Federal Circuit Says § 101 Requires “Concrete Steps” In Software Methods

By Chris Reaves

Dealertrack, Inc. v. Huber, No. 2009-1566, Fed. Cir. Jan. 20 2012

The Federal Circuit on January 20 once again addressed the question of 35 U.S.C. § 101 eligibility for a software method.   The court found the patent at issue closer to CyberSource than Ultramercial, drawing a distinction between “a practical application with concrete steps” and a mere declaration that the method is “computer-aided.”  It also looked to the interpretation of claims, expanding the rule of Phillips v. AWH to cover exemplary lists.

Background

Plaintiff Dealertrack, Inc. owns three patents related to the same concept: the use of a computer system as a loan intermediary, converting one generalized application for a car loan into several bank-specific applications and processing said applications with their respective banks.  The original patent, U.S. Patent No. 5,878,403 (‘403), was filed in 1995.  Later, 7,181,427 (‘427), patenting the computer system, was filed as a continuation-in-part, and 6,587,841 (‘841), patenting the method, was filed as a divisional application.  All three patents issued, with the latter two claiming priority to ‘403.

Dealertrack sued the defendants, Finance Express, LLC (with its president David Huber) and RouteOne, in the Central District of California, claiming their respective loan management systems infringed on all three patents.  The defendants filed motions for summary judgment on four grounds: that ‘841 was not infringed given its proper interpretation, that certain means-plus-function claims in ‘841 were invalid as indefinite under § 112, that all applicable claims of ‘427 were abstract and ineligible for patent protection under § 101, and that ‘427 did not properly claim priority to ‘403.

The district court found for Dealertrack on indefiniteness and priority but for the defendants on non-infringement and ineligibility, and dismissed the case.  Dealertrack appealed the dismissal to the Federal Circuit and the defendants cross-appealed on the indefiniteness and priority findings.  Judges Linn and Dyk, with Senior Judge Plager, heard the appeal.

Claim Interpretation: Multiple Examples Are Not Always Exhaustive

The preamble of ‘841’s independent claim 7 reads:

“A computer based method of operating a credit application and routing system, the system including a central processor coupled to a communications medium for communicating with remote application entry and display devices, remote credit bureau terminal devices, and remote funding source terminal devices . . .”  (Emphasis added.)

“A communications medium” is also one of the elements of independent claims 12 and 14.  Exemplary mediums are listed in the description as follows:

“Although illustrated as a wide area network, it should be appreciated that the communications medium could take a variety of other forms, for example, a local area network, a satellite communications network, a commercial value added network (VAN) ordinary telephone lines, or private leased lines…  The communications medium used need only provide fast reliable data communication between its users…”

During prosecution of the parent ‘403 patent, the examiner allowed “the Internet” to be added explicitly to a corresponding exemplary list, and ‘841 incorporated ‘403 by reference.  However, in its interpretation of ‘841, the district court interpreted “communications medium” to exclude the Internet, finding its omission in ‘841, in an otherwise thorough list, to be a waiver of its inclusion regardless of ‘403.  Therefore, because both the defendants’ systems used only the Internet for communication, neither had infringed.

The Federal Circuit disagreed, finding that the district court had ascribed too much importance to the list’s contents.  “The disclosure of multiple examples,” it ruled, “does not necessarily mean that such list is exhaustive or that non-enumerated examples should be excluded.”  Rather, it found the case similar to Phillips v. AWH Corp., where a single embodiment listed in a description had not necessarily limited the meaning of the corresponding claims.  Multiple examples did not change the Phillips rule, especially as the context of the ‘841 list – leading with “for example” and closing with “The communication medium used need only provide…” – indicated that it was not meant to be exhaustive.

The district court also found waiver of the term in that the “the Internet” had also been named in ‘841 but the examiner had removed the reference post-allowance.  However, the examiner had given no reason for this removal, and there was no prosecution history suggesting that Dealertrack had deliberately surrendered the term.   The Federal Circuit therefore attached no importance to this removal.  And although the defendants argued that, in 1995, the Internet would not have been seen as “reliable” or “secure” as the description required, the court found they had not presented sufficient evidence on this point.

The court also rejected arguments by the defendants to narrow the meaning of other terms in the patent, noting that explicit embodiments of the claims fell outside the supposed interpretation. It did, however, use the rule of WMS Gaming to apply disclosed software algorithms, not a computer itself, as the structure for claim 12 and 14’s “central processing means” element.  Because claim 14 also stated that the central processing means “further provides for tracking pending credit applications,” without disclosing a tracking algorithm, the court invalidated claim 14 and its dependent claims as indefinite under § 112 ¶ 6.

§ 101: Computer-Aided Methods Require “Practical Application With Concrete Steps”

Claim 1 of ‘427 reads, in total:

1. A computer aided method of managing a credit application, the method comprising the steps of:

[A] receiving credit application data from a remote application entry and display device;

[B] selectively forwarding the credit application data to remote funding source terminal devices;

[C] forwarding funding decision data from at least one of the remote funding source terminal devices to the remote application entry and display device;

[D] wherein the selectively forwarding the credit application data step further comprises:

[D1] sending at least a portion of a credit application to more than one of said remote funding sources substantially at the same time;

[D2] sending at least a portion of a credit application to more than one of said remote funding sources sequentially until a finding [sic, funding] source returns a positive funding decision;

[D3] sending at least a portion of a credit application to a first one of said remote funding sources, and then, after a predetermined time, sending to at least one other remote funding source, until one of the finding [sic, funding] sources returns a positive funding decision or until all funding sources have been exhausted; or,

[D4] sending the credit application from a first remote funding source to a second remote finding [sic, funding] source if the first funding source declines to approve the credit application.

