filmUltramercial faced off again with WildTangent at the Court of Appeals for the Federal Circuit (“CAFC”) when their case was remanded to the CAFC for the second time from the US Supreme Court.  Ultramercial, Inc. and Ultramercial, LLC v. Hulu, LLC and WildTangent, Inc., 2010-1544,  CAFC ( November 14, 2014)

Ultramercial brought a patent infringement case against Hulu, LLC in the US District Court for the Central District of California See Ultramercial, LLC v. Hulu, LLC, and WildTangent, No. 09-06918, 2010 WL 3360098 (C.D. Cal. Aug. 13, 2010).   The District Court held that US Patent 7,346,545 (“the ‘545 patent”) did not contain patent-eligible subject matter under 35 USC § 101.  WildTangent appealed the District court’s opinion to the CAFC and the CAFC reversed the District Court’s decision.   Wildtangent then filed for a petition for writ of certiorari to the US Supreme court and the petition was granted. The Supreme court remanded the case to the CAFC in light of the US Supreme Court case of Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. __, 132 S. Ct. 1289 (2012).

On remand, the CAFC again reversed, concluding that the district court erred in granting WildTangent’s motion to dismiss for failing to claim statutory subject matter.

WildTangent filed a petition for certiorari from the CAFC 2013 decision, again requesting review by the

Supreme Court.  While WildTangent’s petition was pending, the Supreme Court issued its decision in Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014).  In that case, the Court affirmed the CAFC judgment that method  and system claims directed to a computer-implemented scheme for mitigating settlement risk by using a third party intermediary were not patent-eligible under § 101 because the claims “add nothing of substance to the underlying abstract idea.” See Alice, 134 S. Ct. at 2359–60. The Court in Alice made clear that a claim that is directed to an abstract idea does not move into § 101 eligibility territory by “merely requir[ing] generic computer implementation.” Id. at 2357.

Subsequently, the Court granted WildTangent’s petition for a writ of certiorari, vacated the CAFC decision, and remanded the case for further consideration in light of Alice.  See WildTangent, 134 S. Ct. 2870. We invited and received briefing by the parties. We also received four amicus briefs, all in support of the appellee, WildTangent.

The representative claim at issue was:

A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

  1. 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;
  2. 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;
  3. a third step of providing the media product for sale at an Internet website;
  4. a fourth step of restricting general public access to said media product;
  5. 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;
  6. 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;
  7. a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;
  8. 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;
  9. 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;
  10. 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
  11. an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

The CAFC noted that Section 101 “contains an important exception” [to patentable processes, machines, manufactures and compositions of matter].  That is, Laws of nature, natural phenomena, and abstract ideas are not patentable. Alice, 134 S. Ct. at 2354 (quoting Ass’n for Molecular Pathology v. Myriad Genetics, Inc. 569 U.S. __, 133 S. Ct. 2107, 2116 (2013)).  In Alice, the Supreme Court identified a “framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.” Id. at 2355 (citing Mayo, 132 S. Ct. at 1296–97). “First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts.” Id. If not, the claims pass muster under § 101. Then, in the second step, if we determine that the claims at issue are directed to one of those patent-ineligible concepts, we must determine whether the claims contain “an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.’” Id. (quoting Mayo, 132 S. Ct. at 1294) (alteration in original).

The CAFC agreed with WildTangent that the ’545 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 also argued that because the claims do no more than break the abstract idea into basic steps and add token extra-solution activity, the claims add no meaningful limitations to convert the abstract idea into patent-eligible subject matter.  The CAFC also agreed with the district court that the abstract idea at the heart of the ‘545 patent was “that one can use [an] advertisement as an exchange or currency.”  Ultramercial, 2010 WL 3360098, at *6.

The CAFC explained the ordered combination of steps recites an abstraction—an idea, having no particular concrete or tangible form. The 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. Although 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.

The CAFC also noted that it “does not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea.  Future cases may turn out differently.”  Ultramercial at page 10.

Applying the second step of the analysis, the CAFC considered whether the claims do significantly more than simply describe the abstract method.  Citing Mayo, 132 S. Ct. at 1297.  The CAFC concluded that the limitations of the ‘545 claims do not transform the abstract idea that they recite into patent-eligible subject matter because the claims simply instruct the practitioner to implement the abstract idea with routine, conventional activity.  The use of the Internet was found insufficient to save otherwise abstract claims from ineligibility under § 101. Citing CyberSource, 654 F.3d at 1370.

The CAFC also applied the Bilski machine or transformation test, wherein a claimed process can be patent-eligible under § 101 if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” In re Bilski, 545 F.3d 943, 954 (Fed. Cir. 2008) (en banc), aff’d on other grounds, Bilski, 561 U.S. 593. The CAFC found that the claims of the ’545 patent are not tied to any particular novel machine or apparatus, only a general purpose computer.

The CAFC concluded that the ‘545 patent claims are directed to no more than a patent-ineligible abstract idea and therefore the district court did not err in dismissing the case.

Circuit Judge Mayer concurred in the majority opinion, but added that his rationale would be that because the inventive concept in Ultramercial’s asserted claims is an entrepreneurial rather than a technological one, they fall outside of the section 101.  Ultramercial, concurrence at page 1.

Judge Mayer also recommended addressing the section 101 patent eligible subject matter issue first, as a threshold issue to: 1. Conserve judicial resources; 2. Provide a “bulwark against vexatious infringement suits; and 3. Protect the public by “clearing the patent thicket, weeding out those patents that stifle innovation and transgress the public domain.”  Ultramercial, concurrence at page 5.

Judge Mayer also recommended a rule holding 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, would comport with the guidance provided in both Alice and Bilski.

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