Guest post by Bart Eppenauer.

Amidst all the angst and uncertainty following the Supreme Court’s decision in Alice Corp. v. CLS Bank (2014), patent owners and inventors in the Information Technology world should be celebrating the decision last week in DDR Holdings v. Hotels.com from the Federal Circuit. While the Alice decision fell short of ushering in a bright line test with absolute clarity, a vocal minority has grabbed the opportunity to generate headlines suggesting that software patents are all but dead in the water. This kind of hysteria is not only unfounded, but it sends the wrong message to our policymakers, and to startups and innovative companies of all sizes across all industries. Perhaps its wishful thinking to expect that DDR Holdings will quell opponents of software patents in any respect, but the decision should send a strong signal that software patents are far from dead. As I’ve recently urged, the proper course of action at this point is to take a calm, measured and rational approach as we work through the current state of affairs.

As noted by Professor Crouch in his earlier post on DDR Holdings, the DDR ‘399 patent at issue under Section 101 involved an e-commerce syndication system for generating a composite web page that combines selected visual elements of a host website with content of a third-party merchant. While I can acknowledge the view that the analysis in DDR Holdings could be in tension with the Federal Circuit’s Ultramercial decision, I firmly believe that the DDR patent falls within the contours of patent eligible subject matter. And I respectfully take issue with the characterization of the DDR patent as a “business method” patent. In my view, the DDR patent, both in the disclosure and in the claims, sets forth and defines a technical solution to a technical problem through the implementation of computer software in the context of e-commerce. A cursory review of the specifications and claims of the DDR patent, the representative Alice patent and the Ultramercial patent reveals the stark differences in the level (or absence thereof) of technology-based, software-based disclosure in these patents.

The Alice patents were drawn to an abstract business method for intermediated settlement – i.e., escrow – hardly a new business concept. The patents contained token references to performing the purported invention on a generic computer. The patent in Ultramercial involved a business method for allowing consumers to access copyrighted content over the internet in exchange for viewing an advertisement. In that patent, there is absolutely no disclosure whatsoever of software or computer technology, or of any other technological advancement in the form of computer software or hardware, or anything else. The Ultramercial patent was simply a business method and nothing more. In both cases, the now-defunct patents mentioned computers, but did not provide a technological connection between their described method and any kind of actual software innovation.

That connection is exactly what real software enables. The Supreme Court explicitly stated that the Alice patent claims did not purport to improve the functioning of a computer itself, nor did they advance an improvement in any other technology or technical field. And contrary to the assertions that the decision threatens all software patents, the Supreme Court specifically acknowledged, as if there was any question to begin with, that many computer-implemented claims (i.e., software) are indeed within the domain of patent-eligible subject matter. In Ultramercial, the Federal Circuit followed suit in its recognition that at some level all inventions embody or otherwise use abstract ideas or laws of nature, but that they “do not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea.” Ultramercial at p. 10 (emphasis added).

Turning to the DDR patent, the Federal Circuit justifiably recognized that “the claimed solution is necessarily rooted in computer technology to overcome a problem specifically arising in the realm of computer networks” (DDR at p. 20), whereas the patents from earlier cited decisions claimed nothing more than the performance of abstract business practices on the Internet or using a generic computer. Just a brief snippet of technical disclosure from the DDR patent illustrates that this is so:

The Link Generator allows host to create and maintain the shopping opportunities that they can then place on their site. Each Link is assigned a unique Link ID. The Link ID identifies who the host is, who the merchant is, and what commerce object (catalog, category, product or dynamic selection) is linked to.

The first time a host builds a Link to a merchant’s product, category or catalog, an approval of that host for that merchant may be made. Until the host is approved, they cannot see the Link ID that has been assigned to the newly created Link.

The code the host embeds on their web site is as follows:

< !—BEGIN NEXCHANGE LINK—>

< !—For more information go to http://www.nexchange.com—>

< !—The following 2 lines MUST NOT BE CHANGED to ensure proper crediting—>

< IMG BORDER=‘0’ SRC=‘http://www.nexchange.net/img.asp?LinkID=xxxx’>

< a href=‘http://www.nexchange.net/route.asp?LinkID=xxxx’>

< !—Substitute your own text or image below—>

**YOUR TEXT OR IMAGE HERE**</a>

< !—END NEXCHANGE LINK—>

< !—BEGIN NEXCHANGE LINK—> < !—For more information go to http://www.nexchange.com—> < !—The following 2 lines MUST NOT BE CHANGED to ensure proper crediting—> < IMG BORDER=‘0’ SRC=‘http://www.nexchange.net/img.asp?LinkID=xxxx’> < a href=‘http://www.nexchange.net/route.asp?LinkID=xxxx’> < !—Substitute your own text or image below—> **YOUR TEXT OR IMAGE HERE**</a> < !—END NEXCHANGE LINK—> There are several points to note here: The image src (img.asp) is actually an ASP program that returns a single transparent pixel. This is used to track impressions (how many times the link was displayed on the host site). The route.asp page is a page that routes the customer to the shopping page. As additional servers are added, this will become very important for load balancing. The ‘xxxx’ for the LinkID=‘xxxx’ is the Link ID assigned to the Link in the Link Generator.



This, along with many other examples of software-based technical disclosure in the patent specification, supports the Federal Circuit’s conclusion that the DDR patent claims “specify how interactions with the Internet are manipulated to yield a desired result” and “recite an invention that is not merely the routine or conventional use of the Internet.” (DDR at pp. 22-23). In other words, the DDR patent claims, while relating to a business challenge, are simply not directed to an abstract idea under the Alice test.

So why all the purported confusion surrounding software patents, business method patents, and the differences there between? After more than two decades in the IP field, I believe it comes down to a fundamental misunderstanding (and sometimes willful disregard to advance an ideology) of the true nature of “software.”

By way of the briefest of explanations, the execution of a typical software program illustrates that software implemented processes perform rapid activation and deactivation of transistors. Software defined instructions operate on the information stored within transistor elements. A software program in a modern computer can perform at least hundreds of millions of such operations per second. In essence, software instructions literally, but temporarily, reconfigure electronic pathways and transform computing hardware to perform real, useful, and physical activity.

When an algorithm is implemented “purely in software,” it necessarily controls hardware components to carry out computerized actions. I was struck by Professor Crouch’s Halloween report on his 9 year old daughter’s amazingly insightful viewpoint on how software actually transforms computers into different machines and provides very different experiences. In discussing the differences between using Microsoft Word and playing her WarriorCat game, she explained – “Sure, the box is the same in both situations. But, Microsoft Word obeys me and the game thwarts my moves. I see them as very different. Its brain changes.”

Reducing software code to “just math” or sweeping it away as an abstraction is an inaccurate reading of patent case law that could jeopardize the future of innovation in this country. The vast majority of companies that obtain software patents are manufacturing companies that integrate software into products they manufacture to deliver valuable new advancements. These inno­va­tions power technologies ranging from modern smartphones to advanced robotic manufacturing, fly-by-wire aircraft systems, artificial retinas, driverless cars, GPS, medical and diagnostic tools, just to scratch the surface.

The past few years have been a time of unprecedented change to patent law. Clearly there will be many more Section 101 cases to come that land on both sides of the abstract idea line (whatever and wherever that line may be). While we’re just at the early stages of a post-Alice world, in my view the DDR decision forges a sensible path on software patentability. With so much at stake in terms of America’s role as an innovation leader and the incredible economic impact that the IT industry fuels, let’s hope that more decisions follow the path of DDR.

Bart Eppenauer is the Managing Partner of the Seattle office of Shook Hardy & Bacon.