish, 822 F.3d at 1339.

BASCOM Global Internet Services v AT&T Mobility, post-Alice decision finding software invention patentable, Federal Circuit 2016 (Software Patents)

This was an appeal against a district court decision that the claims of U.S. Patent No. 5,987,606 are invalid as a matter of law under 35 U.S.C. § 101.

The patent relates to preventing the problem of employees from accessing non-work related web sites, such as entertainment web sites, at work. The patent describes its invention as combining the advantages of the then-known filtering tools while avoiding the drawbacks. The claimed filtering system avoids being modified or thwarted by a computer literate end-user, and avoids being installed on and dependent on individual end-user hardware and operating systems or tied to a single local area network or a local server platform by installing the filter at the ISP server.

Individuals are able to customize how requests for Internet content from their own computers are filtered instead of having a universal set of filtering rules applied to everyone’s requests.

The claimed invention is able to provide individually customizable filtering at a remote ISP server by taking advantage of the technical capability of certain communication networks (e.g., using TCP/IP). In these networks, the ISP is able to associate an individual user with a specific request to access a website (or other Internet content), and can distinguish that user’s requests from other users’ requests. One way that the ISP is able to make this association is by requiring each user to first complete a log-in process with the ISP server.

After a user has logged in, the ISP server can associate the user with a request to access a specific website. Because the filtering tool on the ISP server contains each user’s customized filtering mechanism, the filtering tool working in combination with the ISP server can apply a specific user’s filtering mechanism to the websites requested by that user.

The ISP server receives a request to access a website, associates the request with a particular user, and identifies the requested website. The filtering tool then applies the filtering mechanism associated with the particular user to the requested website to determine whether the user associated with that request is allowed access to the website. The filtering tool returns either the content of the website to the user, or a message to the user indicating that the request was denied.

The patent describes its filtering system as a novel advance over prior art computer filters, in that no one had previously provided customized filters at a remote server.

Claim 1 is representative:

1. A content filtering system for filtering content retrieved from an Internet computer network by individual controlled access network accounts, said filtering system comprising

a local client computer generating network access requests for said individual controlled access network accounts;
at least one filtering scheme;
a plurality of sets of logical filtering elements; and
a remote ISP server coupled to said client computer and said Internet computer network, said ISP server associating each said network account to at least one filtering scheme and at least one set of filtering elements, said ISP server further receiving said network access requests from said client computer and executing said associated filtering scheme utilizing said associated set of logical filtering elements.

In the district court, in a motion to dismiss, AT&T analogized the idea of filtering content to a parent or librarian forbidding children from reading certain books, and argued that performing the filtering on the Internet does not make the idea non abstract. Finally, AT&T pointed to each individual limitation of the claims and argued that none of the limitations transforms the abstract idea of filtering content into patent-eligible subject matter because they do no more than recite routine and conventional activities performed by generic computer components.

BASCOM responded by arguing that the claims of the patent are not directed to an abstract idea because they address a problem arising in the realm of computer networks, and provide a solution entirely rooted in computer technology, similar to the claims at issue in DDR Holdings, LLC v. Hotels.com. BASCOM characterized the recent Supreme Court and Federal Circuit decisions invalidating claims under §101 as focusing on claims that are directed to a longstanding fundamental practice that exists independent of computer technology. BASCOM asserted that its claims are different because filtering Internet content was not longstanding or fundamental at the time of the invention and is not independent of the Internet. Finally, BASCOM argued that, even if the lower court found that the claims are directed to an abstract idea, the inventive concept is found in the ordered combination of the limitations: a “special ISP server that receives requests for Internet content, which the ISP server then associates with a particular user and a particular filtering scheme and elements.”

The Federal Circuit started its analysis by agreeing with the district court that filtering content is an abstract idea because it is a longstanding, well-known method of organizing human behavior, similar to concepts previously found to be abstract.

BASCOM argued that the claims are directed to something narrower: the specific implementation of filtering content set forth in the claim limitations. Specifically, BASCOM asserted that claim 1 is directed to the more specific problem of providing Internet-content filtering in a manner that can be customized for the person attempting to access such content while avoiding the need for (potentially millions of) local servers or computers to perform such filtering and while being less susceptible to circumvention by the user.

The Federal Circuit recognized that they sometimes incorporate claim limitations into their articulation of the idea to which a claim is directed (e.g., as they did in Enfish). This case, however, unlike Enfish, presented a “close call” about how to characterize what the claims are directed to.