When the district court examined ‘427 for § 101 ineligibility, the Supreme Court had yet to rule in Bilski, and the “machine or transformation” test was still definitive.  Dealertrack had conceded lack of transformation and the district court had found that a “general purpose computer” was not a “particular machine” under the existing test.

The Federal Circuit examined the case under the new standard but came to the same conclusion.  While recognizing that, as in Research Corp., abstractness must “exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter,” the court found that ‘427 crossed this line.  Namely, it claimed “the basic concept of processing information through a clearing-house…”   The court found the “computer aided” limitation in the preamble equally abstract and insufficient to save the patent “without specifying any level of involvement or detail,” and distinguished ‘427 from the patent in Ultramercial, which also described “a practical application with concrete steps requiring an extensive computer interface…”  (Perhaps foolishly, Dealertrack conceded in oral arguments that ‘427 would not be § 101 eligible had “computer aided” been omitted.)

Dealertrack argued that disclosed algorithms in the description made the patent less abstract, but the court noted that the claims themselves were not limited to any algorithm, under an interpretation to which Dealertrack itself had already conceded.  The court also found irrelevant that the method was limited to car loan applications, comparing it to that of Bilski, where a method of hedging was no less abstract for being limited to the energy market.  The court therefore invalidated the applicable ‘427 claims as ineligibly abstract.

On this point alone, Senior Judge Plager dissented.  Without commenting on the thrust of the panel’s argument, he proposed that courts should “not foray into the jurisprudential morass of § 101 unless absolutely necessary” instead looking first to whether they can invalidate under other sections of the Patent Act before the court.  But the majority, while calling Plager’s goal “laudable,” noted that the Supreme Court had called § 101 a “threshold test” in Bilski.  They further noted that no other argument for ‘427’s invalidity was presented in the initial motions for summary judgment; although Dealertrack had argued that ‘427 was clearly valid under § 103, the defendants had been happy to leave that question to the jury.

Because it invalidated ‘427 under § 101, the panel did not address whether the same patent failed to claim priority to ‘403.

Post-Case Analysis: Tell Us Why You Need A Computer

The gray area between eligible and ineligible methods narrows again, albeit slower than anyone would like.  As previously noted on this blog, Ultramercial suggested three applicable factors in the analysis.  This case emphasized two: the software must be specialized and well-described in the claims, and the claim must explain why the software is necessary to the claimed method.  Had the claims in this case restricted their scope to the algorithms in the description, they might have survived the panel’s analysis.  Unfortunately, as the defendants noted in oral arguments, Dealertrack had been arguing the opposite.  Existing patent owners might be wise to concede to a narrower interpretation of their own software patents, and future drafters should include a more elaborate disclosure of the software, algorithms, and computer configurations involved.  Most importantly, the computer should be explicitly necessary, not merely helpful, to the claimed method.

Many commenters (including both Chief Judge Randall Rader and Professor Dennis Crouch of the University of Missouri) have argued, like Plager, that § 101’s jurisprudence is unpredictable and overused, and that public policy should encourage its disuse.  A few have gone farther and proposed that § 101 should be reinterpreted by the courts or rewritten by Congress to allow truly “anything under the sun,” leaving the rest of the Act in place to catch the existing, obvious, or abstract.  To both groups, the majority’s response to Plager will be a serious disappointment, and a step back from the direction suggested in Classen and Ultramercial (albeit in apparent dicta).  If § 101 is indeed a threshold in the sense of “it must be considered,” and if its borders remain vague, defendants will have little reason not to include an ineligibility argument against method claims and hope for the best.  We can hope that the Supreme Court itself will clarify the standard in Mayo Collaborative Services v. Prometheus Labs, but with its past pattern of insisting on a case-by-case analysis, it is more likely to leave the Federal Circuit buried in § 101 cases.

Less vogue a topic but still important is the ruling on ‘841’s interpretation.  Exemplary but non-exhaustive lists of embodiments are common practice, and the court’s opinion protects the resulting patents from unintended limitations.  However, Dealertrack was in part protected by the Internet’s mention in the issuing parent patent; other patents are unlikely to have this extra safety net.  Therefore, a good patent drafter should still make it absolutely clear in context that such lists are indeed non-exhaustive, with phrases such as “for example”, “include but is not limited to”, “many other embodiments and modifications should be apparent”, and “need only [do X] to meet the needs of the invention”.

For software patent prosecutors, this case is also a good reminder of the WMG Gaming rule: means-plus-function claims cannot be satisfied with disclosure of “a computer” or similar.  Only a computer with specific algorithms or software for the job will do.  Any good draft should therefore either avoid means-plus-function language or be as exhaustive as possible in the description.

The opinion is available at: http://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1566.pdf

Oral arguments may be heard at: http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2009-1566.mp3

For Rader’s comments on § 101, see Classen Immunotherapies Inc. v. Biogen IDEC, 100 USPQ2d 1492, 1505-07 (Fed. Cir. 2011).  For Crouch’s, see Operating Efficiently Post-Bilski by Ordering Patent Doctrine Decision-Making, 25 Berkeley Tech. L.J. 1673 (2010).

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