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DDR Holdings, Inc. v. Hotels.com: Scoring the CAFC Split

DDR Holdings, Inc. v. Hotels.com: Scoring the CAFC Split published on 1 Comment on DDR Holdings, Inc. v. Hotels.com: Scoring the CAFC Split

DDR Holdings, Inc. v. Hotels.com is the first post-Alice Federal Circuit decision that finds particular claims to be non-abstract and patent-eligible. While it was inevitable that such a case would arise eventually, the type of invention that prompted this opinion is surprising: the subject matter is much more business-method-focused than the claims invalidated under 101 in other recent Federal Circuit opinions, such as Digitech Image and I/P Engine.

This opinion demonstrates the persistence of the deep and bitter split among Federal Circuit judges on this fundamental issue of patent law. And while the patent landscape has certainly shifted due to Mayo and Alice, DDR Holdings demonstrates that Alice has only exacerbated, rather than ameliorate, a court split that dates back at least to the 2008 Bilski decision.



The decision in DDR Holdings involved the following type of patented invention (as per the patent abstract):

An e-commerce outsourcing system and method provides hosts with transparent, context-sensitive e-commerce supported pages. The look and feel of a target host is captured for future use. The host is provided with one or more links for inclusion within a page on the host website that correlates with a selected commerce object, which may be contextually related to material in the page. The commerce object can be a product, a product category, or a dynamic selection indicator. Upon activation of the provided link, a visitor computer is served with a page with the look and feel of the host website and with content based upon the associated commerce object. Where the commerce object is a dynamic selection indicator, the content is selected at the time of activation based upon an analysis of the page containing the activated link.

Reviewed in accordance with the wave of Federal Circuit decisions post-Alice, the odds of this type of invention passing Federal Circuit review would have appeared quite discouraging. This case could have utilized the rhetorical flow and analysis of other recent Federal Circuit cases, such as Planet Bingo and buySAFE, and sought to identify what the patent “basically” recites:

This patent is basically the concept of an intermediary that provides marketing materials for commercial products and services by various vendors, and making the vendors’ advertisements match the “look and feel” of the intermediary. This technique is long-standing and well-known; for example, Skymall presents an assortment of advertisements with the consistent “look and feel” of a single, unified catalog. The patents under review propose the use of that abstract marketing idea in the context of web pages…

Surprisingly, the patents at issue were not described in this way. Rather, the DDR Holdings opinion summarizes the patented invention thus:

Each of these patents is directed to systems and methods of generating a composite web site that combines certain visual elements of a “host” website with content of a third-party merchant. For example, the generated composite web page may combine the logo, background color, and fonts of the host website with product information from the merchant.

The common specification of the patents-in-suit explains that prior art systems allowed third-party merchants to “lure the [host website’s] visitors traffic away” from the host website because visitors would be taken to the third-party merchant’s website when they clicked on the merchant’s advertisement on the host site. The patents-in-suit disclose a system that provides a solution to this problem (for the host) by creating a new web page that permits a website visitor, in a sense, to be in two places at the same time. On activation of a hyperlink on a host website – such as an avertisement for a third-party merchant – instead of taking the visitor to the merchant’s website, the system generates and directs the visitor to a composite web page that displays product information from the third-party merchant, but retains the host website’s “look and feel.” Thus, the host website can display a third-party merchant’s products, but retain its visitor traffic by displaying this product information from within the generated web page that “gives the viewer of the page the impression that she is viewing pages hosted by the server.”

A stark difference in tone is apparent when comparing this summary with the Federal Circuit’s descriptions of other patented inventions under review in recent cases. 1 Other cases emphasize the financial or business relationships of the claimed invention, and minimize or explicitly ignore the technical details as “not relevant to the 101 determination” – but the description of DDR’s patent focuses closely on what the device is actually doing. Moreover, the most pivotal statement in the majority opinion refuses the abstract-by-analogy conclusion because:

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 hyperlink protocol, would be instantly transported away from a host’s website after “clicking” on an advertisement and activating a hyperlink.