The Federal Circuit therefore deferred their consideration of the specific claim limitations narrowing effect for step two.

According to the Federal Circuit, step two involves the search for an “inventive concept.” The “inventive concept” may arise in one or more of the individual claim limitations or in the
ordered combination of the limitations.

An inventive concept that transforms the abstract idea into a patent-eligible invention must be significantly more than the abstract idea itself, and cannot simply be an instruction to implement or apply the abstract idea on a computer.

The Federal Circuit agreed with the District Court that the limitations of the claims, taken individually, recite generic computer, network and Internet components, none of which is inventive by itself.

In this patent, the claims do not merely recite the abstract idea of filtering content along with the requirement to perform it on the Internet, or to perform it on a set of generic computer components. Such claims would not contain an inventive concept according to the Federal Circuit. Nor do the claims preempt all ways of filtering content on the Internet; rather, they recite a specific, discrete implementation of the abstract idea of filtering content. Filtering content on the Internet was already a known concept, and the patent describes how its particular arrangement of elements is a technical improvement over prior art ways of filtering such content.

By taking a prior art filter solution (one-size-fits-all filter at the ISP server) and making it more dynamic and efficient (providing individualized filtering at the ISP server), the claimed invention represents a software-based invention that improves the performance of the computer system itself, according to the Federal Circuit.

The Federal Circuit concluded that, while the claims of the patent are directed to the abstract idea of filtering content, BASCOM adequately alleged that the claims pass step two of
Alice’s two-part framework. BASCOM has alleged that an inventive concept can be found in the ordered combination of claim limitations that transform the abstract idea of filtering
content into a particular, practical application of that abstract idea. The Federal Circuit found nothing that refutes those allegations as a matter of law or justifies dismissal under a motion
under Rule 12(b)(6). The Federal Circuit therefore vacated the district court’s order granting AT&T’s motion to dismiss.

Post-Alice Software Patent Decision, Content Extraction and Transmission v Wells Fargo, Federal Circuit, Dec. 2014

CET owns patents that generally recite a method of 1) extracting data from hard copy documents using an automated digitizing unit such as a scanner, 2) recognizing specific information from the extracted data, and 3) storing that information in a memory. This method can be performed by software on an automated teller machine (ATM) that recognizes information written on a scanned check, such as the check’s amount, and populates certain data.

One of the claims recites:
A method of processing information from a diversity of types of hard copy documents, said method
comprising the steps of:
(a) receiving output representing a diversity of types of hard copy documents from an automated digitizing unit and storing information from said diversity of types of hard copy documents into a memory, said
information not fixed from one document to the next, said receiving step not preceded by scanning, via said automated digitizing unit, of a separate document containing format requirements;
(b) recognizing portions of said hard copy documents corresponding to a first data field; and
(c) storing information from said portions of said hard copy documents corresponding to said first data field into memory locations for said first data field.

The Federal Circuit said that The Supreme Court’s two-step framework, described
in Mayo, and in Alice Corp. Pty Ltd. v. CLS Bank Int’l guided their analysis.

Using that analysis, the court is to first determine whether a claim is “directed to” a patent-ineligible
abstract idea. If so, they are then to consider the elements of the claim—both individually and as an ordered combination—to assess whether the additional elements transform the nature of the claim into a patent-eligible application of the abstract idea. This is the search for an “inventive concept”—something sufficient to ensure that the claim amounts to “significantly more” than the abstract idea itself.

The Federal Circuit noted that The Supreme Court has not delimited the precise contours of the ‘abstract ideas’ category.

Applying Mayo/Alice step one, the Federal Circuit agreed with the district court that the claims of the asserted patents are drawn to the abstract idea of 1) collecting data, 2) recognizing certain data within the collected data set, and 3) storing that recognized data in a memory. The concept of data collection, recognition, and storage is undisputedly well-known.

CET attempted to distinguish its claims from those found to be abstract in Alice and other cases by showing
that its claims require not only a computer but also an additional machine—a scanner. CET argued that its claims are not drawn to an abstract idea because human minds are unable to process and recognize the stream of bits output by a scanner. However, the Federal Circuit did not accept that argument and noted that claims in Alice also required a computer that processed streams of bits, but nonetheless were found to be abstract.

