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Federal Circuit Holds That a Computer-Aided Clearinghouse is a Patent-Ineligible Abstract Idea
By Laura Fishwick – Edited by Adam Lewin

Dealertrack, Inc. v. Huber, Nos. 2009-1566, 2009-1588, 2012 WL 164439 (Fed. Cir. Jan. 20, 2012)
Slip Opinion

The Court of Appeals for the Federal Circuit affirmed the U.S. District Court for the Central District of California’s grant of summary judgment regarding the invalidity of Dealertrack’s U.S. Patent 7,181,427 (filed Sep. 3, 1997) (“the ’427 patent”), which had claims that covered an automated clearinghouse system for car dealerships. The district court had applied the then-definitive “machine-or-transformation” test from In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc) (“Bilski I”), requiring the claimed process either to be tied to a particular machine or apparatus or to transform an article into a different state or thing. Dealertrack had not argued that its claim effected a transformation, and the district court found that Dealertrack’s patent did not involve a particular machine as required by Bilski I’s test because the computer involved was a general purpose computer that was not “specially programmed.” For this reason, the district court held that the subject matter of Dealertrack’s patent was not eligible for protection under 35 U.S.C. § 101 of the Patent Act because Dealertrack had claimed an abstract idea.

Reviewing the patentable subject matter issue de novo, the Federal Circuit held that Dealertrack had claimed “an abstract idea preemptive of a fundamental concept or idea that would foreclose innovation in this area,” and therefore its patent was invalid. The court found that the claim’s language was too broad in scope, and that neither including a general computer to the method nor restricting the method to a particular field of use saved the patent’s validity.

PatentlyO provides an overview of the case and discusses the case in context of other recent Federal Circuit decisions. 

Dealertrack sued David L. Huber, Finance Express, LLC, and RouteOne for infringement of Dealertrack’s patents after the defendants had sold products that involved loan management services that passed communication over the Internet. Among several alleged infringed patents, Dealertrack’s ’427 patent claimed a computer-aided method for receiving, processing, and forwarding credit application information for the car loan business. The method claimed was comprised of three steps: (1) receiving credit information from a remote device, (2) processing and selectively forwarding the data, and (3) forwarding reply data back to the original remote device. In essence, this claim describes the concept of processing information through a clearinghouse, a repository that gathers, stores, and distributes information.

The majority of the panel began its opinion by recognizing that because of a “clear Congressional mandate that a very broad swath of inventions be eligible for patent protection,” § 101 is a “coarse grain filter” for patentable subject matter. Most of the work in determining patentability is accomplished by the rest of the Patent Act. Nevertheless, the court found that the claims in the ’427 Patent covered an abstract idea, which is patent-ineligible under § 101. In finding that the claims were overly broad, the majority argued that their preambles’ limitation of being “computer-aided” did not sufficiently limit the claims because they did not specify “how a computer aids the method, the extent to which a computer aids the method, or the significance of a computer to the performance of the method.

In addition to considering the limitation of a computer, the court considered it significant that the claims did not require a specific application, specific machine, or particular algorithm, even though the patent included language specifying that the method was for car loan applications. Relying on Bilski v. Kappos, 130 S. Ct. 3218, 3231 (2010) (“Bilski II”), the court found that directing an abstract idea to one field of use did salvage the claimed invention’s patentability.

Dissenting-in-part from the majority’s holding regarding the ’427 Patent, Judge Plager argued that, as a matter of judicial efficiency, courts should only consider patent invalidity claims under § 101 when absolutely necessary, and should instead insist that litigants make invalidity claims under the remaining sections of the Patent Act.

This decision extends the reasoning from Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011), to another abstract idea implemented with a computer, potentially giving more force to future claims of patent invalidity under § 101.

Laura Fishwick is a 2L at the Harvard Law School.

Posted On Feb - 9 - 2012 Comments Off

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