The dissent suggests 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 the pre-Internet analog of the ‘399 patent’s asserted claims. While that concept may have been well-known, that practice did not have to account for the ephemeral nature of an Internet “location” or the near-instantaneous transport between these locations made possibly by standard Internet communication protocols, which introduces a problem that does not arise in the “brick and mortar” context.

It is tempting to interpret DDR Holdings as providing two principles:

  1. A backstop in the “abstractness” spectrum: if your invention primarily involves a business method and only nominal, vague, “do it on a computer”-type references to technology (e.g., Planet Bingo and buySAFE), it is not patent-eligible; but if your invention primarily involves technology as per DDR Holdings, then it is patent-eligible.
  2. Limitations on Abstract-By-Analogy: If the problem addressed by a software invention is specific to computing scenarios – if the problem motivating the invention does not arise (or, at least, is less acute) in other scenarios – then abstract-by-analogy is not a valid analysis.

However, both conclusions are irreconcilable with two other post-Alice Federal Circuit decisions that involved considerably more technology than DDR Holdings, and were nevertheless found patent-ineligible – specifically, Digitech Image v. Electronics for Imaging and I/P Engine v. AOL, in which the courts summarized the inventions under review as follows:

Digitech Image Technologies is the assignee of the ‘415 patent, which is directed to the generation and use of an “improved device profile” that describes spatial and color properties of a device within a digital image processing system. In general, digital image processing involves electronically capturing an image of a scene with a “source device,” such as a digital camera, altering the image in a desired fashion, and transferring the altered image to an “output device,” such as a color printer.

According to the patent, all imaging devices impose some level of distortion on an image’s color and spatial properties. This distortion occurs because different devices (i.e., digital cameras, monitors, TVs, printers, etc.) allow for slightly different ranges of colors and spatial information to be displayed or reproduced. Prior art methods attempted to correct these distortions using certain device dependent solutions and device independent paradigms. Device dependent solutions work to calibrate and modify the color and spatial properties of the devices themselves. For example, some devices may be designed with certain upstream or downstream devices in mind to ensure optimal transfer of image data to those devices. Device independent solutions, on the other hand, work to translate an image’s pixel data from a device dependent format into an independent color space, which can then be translated to any number of output devices at a reduced level of distortion.

The ‘420 and ‘664 patents relate to a method for filtering Internet search results that utilizes both content-based and collaborative filtering. Content-based filtering is a technique for determining relevance by extracting features such as text from an information item. By contrast, collaborative filtering assesses relevance based on feedback from other users – it looks to what items “other users with similar interests or needs found to be relevant.” The asserted patents describe a system “wherein a search engine operates with collaborative and content-based filtering to provide better search responses to user queries.” Specifically, the asserted claims describe a filter system that combines content and collaborative data in filtering each “informon” – or information item – for relevance to a user’s query.

Both fields – digital imaging and internet search query evaluation – are unquestionably technical, and present new and distinct problems as compared with other scenarios. And yet, in both cases, the Federal Circuit found that both patents recited an “abstract idea.” 2

How are we to understand the wildly divergent approaches taken by the Federal Circuit to analyzing patents for 101 eligibility? When the Federal Circuit reviews a computer-implemented invention that primarily achieves a business result, how are we to guess when the Federal Circuit will decide that is technology, vs. a business method disguised as technology?

The answer appears to depend heavily upon which Federal Circuit judges are conducting the review. Notably, the majority opinion in DDR Holdings, finding patent-eligible claims, was written by Judge Chen and concurred by Judge Wallach, with a dissent by Judge Mayer. But in I/P Engine, the majority opinion finding patent-ineligible claims was written by Judge Mayer and concurred by Judge Wallach… with a dissent by Judge Chen.