For the second step of the analysis, the court must determine whether the limitations present in the claims represent a patent-eligible application of the abstract idea. For the role of a computer in a computer implemented invention to be deemed meaningful in the context of this analysis, it must involve more than performance of well-understood, routine, and conventional activities previously known to the industry.

Applying Mayo/Alice step two, the Federal Circuit agreed with the district court that the asserted patents contain no limitations—either individually or as an ordered combination—that transform the claims into a patent-eligible application. CET conceded at oral argument that the use of a scanner or other digitizing device to extract data from a document was well-known at the time of filing, as was the ability of computers to translate the shapes on a physical page into typeface characters.

According to the Federal Circuit, CET’s claims merely recite the use of this existing scanning and processing technology to recognize and store data from specific data fields such as amounts, addresses, and dates.
There is no “inventive concept” in CET’s use of a generic scanner and computer to perform well-understood,
routine, and conventional activities commonly used in industry. At most, CET’s claims attempt to limit the abstract idea of recognizing and storing information from hard copy documents using a scanner and a computer to a particular technological environment. Such a limitation has been held insufficient to save a claim in this context.

CET argued that the failure of PNC or the district court to individually address every one of its claims is inconsistent with the statutory presumption of validity that requires proving the invalidity of each claim by clear and convincing evidence.

The Federal Circuit did not accept that argument. They said that the district court correctly determined that addressing each claim of the asserted patents was unnecessary. After conducting its own analysis, the district court determined that PNC is correct that claim 1 of the ’855 patent and claim 1 of the ’416 patent are representative, because all the claims are “substantially similar and linked to the same abstract idea.”

CET contended that the district court erred by declaring its claims patent-ineligible under § 101 at the
pleading stage without first construing the claims or allowing the parties to conduct fact discovery and submit
opinions from experts supporting their claim construction positions. The Federal Circuit did not accept this argument. They stated that although the determination of patent eligibility requires a full understanding of the basic character of the claimed subject matter, claim construction is not an inviolable prerequisite to a validity determination under § 101.

The Federal Circuit affirmed the district court’s grant of PNC’s motion to dismiss on the ground that the
claims of CET’s asserted patents are invalid as patent ineligible under § 101.

Thus, a scanner; i.e., some computer hardware beyond a computer is not enough to convert a patent-ineligible software claim to a patent-eligible claim after Alice.

December 16, 2014 Interim Guidelines on Subject Matter Eligibility of Software Patents

The United States Patent and Trademark Office has prepared interim guidance (2014 Interim Guidance on Patent Subject Matter Eligibility, called “Interim Eligibility Guidance”) for use by USPTO personnel in determining subject matter eligibility under 35 U.S.C. 101 in view of recent decisions by the U.S. Supreme Court (Supreme Court) such as Alice, Myriad, and Mayo.

The guidelines provide the following flowchart:

(Step 1) Is the claim to a process, machine, manufacture or composition of matter?
If so, proceed to Step 2A. If not, the claim is not eligible subject matter under 35 USC 101.

(Step 2A) [Part 1 Mayo test] Is the claim directed to a law of nature, a natural phenomenon, or an abstract idea (judicially recognized exceptions)?. If so, proceed to Step 2B. If not, the claim qualifies as eligible subject matter under 35 USC 101.

(Step 2B) [Part 2 Mayo test] Does the claim recite additional elements that amount to significantly more than the judicial exception? If so, the claim qualifies as eligible subject matter. If not, the claim is not eligible subject matter.

Two–part Analysis for Judicial Exceptions
A. Flowchart Step 2A (Part 1 Mayo Test) – Determine whether the claim is
directed to a law of nature, a natural phenomenon, or an abstract idea (judicial
exceptions).

A claim is directed to a judicial exception when a law of nature, a natural phenomenon,
or an abstract idea is recited (i.e., set forth or described) in the claim. Such a claim
requires closer scrutiny for eligibility because of the risk that it will “tie up” the excepted
subject matter and pre-empt others from using the law of nature, natural phenomenon, or
abstract idea. Courts tread carefully in scrutinizing such claims because at some level all
inventions embody, use, reflect, rest upon, or apply a law of nature, natural phenomenon,
or abstract idea. To properly interpret the claim, it is important to understand what the
applicant has invented and is seeking to patent.

For claims that may recite a judicial exception, but are directed to inventions that clearly
do not seek to tie up the judicial exception, see below regarding a streamlined
eligibility analysis.

