By Michael Borella —

Ultramercial sued Hulu, YouTube, and WildTangent for infringement of U.S. Patent No. 7,346,545.  Hulu and YouTube were eventually dismissed from the case.  On a 12(b)(6) motion, and without construing the claims, the District Court held that the '545 patent does not claim patent-eligible subject matter under 35 U.S.C. § 101.  On appeal, the Federal Circuit reversed and remanded.  However, that decision was vacated by the Supreme Court.  Back in the Federal Circuit again, a unanimous panel of Chief Judge Rader, Judge O'Malley, and Judge Lourie once again reversed the District Court, finding that the claims did indeed address patent-eligible subject matter.

WildTangent petitioned for Supreme Court review.  On June 30th of this year, the Court granted the petition, vacated the Federal Circuit's judgment, and remanded the case back to the Federal Circuit for further consideration in view of the Alice Corp. v. CLS Bank decision.  Since Chief Judge Rader had stepped down in the interim, Judge Mayer was appointed to take his place.

Since the remand, this opinion has been widely anticipated by patentees and patent practitioners.  Many were hoping that the Federal Circuit would provide some clarity to the two-part patent-eligibility test handed down in Alice.  Arguably, some extent of clarity has been provided, even as the Court has closed the door even further on the patentability of computer-implemented inventions.

Claim 1 of the '545 patent recites:

A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:
    a first step of receiving, from a content provider, media products that are covered by intellectual property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;
    a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;
    a third step of providing the media product for sale at an Internet website;
    a fourth step of restricting general public access to said media product;
    a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;
    a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;
    a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;
    an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;
    a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;
    a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and
    an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

In simpler terms, the Court characterized the invention as "a method for distributing copyrighted media products over the Internet where the consumer receives a copyrighted media product at no cost in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content."

Beginning its substantive analysis, the Court recited the two-prong subject-matter eligibility test from Alice.  The first prong is to determine whether the claims are directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea.  If so, the second prong is to determine whether any additional claim elements transform the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself.

Ultramercial, of course, argued that its claims were not directed to a patent-ineligible exception to § 101.  Unlike the claims in Alice that were ultimately found to be abstract because they attempted to capture a "routine," "long prevalent," and "conventional" idea, Ultramercial posited that the claims at issue are "directed to a specific method of advertising and content distribution that was previously unknown and never employed on the Internet before."  Further, Ultramercial contended that even if its claims do encompass an abstract idea, "the claims require users to select advertisements, which was a change from existing methods of passive advertising and involves more than merely implementing an abstract idea."

WildTangent's position was that the claims are "directed to the abstract idea of offering free media in exchange for watching advertisements and that the mere implementation of that idea on a computer does not change that fact."  WildTangent further contended that "the claims do no more than break the abstract idea into basic steps and add token extra-solution activity, [and thus] add no meaningful limitations to convert the abstract idea into patent-eligible subject matter."

The Court agreed with WildTangent.  In particular, the Court found that claim 1 recited an "ordered combination of steps recit[ing] an abstraction — an idea, having no particular concrete or tangible form."  The Court wrote, moreover, that "[t]he process of receiving copyrighted media, selecting an ad, offering the media in exchange for watching the selected ad, displaying the ad, allowing the consumer access to the media, and receiving payment from the sponsor of the ad all describe an abstract idea, devoid of a concrete or tangible application."  While the Court did find that "certain additional limitations, such as consulting an activity log, add a degree of particularity," these limitations were apparently insufficient to render the claim as a whole anything more than abstract.

Further, the Court noted that even though some steps of the claim "were not previously employed in this art [that] is not enough — standing alone — to confer patent eligibility upon the claims at issue."  As a result, patentees and applicants now find themselves in an odd position — their claims can be deemed abstract if the claims incorporate fundamental, long-standing procedures.  But they may not be able to rebut this notion by attempting to establish that some of these procedures (or the claim as a whole) were novel at the time of the invention.

Turning to the second prong of the test, the Court concluded that "[a]dding 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."  Instead the Court found that the claim included only "conventional steps, specified at a high level of generality."  Even though the claim required use of the Internet, which is arguably a concrete, tangible system, the Court reiterated its reasoning from CyberSource Corp. v. Retail Decisions, Inc., and stated that "use of the Internet is not sufficient to save otherwise abstract claims from ineligibility under § 101."

Finally, to drive a nail in the coffin of Ultramercial's claims, the Court held that they failed both prongs of the machine-or-transformation test.  The only machine recited in the claims was the Internet, which is a "ubiquitous information-transmitting medium, not a novel machine."  As for any sort of transformation elicited by the many steps of claim 1, the Court wrote that "manipulations of public or private legal obligations or relationships, business risks, or other such abstractions" are not transformations "because they are not physical objects or substances, and they are not representative of physical objects or substances."