While it is too early to draw specific conclusions, it is interesting to score the recent decisions of Federal Circuit judges back to and including Alice:

  • Chen: 2 verdicts of eligibility (DDR Holdings, I/P Engine); 0 verdicts of ineligibility
  • Rader: 1 verdict of eligibility (CLS Bank); 0 verdicts of ineligibility
  • Linn: 1 verdict of eligibility (CLS Bank); 0 verdicts of ineligibility
  • Newman: 1 verdict of eligibility (CLS Bank); 0 verdicts of ineligibility
  • O’Malley: 1 verdict of eligibility (CLS Bank); 0 verdicts of ineligibility
  • Moore: 1 verdicts of eligibility (Digitech); 1 verdict of ineligibility (Digitech)
  • Wallach: 1 verdict of eligibility (DDR Holdings); 2 verdicts of ineligibility (I/P Engine, CLS Bank)
  • Dyk: 0 verdicts of eligibility; 1 verdict of ineligibility (CLS Bank)
  • Prost: 0 verdicts of eligibility; 1 verdict of ineligibility (CLS Bank)
  • Bryson: 0 verdicts of eligibility; 1 verdict of ineligibility (Planet Bingo)
  • Lourie: 0 verdicts of eligibility; 2 verdicts of ineligibility (CLS Bank, Ultramercial)
  • Taranto: 0 verdicts of eligibility; 2 verdicts of ineligibility (buySAFE, Planet Bingo)
  • Reyna: 0 verdicts of eligibility; 2 verdicts of ineligibility (CLS Bank, Digitech)
  • Mayer: 0 verdicts of eligibility; 3 verdicts of ineligibility (DDR Holdings, I/P Engine, Ultramercial)
  • Hughes: 0 verdicts of eligibility; 3 verdicts of ineligibility (buySAFE, Planet Bingo, Digitech)
If the divergence at the Federal Circuit were driven by close calls among borderline technologies, these tallies should exhibit a comparatively uniform distribution. Instead, it appears that specific Federal Circuit judges are zealously driving 101 case law in different directions.

Of course, this court split is not new. While the dissonance over software patent case law dates back to the 1970’s (Gottschalk, Diehr, and Alappat), the rancor within the Federal Circuit first surfaced in In re Bilski (2008), and has only intensified over the years in both magnitude and animosity. Worse, I believe that this split has percolated downward, and has infiltrated the district courts, the PTAB, and the ranks of examiners at the USPTO.

In Mayo and Alice, the Supreme Court sought to resolve this six-year-long conflict… by issuing opinions that elevated subjectivity and philosophical pontification over objective rules, facts, and technical analyses. These decisions did not “empower” the judicial body to take patent law collectively in a new direction. Rather, and rather predictably, the Court’s decisions have prolonged and exacerbated the split: each judge can wield the empty pronouncements of Alice in a manner that promotes his or her personal philosophy and agenda.

Perhaps the Court hoped that its Alice decision, closely resembling its decision in Bilski v. Kappos which fueled six years of court split, would achieve some other result. If that is the case, then I would like to refer the Court to Einstein’s quote about the definition of insanity.


Notes:

  1. For comparison, here are the descriptions in several other recent Federal Circuit cases of the patents under review.

    CLS Bank v. Alice Corp.:

    The patents concern “the management of risk relating to specified, yet unknown, future events.” In particular, the patents relate to a computerized trading platform used for conducting financial transactions in which a third parties settles obligations between a first and a second party so as to eliminate “counterparty” or “settlement” risk. Settlement risk refers to the risk to each party in an exchange that only one of the two parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counter-party’s performance. Alice’s patents address that risk by relying on a trusted third party to ensure the exchange of either both parties’ obligations or neither obligation.

    buySAFE v. Google:

    Claim 1 recites a method in which (1) a computer operated by the provider of a safe transaction service receives a request for a performance guarantee for an “online commercial transaction”; (2) the computer processes the request by underwriting the requesting party in order to provide the transaction guarantee service; and (3) the computer offers, via a “computer network,” a transaction guaranty that binds to the transaction upon the closing of the transaction.

    Planet Bingo v. VKGS:

    The claims at issue recite computer-aided methods and systems for managing the game of bingo. Generally, the claims recite storing a player’s preferred sets of bingo numbers; retrieving one such set upon demand, and playing that set; while simultaneously tracking the player’s sets, tracking player payments, and verifying winning numbers.