It should be noted that there are no bright lines between the types of exceptions
because many of these concepts can fall under several exceptions. For example,
mathematical formulas are considered to be an exception as they express a scientific
truth, but have been labelled by the courts as both abstract ideas and laws of nature.
Likewise, “products of nature” are considered to be an exception because they tie up the
use of naturally occurring things, but have been labelled as both laws of nature and
natural phenomena. Thus, it is sufficient for this analysis to identify that the claimed
concept aligns with at least one judicial exception.

Laws of nature and natural phenomena, as identified by the courts, include naturally
occurring principles/substances and substances that do not have markedly different
characteristics compared to what occurs in nature. The types of concepts
courts have found to be laws of nature and natural phenomena are shown by these cases,
which are intended to be illustrative and not limiting:
• an isolated DNA (see the Myriad case);
• a correlation that is the consequence of how a certain compound is metabolized
by the body (Mayo);
• electromagnetism to transmit signals (Morse); and
• the chemical principle underlying the union between fatty elements and water
(Tilghman).

Abstract ideas have been identified by the courts by way of example, including
fundamental economic practices, certain methods of organizing human activities, an idea
‘of itself,’ and mathematical relationships/formulas. The types of concepts courts have
found to be abstract ideas are shown by these cases, which are intended to be illustrative
and not limiting:
• mitigating settlement risk (Alice);
• hedging (Bilski);
• creating a contractual relationship (buySAFE);
• using advertising as an exchange or currency (Ultramercial);
• processing information through a clearinghouse (Dealertrack);
• comparing new and stored information and using rules to identify options
(SmartGene);
• using categories to organize, store and transmit information (Cyberfone);
• organizing information through mathematical correlations (Digitech);
• managing a game of bingo (Planet Bingo);
• the Arrhenius equation for calculating the cure time of rubber (Diehr);
• a formula for updating alarm limits (Flook);
• a mathematical formula relating to standing wave phenomena (Mackay Radio); and
• a mathematical procedure for converting one form of numerical representation to
another (Benson)

Nature-based Products
a. Determine Whether The Markedly Different Characteristics Analysis Is
Needed To Evaluate a Nature-Based Product Limitation Recited in a Claim

Nature-based products, as used herein, include both eligible and ineligible products and
merely refer to the types of products subject to the markedly different characteristics
analysis used to identify “product of nature” exceptions. Courts have held that naturally
occurring products and some man-made products that are essentially no different from a
naturally occurring product are “products of nature” that fall under the laws of nature or
natural phenomena exception. To determine whether a claim that includes a nature-based
product limitation recites a “product of nature” exception, use the markedly different
characteristics analysis to evaluate the nature-based product limitation. A claim that recites a nature-based product limitation that does not
exhibit markedly different characteristics from its naturally occurring counterpart in its
natural state is directed to a “product of nature” exception (Step 2A: YES).

Care should be taken not to overly extend the markedly different characteristics analysis
to products that when viewed as a whole are not nature-based.

A nature-based product can be claimed by itself (e.g., “a Lactobacillus bacterium”) or as
one or more limitations of a claim (e.g., “a probiotic composition comprising a mixture of
Lactobacillus and milk in a container”). The markedly different characteristics analysis
should be applied only to the nature-based product limitations in the claim to determine
whether the nature-based products are “product of nature” exceptions. When the naturebased
product is produced by combining multiple components, the markedly different
characteristics analysis should be applied to the resultant nature-based combination,
rather than its component parts. In the example above, the mixture of Lactobacillus and
milk should be analyzed for markedly different characteristics, rather than the
Lactobacillus separately and the milk separately. The container would not be subject to
the markedly different characteristics analysis as it is not a nature-based product, but
would be evaluated in Step 2B if it is determined that the mixture of Lactobacillus and
milk does not have markedly different characteristics from any naturally occurring
counterpart and thus is a “product of nature” exception.

For a product-by-process claim, the analysis turns on whether the nature-based product in
the claim has markedly different characteristics from its naturally occurring counterpart.
(See MPEP 2113 for product-by-process claims.)

A process claim is not subject to the markedly different analysis for nature-based
products used in the process, except in the limited situation where a process claim is
drafted in such a way26 that there is no difference in substance from a product claim (e.g.,
“a method of providing an apple.”).

The markedly different characteristics analysis compares the nature-based product
limitation to its naturally occurring counterpart in its natural state. When there is no
naturally occurring counterpart to the nature-based product, the comparison should be
made to the closest naturally occurring counterpart. In the case of a nature-based
combination, the closest counterpart may be the individual nature-based components that
form the combination, i.e., the characteristics of the claimed nature-based combination
are compared to the characteristics of the components in their natural state.

