DDR Holdings, LLC v. Hotels.com, L.P., , was the first United States Court of Appeals for the Federal Circuit decision to uphold the validity of computer-implemented patent claims after the Supreme Court's decision in Alice Corp. v. CLS Bank International.Alice Corp. v. CLS Bank Int'l, ; Blake Wong, Solving Problems Unique to the Internet May be Patent-Eligible: DDR Holdings, LLC, v. Hotels.com, L.P., (Jan. 29, 2015) (online version). Both Alice and DDR Holdings are legal decisions relevant to the debate about whether software and business methods are patentable subject matter under Title 35 of the United States Code §101. The Federal Circuit applied the framework articulated in Alice to uphold the validity of the patents on webpage display technology at issue in DDR Holdings.DDR Holdings, 773 F.3d at 1259.

In Alice, the Supreme Court held that a computer implementation of an abstract idea, which is not itself eligible for a patent, does not by itself transform that idea into something that is patent eligible.Alice, 134 S. Ct. at 2357. According to the Supreme Court, in order to be patent eligible, what is claimed must be more than the abstract idea. The implementation of the idea must be something beyond the "routine," "conventional" or "generic." In DDR Holdings, the Federal Circuit, applying the Alice analytical framework, upheld the validity of DDR's patent on its webpage display technology.DDR Holdings, 773 F.3d at 1248.

Background

DDR Holdings, LLC ("DDR") was formed by inventors Daniel D. Ross and D. Delano Ross, Jr. following the asset sale of their dot-com company, Nexchange (which was formed to utilize their invention). DDR filed a lawsuit against twelve entities including Hotels.com, National Leisure Group, World Travel Holdings, Digital River, Expedia, Travelocity.com, and Orbitz Worldwide for patent infringement. DDR settled with all but three of these defendants prior to an October 2012 jury trial in the United States District Court for the Eastern District of Texas. The jury found that neither of the patents at issue were invalid, that National Leisure Group, Inc. and World Travel Holdings, Inc. (collectively "NLG") directly infringed both these patents, that Digital River directly infringed one of the patents, and that DDR should be awarded $750,000 in damages.

Following the verdict, the district court denied defendants’ motions for Judgment as a matter of law (JMOL) and entered final judgment in favor of DDR, consistent with the jury's findings. Defendants appealed, however, by the time of oral argument, DDR settled with Digital River, and Digital River's appeal was subsequently terminated. NLG continued its appeal.

Patents-in-suit DDR is the assignee of U.S. Patent Nos. 7,818,399 ("the '399 patent") and 6,993,572 ("the '572 patent"), both of which are continuations of an earlier patent—U.S. Patent No. 6,629,135 ("the '135 patent"). The court's § 101 analysis focused on the '399 patent, entitled "Methods of expanding commercial opportunities for internet websites through coordinated offsite marketing.", 2:30–34.

The Invention

The '399 patent addresses a particular problem in the field of e-commerce when vendors advertise their products and services through a hosting page of an affiliate:

[Vendors] are able to lure visitor traffic away from the affiliate. Once a visitor clicks on an affiliate ad and enters an online store, that visitor has left the affiliate's site and is gone. [This presents] a fundamental drawback of the affiliate programs--the loss of the visitor to the vendor.

The '399 patent also identifies some other attempts at solving this problem:

Affiliates are able to use "frames" to keep a shell of their own website around the vendor's site, but this is only a marginally effective solution.

Some Internet affiliate sales vendors have begun placing "return to referring website" links on their order confirmation screens, an approach that is largely ineffective. This limitation of an affiliate program restricts participation to less trafficked websites that are unconcerned about losing visitors.

Search engines and directories continue to increase in their usefulness and popularity, while banner ads and old-style links continue their rapid loss of effectiveness and popular usage.

