Dealertrack, Inc. v. Huber, et al., Doc. No. 06-2335 (C.D. Cal. 2009) [PDF]

Summary. The court granted summary judgment finding the asserted claims directed to a computer aided method of managing a credit application were invalid as failing the machine-or-transformation test from Bilski. The court found the process claims were not tied to a particular machine.

Facts. The plaintiff DealerTrack, Inc. (“DealerTrack”) asserted that defendant’s Finance Express and RouteOne infringed three of DealerTrack’s patents, including U.S. Patent 7,181,427 [Link] (the “‘427 Patent”). The ’427 patent provides a “computer based credit application processing system [that] provides a graphical user interface, automatic software update downloading, lender to lender routing of credit applications, and integration with in-house finance and insurance systems and third party data entry facilities, among other features.”

Claim 1 of the ’427 patent provides:

A computer aided method of managing a credit application, the method comprising the steps of:

receiving credit application data from a remote application entry and display device;

 

selectively forwarding the credit application data to remote funding source terminal devices;

 

forwarding funding decision data from at least one of theremote funding source terminal devices to the remote application entry and display device;

 

wherein the selectively forwarding the credit application data step further comprises:

 

sending at least a portion of a credit application to more than one of said remote funding sources substantially at the same time;

 

sending at least a portion of a credit application to more than one of said remote funding sources sequentially until a finding [sic] source returns a positive funding decision;

 

sending . . . a credit application . . . after a predetermined time . . . ; or;

 

sending the credit application from a first remote funding source to a second remote finding [sic] source . . . .

DealerTrack arged that the claims of the ‘427 Patent were tied to a (1) central processor “consisting of a specially programmed computer hardware and database,” a (2) “remote application entry and display device,” and a “remote funding source terminal device.”

Central Processor Not Specially Programmed. The court stated, “The ‘427 Patent does not specify precisely how the computer hardware and database are ‘specially programmed,’ and the claimed central processor is nothing more than a general purpose computer that has been programmed in some unspecified manner.” See Ex Parte Nawathe, No. 2007-3360, 2009 WL 327520, (BPAI Feb. 9, 2009) (rejecting under Section 101 a claim reciting a “computerized method” of inputting and representing XML documents as insufficiently tied to “a particular computer specifically programmed for executing the steps of the claimed method”).

Not Tied to a Particular Machine. In an earlier claim construction order the court found:

• “remote application entry and display device” included “any device, e.g.,personal computer or dumb terminal, remote from the central processor, for application entry and display.”
• “terminal device” as “any device, e.g., personal computer or dumb terminal, located at a logical or physical terminus of the system.”

The court has little trouble finding these devices were not particular machines withing the meaning of Bilski after finding that these various “devices” include “any device.”

Here are the factors you should consider when deciding whether to seek a patent protection on a software related invention. I generally recommend that a client consider applying for patent protection on software related inventions if at least one of the following is true:

• The client has enough funds to fund patent litigation should the need arise
• The invention is sufficiently important to another company to cause that other company to negotiate (a license or assignment of patent rights) with the client if the client has a patent.
• The client owns many patents and has enough market power in the industry to convince other patent holders to enter cross-licensing agreements
• The invention will change the course of a particular market and failure to patent presents the risk that others in the market will obtain a patent on the same idea and will stop the client from making or selling the invention.
• The client would like to impress potential funders, financial
  backers, VCs, or others by showing that the client’s invention is
  unique as shown by a patent.
• The client would like to impress potential funders, financial backers, VCs, or others with patent pending status.
• The client anticipates selling the business at some point down
  the road and wants to increase the business’s value by owning patents
  or pending patent applications.

Defensive Uses. You may also use the benefits and advantages provided in the application defensively during prosecution. This may occur in two instances (1) when the examiner makes an obviousness rejection and provides reasons why one skilled in the art would combine the references and (2) when the examiner takes official notice of one or more facts.

Reasons To Combine References. Section 2145(X) of the MPEP provides that an obviousness rejection may not be based on improperhindsight reasoning gleaned from the applicant’s disclosure. Section 2142 provides “To reach a proper determination under 35 U.S.C. 103, the examiner must step backward in time and into the shoes worn by the hypothetical ‘person of ordinary skill in the art’ when the invention was unknown and just before it was made.” It continues, “The tendency to resort to ‘hindsight’ based upon applicant’s disclosure is often difficult to avoid due to the very nature of the examination process.” It further provides that knowledge of the applicant’s disclosure must be put aside in reaching an obviousness determination.