Markedly different characteristics can be expressed as the product’s structure, function,
and/or other properties,28 and will be evaluated based on what is recited in the claim on a
case-by-case basis. As seen by the examples that are being released in conjunction with
this Interim Eligibility Guidance, even a small change can result in markedly different
characteristics from the product’s naturally occurring counterpart. In accordance with
this analysis, a product that is purified or isolated, for example, will be eligible when
there is a resultant change in characteristics sufficient to show a marked difference from
the product’s naturally occurring counterpart. If the claim recites a nature-based product
limitation that does not exhibit markedly different characteristics, the claim is directed to
a “product of nature” exception (a law of nature or naturally occurring phenomenon), and
the claim will require further analysis to determine eligibility based on whether additional
elements add significantly more to the exception.

Non-limiting examples of the types of characteristics considered by the courts when
determining whether there is a marked difference include:

• Biological or pharmacological functions or activities;
• Chemical and physical properties;
• Phenotype, including functional and structural characteristics; and
• Structure and form, whether chemical, genetic or physical.

If the claim includes a nature-based product that has markedly different characteristics,
the claim does not recite a “product of nature” exception and is eligible (Step 2A: NO)
unless the claim recites another exception (such as a law of nature or abstract idea, or a
different natural phenomenon). If the claim includes a product having no markedly
different characteristics from the product’s naturally occurring counterpart in its natural
state, the claim is directed to an exception (Step 2A: YES), and the eligibility analysis
must proceed to Step 2B to determine if any additional elements in the claim add
significantly more to the exception. For claims that are to a single nature-based product,
once a markedly different characteristic in that product is shown, no further analysis
would be necessary for eligibility because no “product of nature” exception is recited
(i.e., Step 2B is not necessary because the answer to Step 2A is NO). This is a change
from prior guidance because the inquiry as to whether the claim amounts to significantly
more than a “product of nature” exception is not relevant to claims that do not recite an
exception. Thus, a claim can be found eligible based solely on a showing that the naturebased
product in the claim has markedly different characteristics and thus is not a
“product of nature” exception, when no other exception is recited in the claim.

If a rejection under 35 U.S.C. 101 is ultimately made, the rejection should identify the
exception as it is recited (i.e., set forth or described) in the claim, and explain why it is an
exception providing reasons why the product does not have markedly different
characteristics from its naturally occurring counterpart in its natural state.

Flowchart Step 2B (Part 2 Mayo test) – Determine whether any element, or
combination of elements, in the claim is sufficient to ensure that the claim
amounts to significantly more than the judicial exception.

A claim directed to a judicial exception must be analyzed to determine whether the
elements of the claim, considered both individually and as an ordered combination, are
sufficient to ensure that the claim as a whole amounts to significantly more than the
exception itself – this has been termed a search for an “inventive concept.” To be
patent-eligible, a claim that is directed to a judicial exception must include additional
features to ensure that the claim describes a process or product that applies the exception
in a meaningful way, such that it is more than a drafting effort designed to monopolize
the exception. It is important to consider the claim as whole. Individual elements viewed
on their own may not appear to add significantly more to the claim, but when combined
may amount to significantly more than the exception. Every claim must be examined
individually, based on the particular elements recited therein, and should not be judged to
automatically stand or fall with similar claims in an application.

The Supreme Court has identified a number of considerations for determining whether a
claim with additional elements amounts to significantly more than the judicial exception
itself. The following are examples of these considerations, which are not intended to be
exclusive or limiting. Limitations that may be enough to qualify as “significantly more”
when recited in a claim with a judicial exception include:
• Improvements to another technology or technical field;
• Improvements to the functioning of the computer itself;
• Applying the judicial exception with, or by use of, a particular machine;
• Effecting a transformation or reduction of a particular article to a different state or
thing;
• Adding a specific limitation other than what is well-understood, routine and
conventional in the field, or adding unconventional steps that confine the claim to
a particular useful application; or
• Other meaningful limitations beyond generally linking the use of the judicial
exception to a particular technological environment.

