Did Pre-Bilski Claim Construction Help Doom Patent Validity In District Court?

by Brian Fletcher on July 13, 2009

U.S. District Courts in California continue to be somewhat hostile towards patent applications when it comes to the question of what constitutes patentable subject matter.  On July 7, the U.S. District Court for the Central District of California applied the Bilski machine-or-transformation test to the patentability of a method claim and found the claimed system for automating credit applications invalid for failure to disclose a “particular machine” (DealerTrack Inc. v. Huber, C.D. Cal., No. CV 06-2335 AG (FMOx), 7/7/09).  The court declared the claims of one asserted patent invalid for unpatentable subject matter because they were tied to “general purpose computer” systems that were not “specially programmed” to perform the steps claimed.

DealerTrack Inc., a provider of software and data solutions for the automotive retail industry, owns patents (5,878,403; 6,587,841; and 7,181,427) directed to an automated credit application system.  The company brought a patent infringement lawsuit in April 2006 against its competitors Finance Express LLC and RouteOne LLC, Finance Express’ founder David L. Huber, and unnamed auto dealers using competing systems.  RouteOne is a joint venture established by GMAC, Ford Motor Credit, Toyota Financial Services and DaimlerChrysler Financial Services in 2002.

Judge Andrew J. Guilford previously agreed with RouteOne that its dealer management services did not infringe the ‘841 patent in light of the court’s 2007 claim construction order.  Key to that order was a construction of the claim term “communications medium” as “a network for transferring data, not including the internet.”

The case went forward with the ‘427 patent still asserted against all parties and Finance Express still subject to the infringement claim on the ‘841 patent.  However, one month after the court’s initial decision, the U.S. Court of Appeals for the Federal Circuit announced its “machine-or-transformation” test for the patentability of claims directed to processes in In re Bilski, 545 F.3d 943, 88 USPQ2d 1385 (Fed. Cir. 2008) (en banc).  Finance Express and RouteOne then filed in March a new motion for summary judgment of invalidity of the ‘427 patent for unpatentable subject matter, based on the new test.

Claim 1 of the ‘427 patent is a method claim for computer-aided management of a credit application.  DealerTrack conceded that its asserted ‘427 patent claims do not meet the transformation prong of the Bilski test.  As to the machine prong, Guilford noted preliminarily that the Federal Circuit opted to “leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.”

The claims at issue in the ‘427 patent included three separate structures that arguably satisfied Bilski’s machine requirement:  1) a central processor “consisting of a specially programmed computer hardware and database”; 2) “a remote application entry and display device”; and 3) a “remote funding source terminal device.”  Judge Guilford found, however, that none of these structures satisfied Bilski, because they did not require a particular machine.  First, the ‘427 patent did not specify how the computer hardware and database were “specially programmed.”  Consequently, the claims described nothing more than a general-purpose computer programmed in an unspecified manner, which the court found insufficient to satisfy Bilski

Second, the Court found that the “remote application entry and display device” and the “remote funding source terminal” were generic terms referring to “any device, e.g., a personal computer or dumb terminal remote from the central processor” for completing the recited steps.  He again relied on the claim construction order (issued one year before Bilski was decided) that described claim-related machines as “any device, e.g., personal computer or dumb terminal.”  With that construction and without special programming, Guilford concluded that “none of these devices constitutes a ‘particular machine’ within the meaning of Bilski, and granted summary judgment of invalidity of the ‘427 patent under the Bilski test.

Guilford cited several cases from the Patent and Trademark Office’s Board of Patent Appeals and Interferences and one from the U.S. District Court for the Northern District of California that have invalidated claims under the machine prong for only reciting a tie to a general purpose computer, rather than being “sufficiently tied to particular machines.”  See, e.g., Ex parte Cornea-Hasegan, No. 2008-4742, 89 USPQ2d 1557 (B.P.A.I. Jan. 13, 2009); CyberSource Corp. v. Retail Decision Inc., No. 04-03268 (N.D. Cal. March 26, 2009).  Our analysis of the CyberSource case can be found here and here.

Guilford rejected as well DealerTrack’s attempt “to bring the Internet back within the scope of the asserted claims” under the doctrine of equivalents, inasmuch as the Internet was specifically excluded from the scope in the claim construction order.  He therefore granted Finance Express’ motion for summary judgment of noninfringement.

In a July 8 press statement, DealerTrack’s Chairman and Chief Executive Officer Mark O’Neil, said the company would appeal, noting the Supreme Court’s decision to grant certiorari in Bilski.

Source:  multiple sources including BNA’s Patent, Trademark & Copyright Journal No. 131, July 13, 2009

{ 2 comments }

Les July 14, 2009 at 9:26 am

Someone should point out to the court that even the pro-Bilski decision U.S. Patent and Trademark Office doesn’t think Bilski has a bearing on software. The PTO says the following:

“In any event, the court of appeals emphasized that its
decision in this case does not address the application of
the machine-or-transformation test to computer software,
data-manipulation techniques, or other such technologies
not involved in petitioners’ risk-hedging claim.”

See page 14 of:

http://www.uspto.gov/web/offices/com/sol/2007-1130uspto_opposition_to_certiorari.pdf

Brian Fletcher July 14, 2009 at 10:15 am

That’s a great point and one that probably isn’t relied on enough by practitioners as they search for machines or transformation. I’m aware of one district court case, however, where the judge made this distinction:

Versata Software, Inc. et al v. Sun Microsystems, Inc., 2:06-cv-00358 (E.D. Tex., March 31, 2009)

Judge: T. John Ward

Holding: Defendant’s Motion for Judgment on the Pleadings DENIED

In this opinion, Judge Ward denied the defendant’s motion for judgment on the pleadings that the asserted method claims were invalid in light of Bilski. Defendant argued that the claimed methods did not satisfy either the “machine” or “transformation” test, but Judge Ward concluded that the defendant’s interpretation of the case was overbroad. He noted that in Bilski the Fed Circuit expressed declined to adopt a broad exclusion over software or any other category of claims “beyond the exclusion of claims drawn to fundamental principles.” The Court held that in the absence of the existence of a broad rule of exclusion, the motion had to be denied because Sun had not carried its burden to prove that “there are ‘no disputed issues of material fact and only questions of law remain.’” Judge Ward noted that at the Rule 12(c) stage pleadings are construed liberally, and judgment is typically reserved only for issues such as statutory interpretation or sovereign immunity. Bilksi simply did not provide the sort of certainty that justified judgment on the pleadings, at least under the facts of this case.

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