Lacking A Certain Je Ne Sais Quoi – Federal Circuit Finally Holds Ultramercial’s Patent Does Not Cover Patent Eligible Material
On November 12, 2014, the United States Court of Appeals for the Federal Circuit held that Ultramercial, LLC’s patent covering an eleven step process of watching a commercial as a condition of accessing free media content is invalid as covering patent ineligible material. The patent at issue, U.S. Patent No. 7,346,545 (“the ’545 patent”), claimed a method for distributing copyrighted products (such as songs, movies, books) over the Internet where the consumer receives a copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content. The Federal Circuit had held the ’545 patent claimed patent eligible subject matter twice before and both times was reversed by the United States Supreme Court. This iteration saw the Federal Circuit uphold the grant of a motion to dismiss claims of infringement by the United States District Court for the Central District of California on the basis of patent-ineligibility.
The Federal Circuit in 2011 applied an expansive view of 35 U.S.C. § 101 and relied, in part, on the restrictions imposed by the complex computer programming required by the ’545 patent claims to hold that, “as a practical application of the general concept of advertising as currency and an improvement to prior art technology, the claimed invention is not so manifestly abstract as to override the statutory language of section 101.” Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323, 1330 (Fed. Cir. 2011) (“Ultramercial I”) (internal quotation and citation omitted). The Supreme Court vacated that judgment and remanded for further consideration given the decision Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012) (holding that, because the natural laws recited in the patent claims are not themselves patentable, the claimed processes are not patentable unless they have additional features).
In 2013, the Federal Circuit again held the patent claimed eligible subject matter, noting that “the claim appears far from over generalized, with eleven separate and specific steps with many limitations and sub-steps in each category.” Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 1352-53 (Fed. Cir. 2013) (“Ultramercial II”). The Federal Circuit placed heavy emphasis on the presumption of validity and that a motion to dismiss requires that invalidity be the only plausible reading of the patent. Id. at 1338-39. The Supreme Court vacated the judgment a second time, indicating the Federal Circuit should further consider the case in light of Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014) (holding method claims directed at a computer-implemented scheme for mitigating risk merely required generic computer implementation and failed to transform the abstract idea into a patent-eligible invention).
In this most recent iteration, the Federal Circuit applied the inquiry from Alice to determine the patentability of the subject matter claimed in the ’545 patent. Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544, 2014 U.S. App. LEXIS 21633 (Fed. Cir. Nov. 14, 2014) (“Ultramercial III”). As we have previously posted, Alice framed the § 101 inquiry as asking if (1) the claims were directed at a patent-ineligible concept and, if yes, (2) do the claims contain some element(s) that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself.” Alice, 134 S. Ct. at 2355 (internal citation omitted). The Federal Circuit noted that “[a]lthough certain additional limitations, such as consulting an activity log, add 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 content.” Id. at *11. Turning to the second part of the inquiry, the Federal Circuit determined that adding steps requiring use of the Internet and activity logs did not meet the test of implementing more than “well-understood, routine, conventional activity.” Id. at *12-16.
Practitioners should be aware that the contours of patent eligible subject matter remains an open question, despite the Supreme Court’s and Federal Circuit’s recent forays into the arena. Although the Federal Circuit dramatically reversed course on the conclusion about eligible patent matter from the earlier decisions in Ultramercial I and Ultramercial II, it did not explain how Alice had impacted the “abstract idea” definition to require this new result. Moreover, even as this case ping-ponged between the Federal Circuit and the Supreme Court, both courts have acknowledged the “difficulty of providing a precise formula or definition for the abstract concept of abstractness.” Ultramercial II, 722 F.3d at 1343 (citing Justice Stevens’s concurrence in Bilski). The Federal Circuit did, however, answer a burning question practitioners had been longing for an answer—whether transformation of data by a computer satisfies the machine-or-transformation test—with a resounding no. “Any transformation from the use of computers or the transfer of content between computers is merely what computers do and does not change the analysis.” Id. at *15-16.
Gibbons will continue to monitor decisions from the federal courts for further developments in § 101.