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IP Alert: Ultramercial—Strike Three, or Third Time’s a Charm?

November 18, 2014

Regardless of how you feel about the old rubric “The third time’s a charm,” the Court of Appeals for the Federal Circuit (CAFC) reached a different result in its third consideration of Ultramercial’s patent claims than was reached the first and second times. This time, in Ultramercial, Inc. v. Hulu, LLC, the court held Ultramercial’s claims invalid for lack of patent eligibility under 35 U.S.C. § 101. In announcing this different conclusion, the CAFC may also have provided some clarification of the Supreme Court’s recent pronouncements regarding patent eligibility.

Ultramercial’s U.S. patent number 7,346,545 claims a method for distributing copyrighted media products over the Internet. In particular, the consumer can view (or listen to) a copyrighted media product at no cost in exchange for viewing an advertisement. The advertiser, in turn, pays the cost of providing that copyrighted content to the consumer. The defendant WildTangent moved to dismiss Ultramercial’s complaint alleging infringement of those claims by arguing that Ultramercial’s patent did not claim patent-eligible subject matter. The district court granted the motion to dismiss, and the patentee appealed.

Although the CAFC had twice previously ruled in favor of the patentee, this third time around the CAFC assessed those claims in light of the Supreme Court’s recent decision in Alice Corp. Pty. Ltd. v. CLS Bank International. In light of the Supreme Court’s Alice guidelines, the Federal Circuit held in favor of the defendant, and upheld the dismissal of the complaint.

The court began its analysis “by identifying whether an invention fits within one of the four statutorily provided categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter,” while noting as well that 35 U.S.C. § 101 implicitly excepts laws of nature, natural phenomenon, and abstract ideas. If the claims are not directed to one of those patent-ineligible concepts, “the claims pass muster under § 101.” If the claims are directed to one of those patent-ineligible concepts, then one must determine whether the claims contain something that is sufficient to ensure that the patent in practice is significantly more than a patent on the ineligible concept itself.

Ultramercial argued that its claims, while perhaps abstract, were nevertheless different from the abstract ideas at issue in the Alice decision. Where the abstract idea in Alice was viewed as being routine and conventional, Ultramercial argued that the abstract idea within its claims was something new and therefore was the antithesis of routine or conventional. The CAFC found this position unconvincing, considering it far more important that Ultramercial’s abstract idea, whether it be routine or novel in and of itself, was expressed without any “particular concrete or tangible form.” Accordingly, the court disagreed “with Ultramercial that the addition of merely novel or non-routine components to the claimed idea necessarily turns an abstraction into something concrete.”

The court therefore concluded that Ultramercial’s claims were indeed directed to an abstract idea. Turning to the “additional features” analysis, the court observed that the claims require more than “well-understood, routine, conventional activity.” Notwithstanding Ultramercial’s representations to the contrary, the court concluded that the “additional features” of these claims were, at least for the most part, mere “routine additional steps” representing conventional steps that were specified only at a high level of generality. As the court noted, “the [Supreme Court] in Alice made clear that a claim that is directed to an abstract idea does not move into § 101 eligibility territory by ‘merely require[ing] generic computer implementation.’” The Ultramercial court took this statement in Alice analysis a step further by holding that it is also not enough to simply apply an abstract idea “on the Internet.” The court held that “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.”

The court did not view its decision as a mandate to invalidate all software-based patents, instead stating that “we do 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.” In this case, however, the court characterized Ultramercial’s steps as being, for the most part, “insignificant ‘data-gathering steps’” or “insignificant ‘[pre-]solution activity,’” and concluded that the claims were abstract.

Judge Mayer entered a concurring opinion to “emphasize three points”:

First, 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. Second, no presumption of eligibility attends the section 101 inquiry. Third, Alice Corporation v. CLS Bank International, for all intents and purposes, set out a technological arts test for patent eligibility (citation omitted).

This opinion was not echoed by the other judges on the panel and does not represent the holding of the court.

If Judge Mayer is correct in comparing the current test for patent eligibility to a technological arts test, that does not necessarily bring further clarity to the subject matter eligibility standard. The European patent office has long required a "technical contribution" or a "technical effect," and there are many seasoned practitioners who claim that this requirement is more puzzling than persuasive. In a recent Court of Appeals of England and Wales decision by Lord Justice Lewison concerning a patent infringement suit between HTC and Apple, the Lord Justice described his disappointment in the lack of clarity in the law in these regards as follows:

It is, to me at least, regrettable that because these apparently simple words have no clear meaning both our courts and the Technical Boards of Appeal at the EPO have stopped even trying to understand them. However we are so far down that road that "returning were as tedious as go o'er". Instead we are now engaged on a search for a "technical contribution" or a "technical effect". Instead of arguing about what the legislation means, we argue about what the gloss means. We do not even know whether these substitute phrases mean the same thing. . . . 

So the upshot is that we now ignore the words "computer program … as such" and instead concentrate on whether there is a technical contribution. It is, if I may say so, a singularly unhelpful test because the interaction between hardware and software in a computer is inherently "technical" in the ordinary sense of the word. If I buy a software package that malfunctions the software house will often offer me "technical support". But that is clearly not enough for the software to qualify as making a "technical contribution".

Perhaps anticipating such a conundrum, Judge Mayer further opined that Ultramercial’s claims fail because they are “entrepreneurial” rather than “technological.” “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.”

To satisfy the technological arts test, claims must harness natural laws and scientific principles—those “truth[s] about the natural world that ha[ve] always existed,” Alice, 134 S. Ct. at 2356 (citations and internal quotation marks omitted)—and use them to solve seemingly intractable problems. They must, moreover, not only describe a technological objective, but set out a precise set of instructions for achieving it. An idea is impermissibly “abstract” if it is inchoate—unbounded and still at a nascent stage of development. It can escape the realm of the abstract only through concrete application.

The subject matter eligibility standards continue to evolve, and time will tell whether further Federal Circuit panels will move toward Judge Mayer’s reasoning.

For more information, please contact Fitch Even partner Steven G. Parmelee, the author of this alert.


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