    Ultramercial v. Hulu:

    Ultramercial owns the ‘545 patent directed to a method for distributing copyrighted media products over the Internet where the consumer receives a copyrighted media product at no cost in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.

  2. The “abstract ideas” identified by the Federal Circuit in Digitech Image and I/P Engine are described as follows:

    The claim recites a process of taking two data sets and combining them into a single data set, the device profile. The two data sets are generated by taking existing information – i.e., measured chromatic stimuli, spatial stimuli, and device response characteristic functions – and organizing this information into a new form. … The method claim is ‘so abstract and sweeping’ as to cover any and all uses of a device profile. The device profile, as claimed, is a collection of intangible color and spatial information.

    The asserted claims simply describe the well-known and widely-applied concept that it is often helpful to have both content-based and collaborative information about a specific area of interest. A person planning to visit London, for example, might consult a guidebook that would provide information about particular museums in London (content information) as well as information about what other people thought of these museums (collaborative data). I/P Engine’s claimed system is merely an Internet iteration of the basic concept.

1 Comment

I don’t think DDR is going to get a rehearing. Firstly, the CAFC left only one patent intact and damages on it run for only two years instead of six and interest is unlikely so the original $750k award will probably be $200k or less in the end. Hotels.com might not even bother asking for a rehearing since attorney fees will eat up so much of what they could save.

Then there’s this from patentlyo comments (quoting myself) indicating that the controlling majority on the CAFC isn’t going to want this to be the case that decides boundaries on §101 practice. Therefore, rehearing is unlikely to be granted.

“Everyone loves a scorecard, even in what we call the Game of Kings — though even kings (and apparently Samsung) would be pressed to afford a phalanx of quality patent lawyers nowadays.

Hotels.com will doubtless submit a petition for en banc rehearing in the next thirty days (rule 40) after entry of judgement (5 December). DDR may petition also on the ‘572 issues. The CAFC can respond as it pleases or not respond at all (rule 35), but usually asks for an answer brief before granting a rehearing so both sides may be making a second round of arguments before the CAFC decides whether to rehear.

Judge Mayer is a senior judge and cannot participate in the decision to rehear a case en banc, though he is empowered to participate in any en banc rehearing that the active judges order on a case where he was on the original panel. There is a strategic dynamic here. Mayer is known as a smart and persuasive moderate and the extremists might want to keep him off the en banc court that writes post-Alice precedents. Judge Mayer, like all the senior judges, is not empowered to participate en banc when he is not on the initial panel. The extremists may prefer to wait for a case where Mayer isn’t available. On this case the extremists already approve of the most critical decision on the ‘399 patent so they may just hope that the Supremes won’t deign to grant cert again so soon.

If there is an en banc rehearing, we can expect that Mayer will hold to his moderate position and it is likely the usual moderates like Prost, Dyk, Taranto, and Hughes will join him. Chen and Wallach will probably be joined by the known extremists Newman, O’Malley, and Moore. Lourie usually joins the extremists but is known to respect Supreme Court precedent sometimes and is therefore unpredictable while Renya leans somewhat toward the moderates. It’s just what sports fans want (though not so much practicing attorneys): a likely six to six tie with thirteen different opinions giving no useful guidance to district judges and working lawyers with confused clients.

That might attract Supreme attention again, too, which is like double overtime for the patent law fans.

Now the extremists will have reason to avoid the whole issue by refusing rehearing. Rehearing requires a majority of the eleven active judges so if extremists can hold discipline between Newman, Lourie, Moore, O’Malley, Wallach, and Chen and think strategically, they can just let this one pass and wait for a better pitch.

The extremist side has been burdened on §101 by cases where no reasonable person could possibly find the patents in question valid under several sections of 35 USC. I’d advise them to hold their fire and wait for a patent to come along that might pass §103 without laughter to best present their point of view to the Supremes. Alice, Bilsky, and Mayo are the Rosa Parks of patent law and the Bull Connor side should wait for a less charismatic victim; this is not that case.”

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