The '399 patent claims a process involving stored data concerning the visual elements responsible for the "look and feel" of the host website, where, upon clicking an ad for a third-party merchant's product, the customer is directed to a hybrid page generated by the host website that is a composite of the third-party merchant's product information and the look and feel elements of the host website. "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 Federal Circuit described the '399 patent as follows:

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… [T]he host website can display a third-party merchant’s products, but retain its visitor traffic by displaying this product information from within a generated web page that ‘gives the viewer of the page the impression that she is viewing pages served by the host’ website."

[The system] instructs an Internet web server of an “outsource 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.DDR Holdings, 773 F.3d at 1257.

A case note statesSee Richard H. Stern, Case-Law Developments After State Street and AT&T (Cont'd): After Alice in the Supreme Court: Down the Rabbit Hole? Or Push-Back? , George Washington Law School, Computer Law 484, Cases and Materials, Ch. 8-D (last visited July 22, 2015) (cited hereinafter as GW Computer Law). that one way to accomplish the function would be with an <iframe> tag (or a <frameset> tag, which HTML5 allows but no longer supports). The court's opinions use the metaphor of the "store within a store" to describe what the invention does and how it works, stating that the inventor's idea was to have an Internet webpage that was like a warehouse store or department store (the dissenting opinion uses BJ's Wholesale Clubs as an illustrative example); other merchants' webpages would function like concessions or kiosks within the department store.DDR Holdings, 773 F.3d at 1258, 1265. A commentator asserted that the court's "store within a store" metaphor may not be the best way to look at this claimed invention, and that it may be more apt to characterize what the invention does as placing a frame around someone else's webpage and incorporating the frame and its content into the host's webpage.GW Computer Law. The diagram of the "store within a store" or "webpage within a webpage" in the text following this note is taken from that source. This is the effect that the invention accomplishes:

Representative claim 19 of the '399 patent recites: "19. 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 out-source 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.", 4-5.

Legal landscape Under US law, all patentable inventions meet several general requirements: The claimed invention must be: statutory subject matter Judicial interpretation of this statute dictates that natural phenomena, laws of nature, and abstract ideas are not themselves patentable (although a particular application of a law of nature or an abstract idea might be patent-eligible).Diamond v. Chakrabarty, ; e.g. ; Alice, 134 S.Ct. at 2359. novel.. nonobvious.. useful.35 U.S.C. §§ 101, 112 fully disclosed and enabled.. As is entirely typical, the defendant argued that DDR's patents were invalid under all of these sections, but the primary litigation focus was on § 101 and whether DDR's patents were claiming an abstract idea which would not be patentable subject matter.

In Alice, the Supreme Court clarified its two-prong framework, originally set forth in Mayo Collaborative Servs. v. Prometheus Labs., Inc.,Mayo, 132 S. Ct. at 1289. 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. Under Alice,Alice, 134 S.Ct. at 2359. Mayo, and Ultramercial, claims are patent-ineligible under § 101 if they are directed to patent-ineligible subject matter (i.e. abstract ideas, laws of nature, and natural phenomena) and do not contain an inventive concept that sufficiently transforms the claim into an application of the underlying idea that restricts the claim to something significantly different from the ineligible subject matter it is directed to. This embodiment must be something more than typical operations performed on a generic computer. Following the Alice decision, several cases invalidated patents covering computer-implemented inventions as ineligible abstract ideas, including Ultramercial. Because the analyses in these decisions are somewhat ambiguous (on, e.g., defining the scope and standard of the term "abstract idea"), many inventors, bloggers, scholars, and patent lawyers have struggled with determining their full implication, especially as they relate to software claims, and some have even questioned the patentability of computer-implemented inventions in general.E.g. Timothy B. Lee, You can’t patent movies or music. So why are there software patents?, (Sept. 16, 2014) (last visited July 22, 2015); Robert Sachs, The Day the Exception Swallowed the Rule: Is Any Software Patent-Eligible After Ultramercial III? , (Dec. 2, 2014) (last visited July 22, 2015). See also Dennis Crouch, Slicing the Bologna: Judge Chen Distinguishes this Business Method from those Found Ineligible in Alice, Bilski, and Ultramercial, (Dec. 8, 2014) (last visited February 23, 2015).

Decision