Federal Circuit Rules on Patentability of Business Method Patent

by Cadwalader, Wickersham & Taft LLP
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Summary

The question on appeal was whether the district court erred in dismissing Ultramercial's claims for lack of subject matter eligibility under § 101 due to abstractness. Chief Judge Rader filed the opinion for the court, and Circuit Judge Lourie filed a concurrent opinion. The claims are directed to a method for distributing copyrighted products-such as books, music, and movies-over the Internet to a consumer who receives the copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted product. Both judges agreed that the district court erred and the Federal Circuit once again reversed and remanded, finding that the business method claims at issue passed § 101 muster.

Background

The Supreme Court has held on multiple occasions that § 101 should be broadly construed. "Congress intended statutory subject matter to 'include anything under the sun that is made by man.'" Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980). The statute itself states that "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title" (emphasis added).  When the issue was reviewed in Bilski, the Supreme Court stated that "[i]n choosing such expansive terms modified by the comprehensive 'any,' Congress plainly contemplated that the patent laws would be given wide scope." Bilski v. Kappos, 130 S. Ct. 3218, 3225, 177 L. Ed. 2d 792 (2010). To balance this broad construction, the Supreme Court recognizes three exceptions to subject matter eligibility: "laws of nature, physical phenomena, and abstract ideas," describing them as "part of the storehouse of knowledge of all men. . . free to all men and reserved exclusively to none." Chakrabarty, 447 U.S. at 309 (quoting Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948)). In carving these narrow exceptions, the Supreme Court's motivation was its "desire to prevent the 'monopolization' of the 'basic tools of scientific and technological work,' which 'might tend to impede innovation more than it would tend to promote it.'" Opinion at 10 (quoting Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1293 (2012)).

The Claim at Issue

Claim 1 of the '545 patent is to a method for distributing copyrighted products, such as books, music, and movies, over the Internet to a consumer who receives the copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted product.

The U.S. District Court for the Central District of California granted WildTangent's pre-answer motion to dismiss which asserted that the '545 patent did not claim patent-eligible subject matter. The Federal Circuit first noted that the dismissal below was done pre-answer and without a formal claim construction. The Federal Circuit reminded us that issued patents carry a presumption of validity when § 101 is raised as a basis for invalidity, and that any such attack on an issued patent must be proven by clear and convincing evidence. Since a § 101 analysis is a legal determination "rife with underlying factual issues," a dismissal for lack of eligible subject matter "will be the exception, not the rule." Although claim construction is not required to determine subject matter eligibility, in situations where there are factual disputes, the resolution of which would touch upon subject matter eligibility, a claim construction should be required. Opinion at 7.

Holding of the Court

In its analysis, the Federal Circuit first noted that the claim at issue was a business method claim and the issue was whether it fell within the abstractness exception to processes. From Bilski, we know that the "machine-or-transformation" test is not the exclusive test for determining the subject matter eligibility of processes. Rather, when assessing the abstractness exception, a court must determine whether the claim is an application of an abstract idea as opposed to the abstract idea itself. Opinion at 14. In making this determination, the claim must be considered as a whole. "It is inappropriate to dissect the claims into old and new elements and then to ignore the presence of the old elements in the analysis." Opinion at 15 (quoting Diamond v. Diehr, 450 U.S. 175, 188 (1981)). "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." Opinion at 16. Meaningful limitations are those which "meaningfully tie" an idea "to an actual application of that idea." Opinion at 16.