Limitations that were found not to be enough to qualify as “significantly more” when
recited in a claim with a judicial exception include:
• Adding the words “apply it” (or an equivalent) with the judicial exception, or
mere instructions to implement an abstract idea on a computer;
• Simply appending well-understood, routine and conventional activities previously
known to the industry, specified at a high level of generality, to the judicial
exception, e.g., a claim to an abstract idea requiring no more than a generic
computer to perform generic computer functions that are well-understood, routine
and conventional activities previously known to the industry;
• Adding insignificant extrasolution activity to the judicial exception, e.g., mere
data gathering in conjunction with a law of nature or abstract idea; or
• Generally linking the use of the judicial exception to a particular technological
environment or field of use.

For a claim that is directed to a plurality of exceptions, conduct the eligibility analysis for
one of the exceptions. If the claim recites an element or combination of elements that
amount to significantly more than that exception, consider whether those additional
elements also amount to significantly more for the other claimed exception(s), which
ensures that the claim does not have a pre-emptive effect with respect to any of the
recited exceptions. Additional elements that satisfy Step 2B for one exception will likely
satisfy Step 2B for all exceptions in a claim. On the other hand, if the claim fails under
Step 2B for one exception, the claim is ineligible, and no further eligibility analysis is
needed.

The Interim Guidelines provide for a Streamlined Eligibility Analysis as follows.
For purposes of efficiency in examination, a streamlined eligibility analysis can be used
for a claim that may or may not recite a judicial exception but, when viewed as a whole,
clearly does not seek to tie up any judicial exception such that others cannot practice it.
Such claims do not need to proceed through the full analysis herein as their eligibility
will be self-evident. However, if there is doubt as to whether the applicant is effectively
seeking coverage for a judicial exception itself, the full analysis should be conducted to
determine whether the claim recites significantly more than the judicial exception.

For instance, a claim directed to a complex manufactured industrial product or process
that recites meaningful limitations along with a judicial exception may sufficiently limit
its practical application so that a full eligibility analysis is not needed. As an example, a
robotic arm assembly having a control system that operates using certain mathematical
relationships is clearly not an attempt to tie up use of the mathematical relationships and
would not require a full analysis to determine eligibility. Also, a claim that recites a
nature-based product, but clearly does not attempt to tie up the nature-based product,
does not require a markedly different characteristics analysis to identify a “product of
nature” exception. As an example, a claim directed to an artificial hip prosthesis coated
with a naturally occurring mineral is not an attempt to tie up the mineral. Similarly,
claimed products that merely include ancillary nature-based components, such as a claim that is directed to a cellphone with an electrical contact made of gold or a plastic chair
with wood trim, would not require analysis of the nature-based component to identify a
“product of nature” exception because such claims do not attempt to improperly tie up the
nature-based product.

Regardless of whether a rejection under 35 U.S.C. 101 is made, a complete examination
should be made for every claim under each of the other patentability requirements: 35 U.S.C. 102, 103, 112, and 101 (utility, inventorship and double patenting) and nonstatutory
double patenting.

The guidelines also provide sample analyses based upon earlier Supreme Court decisions.

The December 16, 2014 Interim Guidance can be found here:
https://www.federalregister.gov/articles/2014/12/16/2014-29414/2014-interim-guidance-on-patent-subject-matter-eligibility

Post-Alice Decision on 35 U.S.C. 101, Software Patent Held Statutory, DDR Holdings, LLC v. Hotels.com, L.P. , Federal Circuit 2014

This is an important recent case in the history of software patents.

Defendants National Leisure Group, Inc. and World Travel Holdings, Inc. (collectively “NLG” hereafter) appealed from a judgment of the U.S. District Court for the Eastern District of Texas in which a judgment was entered in favor of DDR. A jury found that defendants infringed U.S. Patent Nos. 6,993,572 and 7,818,399, that the claims were valid, and awarded $750,000 in damages. On appeal to the Federal Circuit, the asserted claims of the ‘572 patent were held to be anticipated and vacated the award of damages and prejudgment interest.

On the other hand, the Federal Circuit found that the ‘399 patent included patent-eligible subject matter under 35 U.S.C. 101, and that the claims were valid and infringed. The ‘399 patent relates to the problem of retaining website visitors. Claim 19 was representative and recites:

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.

Claim 19 of the ’399 patent requires that a “data store” hold “visually perceptible elements” (or “‘look and feel’ elements”) that “visually. . . correspond” to a host web page. The host web page must include a link associated with a “buying opportunity” with a merchant.

