Ultramercial, LLC v. Hulu, LLC

Citing to the Supreme Court of the United States decision of last spring in Alice Corp. v. CLS Bank, the U.S. Court of Appeals for the Federal Circuit has reversed itself and concluded that a claimed method for distributing online media to consumers by having the consumer first watch a paid advertisement is an abstract idea and not patent-eligible subject matter under 35 U.S.C. § 101.  Ultramercial, LLC v. Hulu, LLC, Case No. 10-1544 (Fed. Cir., June 21, 2013) (Lourie, J.) (Mayer, J., concurring).  This is the third time this case has been before the Federal Circuit.

Ultramercial obtained a patent claiming a method of distributing copyrighted products over the internet.  The patented method permits a consumer to receive a copyrighted product for free in exchange for viewing an advertisement, where the advertiser pays for the copyrighted content.  After Ultramercial sued Hulu, YouTube and WildTangent for infringement of its patent, the district court, citing Bilski  granted WildTangent’s motion to dismiss on the basis that the patent did not claim patent-eligible subject matter but only an abstract idea.

Ultramercial appealed, and the Federal Circuit reversed the district court, finding the claims were patent eligible.  (Ultramercial I).  In response, WildTangent filed a petition for a writ of certiorari to the Supreme Court.  Soon after the Supreme Court issued its decision in Mayo Collaborative Services v. Prometheus Laboratories, it vacated the Federal Circuit’s decision inUltramercial I, and remanded the case to the Federal Circuit for further consideration in light of its Mayo Collaborative decision.  On remand, the Federal Circuit again found that the patent claimed patent-eligible subject matter.  (Ultramercial II).  In doing so, the Federal Circuit explained that the asserted claims put meaningful limitations on the abstract idea of using advertising as a form of currency, specifically that the steps of the method require intricate and complex computer programming, and several steps require that the method be performed through computers, on the internet and in a cyber-market environment.  The Court found that this application of the abstract idea overcomes the technical problem that viewers of copyrighted material could ignore banner ads or skip over advertising before accessing the copyrighted material.

In response, WildTangent filed another petition to the Supreme Court.  Soon after the Supreme Court issued its decision in Alice Corp. v. CLS Bank International, it vacated the Federal Circuit in Ultramercial II and again remanded the case to the Federal Circuit for further consideration, this time in light of its decision in Alice Corp.

In Alice Corp. the Supreme Court explained that while computer-implemented inventions, such as computer software, may be eligible subject matter for patent protection, the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.  To be patent eligible, the claims must recite additional features or steps that are more than “well-understood, routine, conventional activities” to avoid the danger that a claim to a computer-implemented invention will effectively monopolize an abstract idea.  The Supreme Court explained that the framework, provided in Mayo, for distinguishing patents that claim laws of nature, natural phenomena and abstract ideas from those that claim patent-eligible applications of those concepts applies as well to situations such as that presented in Alice Corp.  First, a court must determine whether the claims at issue are directed to one of those patent-ineligible concepts, and if so, the court next considers the elements of each claim, individually and as an ordered combination, to determine whether it recites additional elements that transform the nature of the claim into a patent-eligible application.

In Ultramercial III, the Federal Circuit reversed itself and found that under the Alice Corp., the challenged claims were not directed to patent-eligible subject matter because they did not add anything inventive to the claimed abstract idea of using advertisement as an exchange or currency.

First, the Federal Circuit explained that the claims were directed to the abstract idea of using advertisement as an exchange or currency.  In doing so the Court considered the claims and concluded they did not recite any concrete or tangible form or application to avoid the “abstract idea” characterization.  The Court explained that although certain limitations, such as consulting an activity log, added a degree of particularity, the concept embodied by the majority of the limitations describes only the abstract idea of showing an advertisement before delivering free copyrighted content.  Notably, the Federal Circuit explicitly stated that it was not holding that all claims in software-based patents will necessarily be directed to an abstract idea, but that, in this case, they were.

Turning to the second step of the test, the Federal Circuit found that the claims did not contain an inventive concept that transformed the claimed abstract idea into patent-eligible subject matter.  Rather, the claims merely instructed the practitioner to implement the abstract idea using routine, conventional activity.  The Court noted that the majority of the claimed steps were directed to the abstract idea itself, and that the few additional steps were routine, such as updating an activity log or requiring a request from the consumer to view an advertisement.  The Court described the activity log step as an insignificant data-gathering step, thus adding nothing of practical significance to the underlying abstract idea.

Contrary to its Ultramercial II opinion, the Federal Circuit here found that the claims’ invocation of the internet did not add an inventive concept.  Rather, the Court explained that reciting the internet as the opening environment, to arguably limit the use of the abstract idea to a particular technological environment, was insufficient to save the claims.

Concurrence

Judge Mayer, who replaced Chief Judge Rader on the panel after Judge Rader left the bench in June 2014, issued a concurrence where he agreed with the judgment of the panel but wrote separately to emphasize three points.

First, Judge Mayer wrote that whether a claim meets the requirements of § 101 is a threshold question, one that must be addressed at the outset of litigation.  He reasoned that deciding patent eligibility at the beginning of the case is the most efficient for the parties and the courts.  This concurrence stands in apparent opposition to the panel decision in Ultramercial II, where the panel noted that finding a patent invalid under § 101 based on a Fed. R. Civ. P. 12(b)(6) motion to dismiss should be the exception, not the norm, reasoning that even though compliance with § 101 is a question of law, it is one that will often be intertwined with questions of fact.

Second (and also in apparent opposition to Ultramercial II), Judge Mayer wrote that there should be no presumption of eligibility with respect to the § 101 inquiry.

Third, Judge Mayer wrote that Alice Corp., for all intents and purposes, set out a technological arts test for patent eligibility.  Judge Mayer suggested a rule that claims are impermissibly abstract if they are directed to an entrepreneurial objective, such as methods for increasing revenue, minimizing economic risk or structuring commercial transactions, rather than a technological one.