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IP Alert UPDATE: Supreme Court Orders Federal Circuit to Revisit Ultramercial Decision Following Alice Ruling

July 1, 2014

UPDATE: Yesterday, the U.S. Supreme Court ordered the U.S. Court of Appeals for the Federal Circuit to once again review the subject matter eligibility of an Ultramercial Inc. online advertising patent, in light of the Court’s June 19 ruling in Alice Corp. v. CLS Bank. The Court granted a petition for certiorari by WildTangent Inc., vacated the Federal Circuit’s 2013 decision in WildTangent Inc. v. Ultramercial Inc., and remanded the case to the Federal Circuit. Fitch Even attorneys will report when the Federal Circuit has issued its decision.

The original alert on this case follows:

Today, in Ultramercial, Inc. v. Hulu, LLC, the U.S. Court of Appeals for the Federal Circuit again considered a patent challenge premised on the "abstract idea" exception to patent eligibility. Applying this standard, the court rejected the district court's dismissal of the complaint at the pleadings stage, and remanded the case to the district court.

Ultramercial sued a number of defendants for infringement of a patent directed toward "[a] method for distribution of products over the Internet via a facilitator." Before the defendants answered, one of the defendants filed a motion to dismiss, arguing lack of patent eligibility of the claimed subject matter. The district court granted the motion to dismiss, and Ultramercial appealed. In 2011, the Federal Circuit reversed and remanded. Subsequently, however, the U.S. Supreme Court, after deciding Mayo Collaborative Services v. Prometheus Laboratories, Inc., vacated the 2011 decision and remanded for reconsideration.

On reconsideration, the Federal Circuit again held that the claims were patent eligible under 35 U.S.C. § 101. The court was skeptical of the dismissal of the complaint at the pleading stage. The court first noted that the dismissal was not consistent with the presumption of patent validity and the procedural standards for motions to dismiss. Second, the court observed that "the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues." Third, the court held that "claim construction normally will be required" for a section 101 analysis, and that, in any case, claim construction likely would clarify the issues in such analysis.

The court then discussed the "abstract idea" exception to section 101, an exception that the court indicated was narrow. First, the court addressed the burden of proof in analyzing a patent claim under this exception. Again noting the presumption of validity, the court held that "the high level of proof applies to eligibility as it does to the separate patentability determinations. Accordingly, any attack on an issued patent based on a challenge to the eligibility of the subject matter must be proven by clear and convincing evidence."

The court then framed the "abstract idea" inquiry as "on which side of the line the claim falls: does the claim cover only an abstract idea, or instead does the claim cover an application of an abstract idea?" In resolving this question, held the court, the focus must be on the claim as a whole: "A court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims. Instead,  the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea."

The court then discussed several factors that guide the "abstract idea" analysis. These include whether the claim "merely describes an abstract idea or simply adds 'apply it,'" whether the claim "contains only insignificant or token pre- or post-solution activity," and whether "its purported limitations provide no real direction, cover all possible ways to achieve the provided result, or are overly-generalized." With regard to computer-implemented inventions, the court observed that "while the mere reference to a general purpose computer will not save a method claim from being deemed too abstract to be patent eligible, the fact that a claim is limited by a tie to a computer is an important indication of patent eligibility." The court then held that when a claim is "tied to a computer in a specific way, such that the computer plays a meaningful role in the performance of the claimed invention," then the claim "is as a matter of fact not likely to pre-empt virtually all uses of an underlying abstract idea, leaving the invention patent eligible."

Turning to the claims at issue, the court held that they were not directed toward an abstract idea. Disagreeing with the analysis of the district court, the court stated "[i]t was error for the district court to strip away these limitations and instead imagine some 'core' of the invention." The court further noted that several elements of the claim were tied to a computer, and required computer programming for implementation. Given these factors, the court reversed the section 101 determination. The court expressly declined to opine on patentability of the claims under 35 U.S.C. 102, 103, or 112.

The Ultramercial case is the first Federal Circuit decision following the fractured CLS Bank decision. The case provides interesting guidance on the eligibility of patent claims under section 101.

If you have any questions regarding this decision, please contact Fitch Even partners Steven G. Parmelee or Allen E. Hoover, author of this alert.

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