The U.S. Court of Appeals for the Federal Circuit reversed the U.S. District Court for the Western District of North Carolina’s denial of a motion for summary judgment on July 25, 2016, invalidating patent claims LendingTree had accused Zillow of infringing. The asserted claims were directed to methods and systems for matching borrowers’ credit applications with multiple lenders over the Internet, enabling borrowers to receive multiple credit approvals and select how to proceed from among lenders confirmed to be willing to lend to them. Zillow had moved for summary judgment on grounds that the claims were directed to subject matter ineligible for patenting under 35 U.S.C. § 101. The District Court delayed ruling on the motion until after trial, at which point it denied the motion from the bench.
On appeal, the Federal Circuit held that the claims were directed to “a loan-application clearinghouse or, more simply, coordinating loans” utilizing a broker (i.e., the computer program on the loan-processing computer) to organize the process. The Court characterized both loan coordination and the use of a broker in the lending process as abstract ideas because they are fundamental economic practices that are building blocks of the modern economy. The Court noted that similar claims had previously been previously held to be directed to abstract ideas, including the anonymous loan shopping claims invalidated in Mortgage Grader, Inc. v. First Choice Loan Services, 811 F.3d 1314 (Fed. Cir. 2016).
Turning to the second prong of the Mayo/Alice inquiry for subject-matter eligibility, the Court concluded that automating the process of coordinating loans using generic computer functions did not amount to an inventive concept to save the claims. The Court stated that, unlike claims found to be patent-eligible in Diamond v. Diehr, 450 U.S. 175 (1981), LendingTree’s asserted claims do not solve a technological problem. “Rather, they merely provide a generic, technological environment (i.e., computers and the Internet) in which to carry out the abstract idea of coordinating loans.” The Court went on to state that the claimed subject matter did not improve the underlying computer technology. Accordingly, the Court concluded that the claims are directed to an abstract idea, and invalidated them.
This decision continues that Court’s path of invalidating claims that automate a preexisting business practice on a computer or via the Internet. Sometimes, hardware implementation results in the performance of an action that would not be performed during a human-performed version of the practice, such as the simultaneous display of multiple positive credit decisions required by the claims in this case. However, the Federal Circuit has consistently held that changes resulting from the straightforward implementation of a public domain business practice on generic computer and network hardware cannot grant patent-eligibility to a claim. See, e.g., Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (2014) (“Adding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet does not transform an otherwise abstract idea into patent-eligible subject matter.”). Raising the bar to patent-eligibility in this way, rather than concluding that such improvements are obvious in view of the ongoing trend of automation via computers and the Internet, may have the unintended consequence of excluding innovations that merit incentivization through the award of patent rights.
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