In DDR Holdings, LLC v. Hotels.com, L.P., the United States Court of Appeals for the Federal Circuit (CAFC) addressed several issues related to the patentability of two of DDR's patents. In doing so, it provided another essential link in the chain of Federal Circuit jurisprudence on 35 U.S.C. Section 101. Defendants-Appellants National Leisure Group, Inc. and World Travel Holdings, Inc. (NLG) and Hotels.com, L.P. appealed from a finding of infringement in the United States District Court for the Eastern District of Texas (E.D. Texas).

Background

U.S. Patent Nos. 6,993,572 (the ‘572 patent) and 7,818,399 (the ‘399 patent) were directed to systems and methods of generating a composite web page that combines certain visual elements of a “host” website with the content of a third-party merchant. The specification addressed the issue with the prior art as third-party merchants “lur[ing] the [host website’s] visitor traffic away” when they clicked the merchant’s advertisement causing a negative user experience. The patents disclose a system that allows the website visitor “in a sense, to be in two places at one time.” Representative claim 13 of the ‘572 patents discloses:

  1. An e-commerce outsourcing system comprising:

    a) a data store including a look and feel description associated with a host web pate having a link correlated with a commerce object; and

    b) a computer processor coupled to the data store and in communication through the Internet with the host web page and programmed, upon receiving an indication that the link has been activated by a visitor computer in Internet communication with the host web page, to serve a composite web page to the visitor computer wit[h] a look and feel based on the look and feel description in the data store and with content based on the commerce object associated wit[h] the link.

The ‘399 patent was directed to a similar system but placed a greater emphasis on the scalable architecture’s functionality of serving “dynamically constructed pages.” Claim 19 of the ‘399 patent requires that the data store contains “look and feel” descriptions, and associated links, for multiple hosts.

Upon issuance of the ‘572 patent on January 31, 2006, DDR filed suit against NLG and ten other defendants. DDR’s suit was stayed during the pendency of an ex parte reexamination that they initiated based on prior art identified by the defendants. After that concluded, the ‘399 patent issued in 2010, and DDR added it to an amended complaint. During a Markman hearing, there was some argument about the definiteness of the “look and feel” and “visually perceptible elements” terms recited and alluded to by the claims. However, the defendants ultimately agreed on the constructions in the alternative that they were not found indefinite. Between June 2012 and January 2013, DDR settled with all defendants except NLG and Digital River, Inc (Digital River). A jury found infringement and validity of the two patents at issue on appeal and found DDR was entitled to $750,000 in damages from each defendant.

After the trial, NLG and Digital River renewed motions for JMOL under Federal Rule of Civil Procedure (FRCP) Rule 50(b). The defendants challenged the patents under 35 U.S.C. § 101 as claiming ineligible subject matter, and 35 U.S.C. § 112 because of the indefiniteness issues described above from claim construction. Digital River also challenged the ‘572 patent as anticipated under 35 U.S.C. § 102 or obvious under 35 U.S.C. § 103 and argued for a new trial under FRCP Rule 59. After the district court denied both parties' motions, they appealed, their appeals were consolidated, and Digital River settled with DDR.

Analysis

1. Anticipation

After reiterating the standard for reviewing a denial of judgment as a matter of law (JMOL), the CAFC addressed anticipation. It emphasized that a jury’s findings on questions of fact such as anticipation are reviewed for substantial evidence and that invalidity by anticipation must be proven by clear and convincing evidence. The prior art reference in dispute was Digital River’s Security Sales System (SSS). NLG argued that the SSS satisfied the “look and feel” element of the ‘572 patent. DDR contended that the jury reviewed substantial evidence and correctly found that SSS did not replicate the host website’s “look and feel” in terms of “overall appearance.” The CAFC disagreed, holding that “clear and convincing evidence establishes that Digital River’s prior art anticipates the asserted claims of the ‘572 patent.”

Regarding DDR’s argument that SSS lacked several features of the host website, the CAFC found that DDR and the district court had imported a limitation into the claims that the generated composite web page was an “overall match” with the host website. The CAFC found it sufficient that the page contained a stylized logo, a particular background, prominent circular icons from the host site, and an exact match beyond the required claims.