Once a visitor activates this link, the claimed system generates and transmits to the website visitor’s web browser a composite web page that includes product information of the merchant and the “look and feel” of the host website (i.e., “the plurality of visually perceptible elements visually corresponding to the [host web] page”).

Claim 19 further requires that the data store must store “look and feel” descriptions for multiple hosts and that each link must be associated with a particular merchant’s product catalog.

Claim 19 also requires that the merchant, system operator, and host website be “third parties with respect to one another.” When a website visitor activates a link associated with a merchant’s product catalog, the claimed system identifies the host web page and then transmits a composite web page using the proper “look and feel” elements of the host website in the data store and the product information from the associated merchant.

The Federal Circuit noted that in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1294 (2012), the Supreme Court set forth an analytical framework under §101 to distinguish patents that claim patent-ineligible laws of nature, natural phenomena, and abstract ideas—or add too little to such underlying ineligible subject matter—from those that claim patent-eligible applications of those concepts. First, given the nature of the invention in this case, the Federal Circuit must determine whether the claims at issue are directed to
a patent-ineligible abstract idea of the type described in Alice Corp. v. CLS Bank Int’l (see below). If so, the Federal Circuit should then 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.

The Federal Circuit recognized that distinguishing between claims that recite a patent-eligible invention and claims that add too little to a patent-ineligible abstract concept can be difficult, as the line separating the two is not always clear. At one time, a computer-implemented invention was considered patent-eligible so long as it produced a “useful, concrete and tangible result.” This was the test of State St. Bank & Trust Co. v. Signature Fin. Grp., Inc. (Fed. Cir. 1998) (finding a machine that transformed data by a series of mathematical calculations to a final share price to be patent-eligible); see also In re Alappat (Fed. Cir. 1994) (en banc). This understanding rested, in large part, on the view that such inventions crossed the eligibility threshold by virtue of being in the technological realm, the historical arena for patented inventions. See, e.g. , In re Bilski (Fed. Cir. 2008) (en banc) (concluding that a patent-eligible process must either be “tied to a particular machine or apparatus” or transformed into a different state or thing, i.e., the “machine-or-transformation test”).

While the Supreme Court in Bilski v. Kappos noted that the machine-or-transformation test is a “useful and important clue” for determining patent eligibility, 130 S. Ct. 3218, 3227 (2010), it is clear today that not all machine implementations are created equal. For example, in Mayo, the Supreme Court emphasized that satisfying the machine-or-transformation test, by itself, is not sufficient to render a claim patent-eligible, as not all transformations or machine implementations infuse an otherwise ineligible claim with an “inventive concept.” “[S]imply implementing a mathematical principle on a physical machine, namely a computer, [i]s not a patentable application of that principle.”) (describing Gottschalk v. Benson, 409 U.S. 63, 64 (1972)). And after Alice, there can remain no doubt: recitation of generic computer limitations does not make an otherwise ineligible claim patent-eligible. The bare fact that a computer exists in the physical rather than purely conceptual realm “is beside the point.”

Against this background, the Federal Circuit turned to the ’399 patent’s asserted claims. They began their §101 analysis at Mayo/Alice step one: determining whether the computer-implemented claims at issue here are “directed to” a patent-ineligible abstract idea. Here, they noted that the ’399 patent’s asserted claims do not recite a mathematical algorithm. Nor do they recite a fundamental economic or longstanding commercial practice. Although the claims address a business challenge (retaining website visitors), it is a challenge particular to the Internet.

The Federal Circuit noted that, indeed, identifying the precise nature of the abstract idea is not as straightforward as in Alice or some other recent abstract idea cases. NLG’s own varying formulations of the underlying abstract idea illustrate this difficulty. NLG characterizes the allegedly abstract idea in numerous ways, including “making two web pages look the same,” “syndicated commerce on the computer using the Internet,” and “making two e-
commerce web pages look alike by using licensed trademarks, logos, color schemes and layouts.” The dissent characterizes DDR’s patents as describing the entrepreneurial goal “that an online merchant’s sales can be increased if two web pages have the same ‘look and feel.’”

The Federal Circuit stated that under any of these characterizations of the abstract idea, the ’399 patent’s claims satisfy Mayo/Alice step two.

As an initial matter, it is true that the claims here are similar to the claims in the cases discussed above 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 hyper-link 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 web-sites 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 “out-source 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.

