By Michael Borella --
Douglas M. Shortridge, the named inventor of U.S. Patent No. 8,744,933, sued Foundation Construction Payroll Service, LLC ("Foundation") for infringement thereof in the U.S. District Court for the Northern District of California. Foundation filed a Rule 12(c) motion to dismiss on the pleadings, alleging that the claims of the '933 patent are directed to ineligible subject matter under 35 U.S.C. § 101. The District Court agreed with Foundation, and invalidated the claims. Shortridge appealed to the Federal Circuit.
As a representative example, claim 1 of the '933 patent recites:
1. A method of public works construction payroll processing for a contractor comprising:
processing payroll related data with a computer implemented core payroll calculation and processing engine, the processing including:
sharing between conjoined computer processor components, input data stored in a relational database, said input data required for core payroll processing and calculation, said input data also required for production of at least one certifiable public works construction payroll record report (CPR), the CPR defined in accordance with jurisdiction-specific rules drawn from a plurality of stored rules;
distinguishing between public works projects and private sector projects based on the input data and identifying the project as a public works project based on the input data;
verifying input data is compliant with requirements of the core payroll processing and calculation engine and the requirements of the CPR;
processing the verified input data to produce calculated core payroll data, the calculated core payroll data used for core payroll processing, production of core payroll processing reports, and production of the CPR;
sharing, between conjoined computer processor components, the calculated core payroll data;
sharing, between the conjoined computer processor components, non-calculated payroll related data as required for production of the CPR;
storing the non-calculated payroll related data and the calculated core payroll data redundantly or individually;
producing the CPR based on the calculated core payroll data and the non-calculated payroll related data only if the input data identifies the project as a public works project, the CPR produced in conjunction with and simultaneously with core payroll processing; and
producing public works contractor management supporting reports using the input data only if the input data identifies the project as a public works project, the public works contractor management supporting reports indicating whether the contractor is in compliance with the jurisdiction-specific rules of a jurisdiction to which the public works construction contractor is subject.
As explained by the Court, "many jurisdictions mandate that public works construction contractors pay their workers certain minimum wages, but that the exact amount that must be paid varies depending on work location and the specific type of work performed." Thus, "[c]ontractors must verify to the governing jurisdiction(s) that they have paid these wages using 'certified payroll records' ('CPRs') [that] are intended to serve as prima facie evidence of the wages paid and any fringe benefit contributions made, to or on behalf of each worker on the project, broken down by craft, type, or classification of work, per hour, and per day, along with various information items related to the project, the awarding body, and the employees working thereupon." Particularly, "[t]he content, format, and configuration requirements of CPRs may vary by jurisdiction, which can complicate CPR generation for contractors whose employees work across public works projects in different jurisdictions, or between public works and private projects, in a given pay period." The '933 patent claims a way of solving this problem so that CPRs can be generated for a jurisdiction simultaneously with core payroll processing.
Under § 101, patent claims can be invalidated if they fail to meet the eligibility requirements set forth by the Supreme Court's two prong test in Alice Corp. v. CLS Bank Int'l. First, one must determine whether the claim at hand is directed to a judicially-excluded law of nature, a natural phenomenon, or an abstract idea. If so, then one must further determine whether any element, or combination of elements, in the claim is sufficient to ensure that the claim amounts to significantly more than the judicial exception. Notably, generic computer implementation of an otherwise abstract process does not qualify as "significantly more."
In its substantive analysis, the Court rapidly dismissed with prong one, because Shortridge conceded that his claims were directed to an abstract idea. According to the District Court, this abstract idea was one of "cataloging labor data." Thus, the Court quickly moved on to prong two.
Shortridge also conceded that "generation of CPRs using core processing data is a business method predating the '933 patent." Moreover, the specification of the '933 patent stated that, in the past, it was known to manually track and report CPRs. Citing to Ultramercial, Inc. v. Hulu, LLC for support, the Court concluded that such "use of a general purpose computer to perform this business method does not in and of itself render [the invention] patent-eligible."
Shortridge's main argument in favor of patent-eligibility was that the CPRs were generated "in conjunction with and simultaneous with core payroll processing." This feature, however, was described in the specification as merely adding relational databases to the CPR generation, and thus was conventional and known to the industry. Shortridge further argued that this process was difficult for a human to perform manually. But the Court simply referred to a statement in OIP Techs., Inc. v. Amazon.com, Inc. that "relying on a computer to perform routine tasks more quickly or more accurately is insufficient to render a claim patent eligible."
Finally, Shortridge asserted that his claims were analogous to the eligible claims of DDR Holdings, LLC v. Hotels.com, L.P. The Court also dismissed this position, noting that the claims in the latter case were "necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks," whereas Shortridge's claims were directed to using technology for performance of an abstract business practice.
As a result, the Federal Circuit agreed with the conclusion of the District Court, and the claims of the '933 patent remained ineligible.
On its face, the '933 patent appears to disclose a useful, time-saving invention -- a computer program that can perform calculations that would otherwise take tens or hundreds of hours manually. However, the Supreme Court and Federal Circuit have taken the position that this type of invention is not worthy of a patent. Under current jurisprudence, a technical solution to a "non-technical" problem does not pass muster under § 101, while a similar technical solution to a problem occurring in a "technical" field would. The line between what is technical and non-technical however, is quite thin, especially when considering the ineligible claims of Ultramercial. Also, the Court may have effectively used § 101 as a proxy for obviousness, and invalidated the claims because programming a well-known solution on a computer is not worthy of a patent.
But with respect to § 101, Shortridge may have been at the wrong place at the wrong time, with the wrong type of patent. Prior to Alice, the claims of the '933 patent would likely have survived a § 101 challenge. Perhaps in the future, once the dust has further settled, similar types of inventions will once again be eligible, and obviousness will be determined separately.
Shortridge v. Foundation Construction Payroll Service, LLC (Fed. Cir. 2016)
Panel: Circuit Judges O'Malley, Linn, and Stoll
Per curiam opinion