Consequently, all of Ultramercial's claims were invalidated, on the 12(b)(6) motion, as failing to meet the requirements of 35 U.S.C. § 101.  The Court did not address the procedural requirements of granting such a motion, such as making all reasonable inferences in the light most favorable to non-movant.  However, it did throw a bone of sorts, writing that "we do not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea."

In 2014, with innovations in information technologies driving the world's economy, it is hard to understand why non-physicality has become such a barrier to invention.  And when patentees add physical limitations to their claims, these limitations are often ignored because they are alleged to be routine, conventional, or general-purpose.  It seems as if the courts believe that most or all computer-based inventions should involve design of a new physical device, or at least some improvement thereof.

But hidden behind this 19th-century thinking is an undercurrent — the abstract idea prong of Alice is becoming a sniff test for claim breadth.  The Court referred to Ultramercial's claimed invention as being high-level, general, and lacking tangibility.  While the Court may not be saying as much in this opinion, such reasoning allows one to read a claim and conclude, with little or no supporting evidence, that it is "too broad" to be patentable.

As many commentators have articulated since 2012's Mayo Collaborative Servs. v. Prometheus Labs., Inc. case, determining whether the breadth of a claim is appropriate is better served by conducting the well understood and more objective analyses of §§ 102, 103, and 112.  Despite the lack of any suggestion from Congress that  § 101 is to be used for these purposes, the Supreme Court, now followed by the Federal Circuit, have made patentable subject matter a perverse weapon for the unsupported rejection and invalidation of claims.

Which bring us to Judge Mayer's concurrence.

Judge Mayer wrote separately to make three distinct points: (1) "whether claims meet the demands of 35 U.S.C. § 101 is a threshold question, one that must be addressed at the outset of litigation," (2) that "no presumption of eligibility attends the section 101 inquiry," and (3) that Alice "set out a technological arts test for patent eligibility."

We addressed the third point in a discussion of Judge Mayer's dissent in the I/P Engine, Inc. v. AOL Inc. case.  Herein, we will focus on the first and second points.

Judge Mayer believes that "the section 101 determination bears some of the hallmarks of a jurisdictional inquiry" and therefore it should be addressed early in litigation.  Despite citing a number of Supreme Court and Federal Circuit cases for support of this notion, none of those cases actually go as far as stating that § 101 determinations must be made early in litigation (e.g., at the pleading stage or prior to discovery).  While many of these cases suggest the § 101 inquiry should take place before §§ 102 and 103 examination, they do not imply that the patentable subject matter determination is to be made so far ahead of these other determinations.

Judge Mayer argued that allowing early § 101 challenges will "conserve scarce judicial resources" and provide "a bulwark against vexatious infringement suits."  Yet, he does not address how, under Alice, it could be used by infringers to rapidly dismiss valid lawsuits by making nebulous "the claims are too broad" arguments.  Judge Mayer's own reasoning suggests how § 101 can be misused in this fashion, when he wrote that "[s]ubject matter eligibility challenges provide the most efficient and effective tool for clearing the patent thicket."

Turning to his second point, Judge Mayer stated that "[t]he rationale for the presumption of validity is that [the PTO] in its expertise, has approved the claim, [but this] rationale, however, is much diminished in situations in which the PTO has not properly considered an issue."  He continued, arguing that because "the PTO has for many years applied an insufficiently rigorous subject matter eligibility standard, no presumption of eligibility should attach when assessing whether claims meet the demands of section 101."  (Emphasis added.)

But Congress has spoken on this issue.  35 U.S.C. § 282 plainly states that "[a] patent shall be presumed valid."  Even though the validity of a patent is more open for assault when an attacker can, for instance, cite relevant prior art that the PTO did not consider, the Supreme Court has never stated that 35 U.S.C. § 282 should not apply to the § 101 inquiry.  And even if it did, such a ruling would be in clear violation of the statute.

So what is an applicant to do?  If the Alice test is to be decided on vague notions of whether a claim is "too abstract" or "too broad," what patenting strategy should be adopted?  In the past, software inventions were often claimed broadly at first go, with this breadth being defined by what the applicant reasonably believed to be the scope of the invention to which it was entitled.  If the claims had to be narrowed during prosecution, so be it.

Today, an alternative strategy may prove more viable — one in which the applicant divides its invention (if the invention can be so divided) into several narrower, clearly-defined embodiments to submit as separate patent applications.  These applications may then be filed in a parallel fashion (all at once) or serial fashion (a string of continuations).  While outcomes cannot be guaranteed, such an approach may sadly be necessary in light of this ruling and Alice.

Ultramercial Inc. v. Hulu LLC (Fed. Cir. 2014)
Panel: Circuit Judges Lourie, Mayer*, and O'Malley
Opinion by Circuit Judge Lourie, concurring opinion by Circuit Judge Mayer
• Circuit Judge Mayer was designated to replace Randall R. Rader, now retired, on
this panel.