DDR Holdings ("DDR") sued Hotels.com and several other defendants in the United States District Court for the Eastern District of Texas, alleging infringement of U.S. Patent Nos. 6,993,572 and 7,818,399.  DDR eventually settled with all defendants except for National Leisure Group, Inc. ("NLG") and Digital River, Inc.  After a trial, the jury found that the asserted claims of the '572 and '399 patents were infringed and not invalid.

In motions for a JMOL, NLG contended that the claims of the '399 patent were invalid under 35 U.S.C. §§ 101 and 112, while Digital River argued that the claims of the '572 patent were invalid as either anticipated under 35 U.S.C. § 102, obvious under 35 U.S.C. § 103, or indefinite under 35 U.S.C. § 112 ¶ 2.  The District Court denied the motions, and both defendants appealed.  Prior to oral arguments before the Federal Circuit, DDR and Digital River settled.

Judges Wallach, Mayer, and Chen heard the arguments, and Judge Chen authored the majority opinion.  Judge Mayer dissented.

This case is important because it is the first time since the Supreme Court handed down the Alice Corp. v. CLS Bank Int'l decision that the Federal Circuit has concluded that computer-implemented claims survive a § 101 challenge.  Herein, we will focus on the Court's discussion of § 101 matters, despite the other avenues through which the validity of the patents were attacked.

The Court's § 101 analysis focused on claim 19 of the '399 patent, which 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.

The Court described the invention as being directed to "generating a composite web page that combines certain visual elements of a host website with content of a third-party merchant."  As an example, "the generated composite web page may combine the logo, background color, and fonts of the host website with product information from the merchant."  In comparing the invention to the prior art, the inventors noted that a problem in previous systems was that they "allowed third-party merchants to lure the host website's visitor 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 Court found that the invention:

[P]rovides 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 advertisement 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.

In this way, the host website retains visitor traffic while displaying the third-party merchant's products.

In Alice, the Supreme Court set forth a two-prong framework for evaluating the patent-eligibility of a claim under § 101.  First one must determine whether the claim is directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea.  If so, then one determines whether any additional claim elements transform the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself.

Judge Chen began this analysis by acknowledging that "[d]istinguishing 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."  Historically, adding a physical machine, such as a computer, to claims that incorporate an abstract idea was enough to pass the Court's machine-or-transformation test of patent-eligibility.  But the Supreme Court, in Alice and Mayo Collaborative Servs. v. Prometheus Labs., Inc., made it clear that "not all machine implementations are created equal."  Notably, "recitation of generic computer limitations does not make an otherwise ineligible claim patent-eligible."

Judge Chen briefly discussed a number of recent post-Alice Federal Circuit decisions, including Ultramercial, Inc. v. Hulu, LLC, buySAFE, Inc. v. Google, Inc., Accenture Global Servs., GmbH v. Guidewire Software, Inc., and Bancorp Servs., L.L.C. v. Sun Life Assur. Co.  In each of these cases, Judge Chen noted, the claims were "recited too broadly and generically to be considered sufficiently specific and meaningful applications of their underlying abstract ideas," despite the claims including computer hardware elements.  Instead, Judge Chen found that these claims were directed to the patent-ineligible concept of "the performance of an abstract business practice on the Internet or using a conventional computer."

Turning to the '399 patent, Judge Chen observed that the asserted claims "do not recite a mathematical algorithm . . . [n]or do they recite a fundamental economic or longstanding commercial practice."  In spite of the business-related nature of the claims (retaining or increasing website traffic), Judge Chen found that this problem, as well as the claimed solution, was "particular to the Internet."

With respect to the first prong of Alice, Judge Chen entertained NLG's characterization of the claims as encompassing the abstract ideas of "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."  But ultimately, he punted on the first prong and instead held that the claims satisfy the second prong of the test.

In doing so, he went to lengths distinguishing the claims from those of Ultramercial, another case that featured claims related to Internet commerce, but one in which the claims were invalidated under § 101 just three weeks earlier.  Rather than viewing DDR's invention as a business method, Judge Chen found that "the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks," and that the 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."

In contrast to Ultramercial, the '399 patent does not "broadly and generically claim use of the Internet to perform an abstract business practice (with insignificant added activity)."  Instead, the claims "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."  The claimed system changes the normal operation of the Internet so that the visitor is directed to a "hybrid web page that presents product information from the third-party and visual look and feel elements from the host website."  Thus, Judge Chen concluded that, when viewed an as ordered combination, the claimed invention "is not merely the routine or conventional use of the Internet," nor do the claims preempt any of the abstract ideas suggested by NLG.

Not only does this case give us another data point of how a computer-implemented invention that incorporates an abstract idea can be patent-eligible (Diamond v. Diehr is the other notable example), but it also provides the first appellate use of the second prong of the Alice test to do so.  Although he does not explicitly say as much, Judge Chen appears to believe that the claimed technical improvement to the operation of the Internet meets the "significantly more" criteria from Alice and Mayo, where an improvement to the operation of a computing system is enough to satisfy the second prong of the test.

In dissent, Judge Mayer (who is notable for his sweeping applications of this test when concurring in Ultramercial and I/P Engine, Inc. v. AOL Inc.) found DDR's patents too broad and vague to be patent-eligible, and that their "reach is vastly disproportionate to their minimal technological disclosure."  Instead, Judge Mayer asserted that the claims recite "a goal -- confusing consumers by making two web pages look alike -- but disclose no new technology, or inventive concept."

Judge Mayer held the inventions in disdain because "much of what they disclose is so rudimentary that it borders on the comical."  He would categorize the claimed elements of a data store, a web page with a hyperlink, and a computer processor as generic, and therefore insufficient to meeting the second prong of Alice.  Moreover, Judge Mayer found that the 10,000-foot level concept recited by the claims, of "a store within a store" was in widespread use in the physical world well before the advent of e-commerce.

Now, to his credit, Judge Mayer did rely on inventor testimony to establish this notion.  Nonetheless, just because there is some possible real-world analogy to a computer-implemented claim does not imply that such a claim operates in the same fashion as the analogous behavior, or preempts the concept itself.  In fact, Judge Chen explicitly rejected this notion.  Judge Mayer's refusal to view the claimed elements as a whole -- as an ordered combination -- seems to be a basis of his disagreement with Judge Chen.

When viewed through a warped lens, almost any technical invention can be seen as entrepreneurial or a business method.  After all, the goal of many inventions is to make the inventors rich.  But, according to the Supreme Court, claims that improve the operation of a computer are patent-eligible even if those claims recite an abstract idea such as a business method.  DDR's claims changed the operation of a computer so that new and beneficial features were possible.  Judge Mayer's far-reaching application of the Alice test is evidence that the Federal Circuit is still fractured over § 101.

DDR Holdings, LLC v. Hotels.com, L.P. (Fed. Cir. 2014)
Panel: Circuit Judges Wallach, Mayer, and Chen
Opinion by Circuit Judge Chen; dissenting opinion by Circuit Judge Mayer