Monday, February 20, 2012

A dud deal for Dealertrack

16 carsIn Dealertrack v Huber Case No. 2009-1566 we saw Dealertrack, Inc. ("Dealertrack") take an appeal to the United States Court of Appeals for the Federal Circuit (CAFC). The United States District Court for the Central District of California had found claims 1, 3, and 4 of their US Patent 7,181,427 invalid for failure to claim patentable subject matter under 35 USC 101.

The invention

Car dealers were sick of filling in forms.  In seeking car loans on behalf of their customers, they would apply to funding sources for example banks. This involved filling out application forms particular to each bank, faxing or transmitting the application to the respective banks, waiting for bank personnel to enter the application information into their internal computer systems, and eventually receiving responses from each bank.

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.

Claim 1, as a representative claim, read as follows:
1. 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 the remote 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 [funding] source returns a positive funding decision;

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 [funding] sources returns a positive funding decision or until all funding sources have been exhausted; or,

sending the credit application from a first remote funding source to a second remote [funding] source if the first funding source declines to approve the credit application.
What does computer aided mean?

The CAFC observed that the claim, in its simplest form, involved three steps:
  1. receiving data from one source
  2. selectively forwarding the data
  3. forwarding reply data to the first source
The claim was directed to the basic concept of processing information through a kind of clearinghouse. The Court felt that the steps did not impose meaningful limits on the claim's scope. Neither Dealertrack nor any other entity were entitled to wholly preempt the clearinghouse concept.
Dealertrack argued that the “computer aided” limitation in the preamble sufficiently limits the claims to an application of the idea. The Court disagreed.

The patent did not specify how the computer hardware and database are specially programmed to perform the steps claimed in the patent. The claims were 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 undefined phrase “computer aided”, said the CAFC, is no less abstract than the idea of a clearinghouse itself. Because the computer here can be programmed to perform very different tasks in very different ways it was held not to play a significant part in permitting the claimed method to be performed.

Simply adding a “computer aided” limitation to a claim covering an abstract concept, without more, is insufficient to render the claim patent eligible.

It was noted that the claims here do not require a specific application, nor are they tied to a particular machine. The claims were held to cover a clearinghouse process using any existing or future-devised machinery.

The Court then distinguished Dealertrack's claims from those in Ultramercial, LLC v. Hulu, LLC, No. 2010-1544 (Fed. Cir. Sept. 15, 2011) (see my blog post).

In Ultramercial, the Court found that the patent claimed a practical application with concrete steps requiring an extensive computer interface.

However, in the case of Dealertrack, the claims recite only that the method is “computer aided” without specifying any level of involvement or detail. The fact that certain algorithms are disclosed in the specification does not change the outcome. In considering patent eligibility under § 101, the Court felt it needed to focus on the claims. This is because a claim may “preempt” only that which the claims encompass, not what is disclosed but left unclaimed.

It didn't help that Dealertrack's claims had already been construed not to be limited to any particular algorithm. Dealertrack had not appealed the District Court’s construction.

A particular use

Dealertrack also argued that claim 1 was patent eligible because it covers the use of a clearinghouse only in the car loan application process, and not all uses thereof.

The Court didn't buy this argument either. The claim was directed to a particular use, sure. But it still covered a broad idea. The notion of using a clearinghouse generally and using a clearinghouse specifically to apply for car loans, like the relationship between hedging and hedging in the energy market in Bilski, is of no consequence without more.

Further steps

The Court affirmed the determination of the District Court that claims 1, 3 and 4 are patent ineligible abstract ideas.

Photo courtesy of author Ben McLeod under Creative Commons licence.

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