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Dealertrack, Inc. v. Huber: Practical or Abstract?

On January 20, 2012, the U.S. Court of Appeals for the Federal Circuit (the “CAFC”), in an opinion by Judge Linn, decided Dealertrack, Inc. v. Huber (“Dealertrack II”).  Applying Bilski, the court invalidated claims in Dealertrack’s U.S. Patent No. 7,181,427 (the “’427 Patent”) relating to a computer aided business method as patent ineligible subject matter.  See Dealertrack, Inc. at 38.  On appeal, was the district court’s grant of summary judgment of invalidity for failure to claim patentable subject matter in claim 1 of the ‘427 Patent and its dependent claims.  DealerTrack, Inc. v. Huber, 657 F. Supp. 2d 1152 (C.D. Cal. 2009) (“Dealertrack I”).  Dealertrack II included numerous other interesting appeals and cross-appeals, including whether in 1995 the term communication medium encompassed the Internet.  This post, however, will focus on the patent eligibility question.

Dealertrack’s invention relates to automating the process by which car dealer seek loans on behalf of their customers from one or multiple funding sources.  Id at 3.  “Dealertrack proposed to automate the process through the use of a ‘central processor,’ which receives credit application data from dealers, processes the data to conform to the individual application forms of different banks, forwards the completed applications to banks selected by the dealer, receives answers from the banks, and forwards those answers back to the dealer.”  Id.

Dealertrack sued David L. Huber and Finance Express, LLC and RouteOne (the “Defendants”), claiming that each of their various competing products infringed, among other patents, the ‘427 Patent.  Id. at 4.  “All of the accused products offer automobile dealers loan management services that pass all communications between dealers and lenders through the Internet.”  Id.

Claim 1 of the ‘427 Patent claims:

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.

Id. at 31–32 (outline provided by CAFC).

The district court concluded that a “general purpose computer that has been programmed in some unspecified manner,” is inadequate to confer patent eligibility as a machine.  Id. at 33 (quoting Dealertrack I).  Upon review, the CAFC affirmed the grant of summary judgment and “conclude[d] that the claims are invalid as being directed to an abstract idea preemptive of a fundamental concept or idea that would foreclose innovation in this area.”  Dealertrack II at 35.  The court simplified the process in Claim 1 of the ‘427 Patent to three steps:

1) “receiving data from one source (step A);”

2) “selectively forwarding the data (step B, performed according to step D);” and

3) “forwarding reply data to the first source (step C).”

Id.  It then concluded that “[t]he claim ‘explain[s] the basic concept’ of processing information through a clearing-house” and “[n]either Dealertrack nor any other entity is entitled to wholly preempt the clearinghouse concept.”  Id. Because “[t]he claims are silent as to 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,” the court disagreed that the “the ‘computer-aided’ limitation in the preamble sufficiently limits the claims to an application of the idea.”  Id.  In this way, “‘computer aided’ is no less abstract than the idea of a clearinghouse itself.”  Id. “Simply adding a ‘computer aided’ limitation to a claim covering an abstract concept, without more, is insufficient to render the claim patent eligible.”  Id. at 36 (citing SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1333 (Fed. Cir. 2010)).

Finally, the court distinguished Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011) (“Ultrmercial”).  Here ‘computer aided’ is recited “without specifying any level of involvement or detail.”  While in Ultramercial, “the patent claimed a practical application with concrete steps requiring an extensive computer interface.”  In adopting this approach it chose to reject Dealertrack’s argument that the specification describes certain algorithms that make this non-abstract, because “patent eligibility under § 101, one must focus on the claims . . . because a claim may ‘preempt’ only that which the claims encompass.”  Dealertrack II at 36.

In an interesting dissent, Judge Plager argued that the CAFC should not analyze the claim under § 101, which he refers to as “jurisprudential morass” that should be avoided “unless absolutely necessary.”  Dealertrack II at 2 (Plager, J., concurring-in-part and dissenting-in-part).  Rather, the trial court’s decision under § 101 should have been vacated and the case should be remanded for evaluation under § 103 (obviousness).  Id. Perhaps Judge Plager is suggesting that the method of using a computer to aid in the clearinghouse process is obvious.

Clearly, the method claims in question here were only nominally tied to computing apparatus, such that the “invention” was claimed in such a way as to minimize the importance of its apparatus or technical aspects.  Perhaps had those aspects been better incorporated into the claims, the CAFC would have viewed the invention more as a practical, technical one, as opposed to an abstract business method.

[Posting contributed to by Brian Wallenfelt]

Principal & Chief Innovation Officer

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