2. Eligible Subject Matter

After addressing anticipation, the CAFC next looked to the eligibility of the claims under 35 U.S.C. § 101. Since it found the ‘572 patent anticipated, the Federal Circuit only addressed the 101 challenge related to the ‘399 patent. It discussed the two-pronged analysis forth in Alice:

“First, given the nature of the invention, in this case, we determine whether the claims at issue are directed to a patent ineligible abstract idea. If so, we then consider the elements of each claim … to determine whether the additional elements transform the nature of the claim into a patent-eligible application of the abstract idea” (citations omitted). Importantly, Alice requires that at step 2, the claims amount to “significantly more” than a patent on an ineligible concept. The CAFC also recognized that Bilski dispelled the complete application of the “machine-or-transformation” test, as a validator of software claims.

The CAFC then noted that some ineligible patent concepts are abstract ideas, mathematical concepts, and individual business methods. In analyzing the ‘399 patent under Alice step 1 – whether the claims are “directed to” an abstract idea, the CAFC noted that the claims did not recite a mathematical algorithm or fundamental economic or longstanding business practice. It differentiated the claims from those in Alice in that DDR’s claims did 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 claims recited a “solution” that “[was] necessarily rooted in computer technology to overcome a problem specifically arising in the realm of computer networks.” Slip op. at 20.

The CAFC discussed the dissent’s contention that the “store within a store” concept exists in a brick-and-mortar space (e.g., when a warehouse store contains a kiosk for selling a third-party partner’s cruise products). It noted that while that concept may have been well-known, it did not account for the “ephemeral nature” of an internet location and that specific communication protocol issues did not arise in the “brick and mortar” context. Noting that not all claims purporting to address Internet-centric challenges are eligible, but that the ‘399 patent did not generically claim “use of the Internet” to perform an abstract business practice, the CAFC also observed that the claims recited a specific way of addressing the problem. It ultimately found the ‘399 patent valid under §101.

3. Indefiniteness

The CAFC next looked to the issue of indefiniteness of the “look and feel” claim term. It looked to evidence from the trial where Digital River acknowledged that they understood the phrase and that somebody reading it would know what it means to reject NLG’s argument that it was facially subjective term. It also pointed to advertisements for the prior art SSS product using the term.

4. Infringement

Ultimately finding the ‘399 patent valid, the CAFC next turned to NLG’s content that their product did not infringe the claims. First, for the “visually perceptible elements” limitation, the jury viewed substantial evidence of what different host websites looked like and their corresponding composite page representations. It disposed of NLG’s contention that the jury was given insufficient time (one day) to observe the evidence, noting that such an argument was without merit as it applied to infringement. Specifically, it said that records of changes to the website were rigorously kept after the screenshot images were taken to ensure they were representative of actual performance.

5. Damages

The CAFC remanded the case on damages because the jury did not specify how the $750,000 damages awarded were apportioned between the ‘572 patent and the ‘399 patent. Therefore, since CAFC deemed the '572 patent anticipated, the Federal Circuit instructed the district court to determine the effect of the patent’s invalidity on damages. The CAFC rejected NLG’s argument that it was not entitled to prejudgment interest because DDR was a non-practicing entity, finding no precedential support. In the absence of statutory authorization, the court declined to extend such an exception to the general rule that plaintiffs deserve prejudgment interest for infringement.

Conclusion

Ultimately, the CAFC held that the district court had erred in not granting NLG's motion for Judgment as a Matter of Law (JMOL) as to the invalidity of the '572 patent, vacated the damages, and remanded the case to the district court to make final determinations on damages for the '399 patent specifically.

Judge Mayer's Dissent

Writing in dissent, Judge Mayer argued that the claims at issue were analogous to a brick-and-mortar "store within a store" concept, and took issue with the CAFC's treatment of the claimed advance as a "specific solution." He found the claim limitations such as "data store," a "web page having a link," and a "computer processor" merely generic, and that the technical description of the "look and feel" element "border[ed] on comical."

In rejecting the majority's opinion that the claims were directed to a specific solution, Mayer also noted that DDR had already brought infringement actions against ten defendants and that the claims' "broad and sweeping reach" was vastly disproportionate to their "minimal technological disclosure."