The dissent argued that the “store within a store” concept, such as a warehouse store that contains a kiosk for selling a third-party partner’s cruise vacation packages, is a pre-Internet analog of the ‘399 patent’s asserted claims. While that concept may have been well-known by the relevant timeframe, that practice did not have to account for the ephemeral nature of an Internet location or the near-instantaneous transport between these locations, which introduces a problem that does not arise in the brick and mortar context.

The Federal Circuit cautioned that not all claims purporting to address Internet-centric challenges are eligible for patent. The claims in Ultramercial merely recited the abstract idea of “offering media content in exchange for viewing an advertisement” along with “routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet.”

The ‘399 patent’s claims are different enough in substance from those in Ultramercial because they do not broadly and generically claim “use of the Internet” to perform an abstract business practice. 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. The claims recite an invention that is not merely the routine or conventional use of the Internet.

This case is helpful in that it is a post-Alice decision that finds software claims to be statutory subject matter. The key seems to be in not using the Internet or a computer to perform a business practice known from the pre-Internet world.

Post-Alice Decision on Software Patents, Ultramercial Inc. v. Hulu LLC, Federal Circuit 2014

Ultramercial sued Hulu, YouTube, and WildTangent in 2009 for infringement of a patent related to distributing copyrighted material over the Internet to a consumer at no cost in exchange for viewing an advertisement, with the advertiser paying for the copyrighted material.

WildTangent filed a motion to dismiss, alleging that the claims were not statutory under 35 U.S.C. § 101. The district court granted the motion. The Federal Circuit reversed. The Supreme Court vacated the decision and
remanded for consideration in view of its decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. A unanimous panel of the Federal Circuit again held the claims to be statutory. WildTangent petitioned for Supreme Court review. The Supreme Court again vacated the Federal Circuit’s decision and remanded for consideration in view of its more recent decision in Alice v. CLS Bank. Judge Rader, a voice of reason, had since resigned and Judge Mayer was appointed to take his place.

Claim 1 of the patent recites:

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.

According to Alice, the two prong circular logic of Mayo is to be used to determine if claims are directed to statutory subject matter. The first prong is to determine whether the claims are directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea. If so, the second prong is to determine whether any additional claim elements transform the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself. No definition has been provided by the Supreme Court as to when an idea is abstract. Similarly, no definition has been provided as to what amounts to “significantly more.”

In this case, the court conceptualized the claim as relating distributing copyrighted material over the Internet to a consumer at no cost in exchange for viewing an advertisement, with the advertiser paying for the copyrighted material. The court ignored details of the claim in considering the first prong.

According to the Federal Circuit, claim 1 provided an “ordered combination of steps reciting an abstraction — an idea, having no particular concrete or tangible form.” In addition, “[t]he process of receiving copyrighted media, selecting an ad, offering the media in exchange for watching the selected ad, displaying the ad, allowing the consumer access to the media, and receiving payment from the sponsor of the ad all describe an
abstract idea, devoid of a concrete or tangible application.” While the Court did state that “certain additional limitations, such as consulting an activity log, add a degree of particularity,” these limitations were insufficient to provide significantly more.

Further, even though some steps of the claim “were not previously employed in this art [that] is not enough — standing alone — to confer patent eligibility upon the claims at issue.”

This decision puts patent applicants in a difficult position. Adding novel subject matter to a claim is not sufficient to render a claim statutory.

“Adding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet does not transform an otherwise abstract idea into patent-eligible subject matter.” Even though the claim recited use of the Internet, which is arguably a concrete, tangible system, the Court reiterated its reasoning from CyberSource Corp. v. Retail Decisions, Inc., stating that “use of the Internet is not sufficient to save otherwise abstract claims from ineligibility under § 101.”

Further, the Federal Circuit held that Ultramercial’s claims failed both prongs of the machine-or-transformation test. The only machine recited in the claims was the Internet, which is a “ubiquitous information-transmitting medium, not a novel machine.” As for any sort of transformation elicited by the many steps of claim 1, the Court wrote that “manipulations of public or private legal obligations or relationships, business risks, or other such abstractions” are not transformations “because they are not physical objects or substances, and they are not representative of physical objects or substances.”

Consequently, all of Ultramercial’s claims were invalid. The point of Alice seemed to be to allow courts to avoid a complicated novelty analysis if the only hardware in claims was a computer. The reasoning seemed to be that adding a computer to a conventional process was insufficient to make the claim statutory. However, in this case there was novelty in the claim that was ignored.

Adapting to this case would seem to require passing the machine or transformation test using more machines than are included in the Internet.

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