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.

• 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.

He provides the following reasons:

• Its rare for cases to be heard en banc
• The Federal Circuit is aware that recently the U.S. Supreme Court has been placing limits on patent holders rights
• Congress is considering the Patent Reform Act and the Federal Circuit’s Chief Judge is opposed to the changes in the Patent Reform Act

Rule 35 [link, PDF] of the Federal Circuit Rules of Practice provides that an en banc rehearing is ordered by a majority vote of the active circuit judges. It states that en banc rehearing is not favored and ordinarily will not be ordered unless:

1. en banc consideration is necessary to secure or maintain uniformity of the court’s decisions; or
2. the proceeding involves a question of exceptional importance.

Here, the court may be answering the Board of Patent Appeals and Interference’s (Board) request for guidance in determining what is patentable subject matter under section 101. The Board stated in its decision [PDF] that “Several major analyses of statutory subject matter [under section 101] have been published recently.” The Board continued, “The USPTO is struggling to identify some way to objectively analyze the statutory subject matter issue instead of just saying ‘We know it when we see it.’ ”

It is possible that the Federal Circuit could provide a framework for determining patentable subject matter under section 101 without restricting the patentability of software and business methods. However, it may also be that the Federal Circuit will provide a section 101 framework that restricts software and business method patents.

The purpose of the event is build mutually-beneficial business relationships between attendees. It is targeted at upwardly mobile tech professionals, tech executives, tech entrepreneurs, technology service providers, Internet professionals, Web 2.0 and startup companies, and the mobile industry.

RSVP here. See you there.

• Connect local people with others in their industry and build community
• Raise the profile of the Silicon Prairie through the publicity generated around the events.
• Foster investment and economic development in the region by showcasing local businesses, entrepreneurs, and startups.

Here’s a partial list of those I saw, met, or talked with:

• Brian Clark of XNet an Internet hosting and services company in Lisle
• Jeff Mitchell of Harvey Nash an IT services and staffing company in Naperville.
• Coley Perry of Solution Partners Inc. an IT consulting company in Naperville
• Joe Johnson of Riverside Consulting Group Ltd. an IT consulting and services company in Riverside
• Anders Bovin of Sanders Infrastructure an IT consulting company in Naperville
• Paul Corning of Pariveda Solutions an IT consulting company in Chicago
• Mary Vojtech of Telcom Innovations Group a telecommunications/network provider in Itasca
• Steven Ryzner a manufacturing, engineering, and energy consultant in Chicago
• Ravi Mazumdar of TV Compass a company making a two-way interactive WiFi based smart TV remote control in Chicago
• David P. Leibowitz of Leibowitz Law Center a law firm in Waukegan
• Medi-Ez Systems Inc. a digital signature service company
• Evan Brown of the Internet Cases blog
• Bob J. Brill of Wood Phillips an intellectual property law firm in Chicago
• Mark Carter of One80 an Internet marketing company in Chicago
• James Roberts of James Roberts Consulting, Inc. a developer consultant in Algonquin
• Mazy Hadeyat of M. Hedayat & Associates, P.C. a law firm in Bolingbrook
• Julian Pretto of Chicago Mirco an IT hosting and services company in Arlington Heights

This only scratches the surface of the 350 people in attendance of this sold-out event. Events like this help promote collaboration and innovation in the suburban technology community. I look forward to future silicon socials on the prairie.

The article examined the relation between patents and different business models used by firms in the software industry. Part of the article analyzed firms’ pattern of patenting (how many patents the firms sought and received). The authors stated, “if the desire to build portfolios for defensive purposes were the main justification for patents in the industry . . . one would expect portfolios roughly proportionate to litigation exposure.” Id. 1594. They assert that a firm’s size is a reasonable proxy for its litigation exposure. Therefore, “if the defensive portfolio hypothesis is correct, patent portfolios would correlate closely with size, and there would not be a great deal of variation tied to other factors such as market sector or R&D intensity.”

However, the authors predicted the pattern of patenting would “depend not only on size, but also on [1] whether the firm focuses on selling products or services, [2] how devoted the firm is to R&D . . ., [3] whether the firm is primarily a software firm or a hardware/electronics firm, and [4] competitive issues in the specific sector of the software industry in which the firm is located.

The authors found that whether a firm sought and obtained patents depended, in part, on the extent to which the firm sold products as opposed to services. The data showed that “[a] firm that derives all its revenues from products . . . is expected to produce 230% more patents than a firm entirely devoted to providing services.” Id. at 1601. They found that the data did not show that some industry sectors merely relied more on products and some more on services, but rather the differences between patenting practices of products firms and services firms existed even within particular industry sectors.

The authors were not sure what caused this difference between products and services firms. The causes might be that (1) patents have a greater ability to protect innovation in products, (2) there is a “greater need to protect innovation that is disclosed through the distribution of products,” or (3) “a patenting culture in a firm’s early days . . . contribute[s] to its survival as a products firm.” Id. at 1063.

[Allison, John R., Dunn, Abe and Mann, Ronald J., "Software Patents, Incumbents, and Entry" . 85 Texas Law Review 1579 (June 2007) Available at SSRN: http://ssrn.com/abstract=989592]

Intellectual Weapons describes their process:

1. You submit vulnerabilities you have discovered, without telling anyone else.
2. If we accept them, we work together to develop a fix.
3. We develop intellectual property relating to the fix, and license or enforce it
4. You share in the profits

The company acknowledges enforcement may be tough:

Enforcing the IP may not be straightforward-we fully anticipate major battles. . . .We only want people who dare to play for high stakes.