Therefore, if the Examiner provides a reason to combine two references, and that reason is listed in the application, the applicant can assert that the Examiner is using improper hindsight reasoning based on the applicant’s disclosure.

For example, say the Examiner asserted that one skilled in the art would combine two references to gain operational efficiency. Further, the applicant provided in the disclosure that the invention provided the benefit of increased operational efficiency over the prior art. Then the applicant could assert that the examiner is using improper hindsight reasoning and therefore, the operational efficiency rationale is not a proper basis to combine references. The Examiner may not be able to sustain the obviousness rejection without the given rationale.

Official Notice. Section 2144.03 of the MPEP allows an Examiner to take official notice of facts not in the record or to rely on common knowledge in making a rejection. However, section 2144.03(A) provides that “Official notice unsupported by documentary evidence should only be taken by the Examiner where the facts asserted to be well-known, or to be common knowledge in the art are capable of instant and unquestionable demonstration as being well-known.” The “Examiner must be capable of such instant and unquestionable demonstration as to defy dispute.”

Section 2144.03(B) provides that when the Examiner claims certain facts are common knowledge, the Examiner must “provide specific factual findings predicated on sound technical and scientific reasoning to support his or her conclusion of common knowledge.”

If the examiner uses a reason listed in the applicants disclosure to support his or her conclusion of common knowledge–like above–the applicant may assert that the Examiner is using improper hindsight reasoning based on the applicant’s disclosure.

Failure to List Advantages. If the applicant drafts a “slim” application that does not list the advantages and benefits provided over the prior art, the applicant will have a more difficult time attacking an Examiner’s reasoning as a basis of officially noticed facts and as used in an obviousness rejection.

 The Court of Appeals for the Federal Circuit will hold hearings in several locations in Silicon Valley, California during the week of November 3, 2008. Santa Clara University School of Law, Stanford University School of Law and the United States District Courts in San Francisco and San Jose will each host a panel of judges for oral argument during that week.

[Link]

• Develop a culture within the USPTO to encourage Examiners to propose claim amendments that would, at least in the examiner’s view, distinguish the claimed invention over the prior art. This would eliminate applicant guessing as to what a Examiner considers allowable and permit the applicant to forgo the cost of filing further amendments, RCEs, continuations, or appeals, by accepting the Examiner’s proposal.

• Encourage the Examiners to resolve the applicant’s technical formality errors (e.g. an incorrectly designated a claim in an Amendment as, for example, “currently amended”) by informal communication and Examiner’s amendment rather than, for example, issuing a “Notice of Non-Compliant Amendment.”

• Modify “Pre-Appeal Submission” process to avoid having both the Examiner and the Examiner’s Supervisor—both of whom are presumably against finding any error in the Examiner’s action—on the three member panel that evaluates the reasonableness of the Examiner’s position. At least two senior examiners not involved in prosecution of the application should be on the panel. Having both the Examiner and the Examiner’s Supervisor sets up a 2 to 1 panel position against the applicant at the start.

• Improve Examiner retention through improvements in the diversity and quality of opportunities for professional development.

• Increase monitoring of Examiner’s work to ensure quality, by for example, triggering an investigation when an application has more than three Office Actions on the merits.

• Joff Wild of IAM questions the 11.26 billion dollar figure and asserts the underlying data on “total cost” includes both legal costs as well as costs to the business from lost market share, management distraction, etc–not simply litigation costs.

• Ben Klemens, Executive Director of End Software Patents defends his numbers and responds to Joff here. Joff responds to Ben’s defense here.

The Average Cost of Preparing a Patent Application:

• To prepare and file an original application of minimal complexity (10 page specification, 10 claims) by a firm the size of Sughrue Mion, PLLC (an IP boutique with over 100 IP professionals) $8,548.00
• Mechanical cases (relatively complex) $11,482.00
• Electrical/computer cases (relatively complex) $13,684
• Biotechnology/chemical cases (relatively complex) $15,398.00

The Average Cost of Filing an Amendment:

• Minimal complexity $2,244.00
• Mechanical case (relatively complex) $3,506.00
• Electrical/computer case (relatively complex) $3,910.00
• Biotechnology/chemical case (relatively complex) $4,448.00

The government fees for those filings are $1,030.00 (unless the Applicant is a small entity).

BMPG v. Calf Dept of Health Services, No. 07-956 [Docket Link] [SIIA Brief] [SIIA Press Release].