Next, the Federal Circuit noted that the aforementioned analysis is not easy, and referred to guideposts provided by the Supreme Court. First, "a claim is not meaningfully limited if it merely describes an abstract idea or simply adds 'apply it.'" Opinion at 18 (citing Prometheus, 132 S. Ct. at 1294, 1297).  Further, a claim is not meaningfully limited if it reads on "all practical applications of an abstract idea." Opinion at 18. This is the concept of pre-emption, and it is what the patent law seeks to avoid. When the steps of a process claim "'must be taken in order to apply the [abstract idea] in question,' the claim is essentially no different from saying apply the abstract idea." Opinion at 19 (quoting Prometheus, 132 S. Ct. at 1299-1300). Second, according to Ultramercial, even if pre-emption is not found, "insignificant or token pre- or post-solution activity," such as identifying a relevant audience, a category or field of use, or technological environment, will not render a claim limitation meaningful. Opinion at 20. Lastly, if a claim's "purported limitations provide no real direction, cover all possible ways to achieve the provided result, or are overly-generalized," then it is likely not meaningfully limited. Opinion at 20.

The Ultramercial panel acknowledged that the U.S. Supreme Court has given examples of the types of limitations that should be deemed meaningful, for example, requiring a particular machine implementing a process or a particular transformation of matter, also known as the "machine-or-transformation" test. See Bilski, 130 S. Ct. at 3227. Another example directs the claim to "recite[] added limitations which are essential to the invention" such that the abstract idea is not wholly pre-empted. Opinion at 21. If the limitations are "those that anyone wanting to use the natural law would necessarily use," then the claim will not satisfy § 101:

If, to implement the abstract concept, one must perform the additional step, or the step is a routine and conventional aspect of the abstract idea, then the step merely separately restates an element of the abstract idea, and thus does not further limit the abstract concept to a practical application.

Opinion at 23 (citing Prometheus, 132 S. Ct. at 1298) (emphasis in original).

In computer-implemented claims, although a general purpose computer tied to the claim is an important indication of patent eligibility, it may not be sufficient to render an abstract method claim patent eligible. The Federal Circuit noted that tying an abstract idea to a specific way of doing something with a computer, or using a specific computer, would likely render a claim patent eligible. As Chief Judge Rader explained, this is because the specific way or specific computer limitation will "not likely pre-empt all uses of an underlying abstract idea." Opinion at 24.

In applying this law, the court focused on Claim 1 which recites a method for monetizing and distributing copyrighted products over the Internet. The issue was "whether the claim is meaningfully limited to something less than an abstract idea that pre-empts use of an abstract concept." Opinion at 26. In assessing the abstract idea exception to non-eligible subject matter under § 101, the relevant inquiry required two steps:

1) whether the claim involves an intangible abstract idea; and if so,

2) whether meaningful limitations in the claim make it clear that the claim is not to the abstract idea itself, but to a non-routine and specific application of that idea.

Opinion at 26. 

The Court found it clear that Claim 1 required substantial computer programming and noted that the claim was not written to cover all uses of advertising as currency. In other words, there was no risk of preempting all forms of advertising on the Internet. For example, the third step, "providing said media products for sale on an Internet website," required that the method be performed through computers and on the Internet. The Federal Circuit also noted that the claim was not to "some disembodied abstract idea" but rather to a "specific application of a method" implementing coordinating computer systems. Opinion at 28. Further, the claim recited eleven separate and specific steps which did not appear to contain merely token pre- or post-solution limitations. Opinion at 30.

The Concurrence

Judge Lourie also reached the conclusion that the business method claim at issue passes § 101 muster but arrived there by first stating that the analysis required a more concise and faithful following of the Supreme Court's guidance from Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 182 L. Ed. 2d 321 (2012), and the Federal Circuit's plurality opinion in CLS Bank International v. Alice Corp., 2013 U.S. App. LEXIS 9493, 2013 WL 1920941 (Fed. Cir. May 10, 2013). In analyzing the abstract idea exception to non-eligible subject matter under § 101, Judge Lourie stated the two-step inquiry should be: 1) identify and define whatever fundamental concept appears wrapped up in the claim, then 2) evaluate the balance of the claim to determine whether additional substantive limitations tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.

Conclusion

The Federal Circuit did not go so far as to define the level of computer programming complexity required to render a computer-implemented method claim patent eligible. Nor did the court hold that the use of the Internet in a method claim is sufficient to satisfy § 101. This decision does, however, shed light on the patentability of computer-implemented business method claims by distinguishing the patent ineligible idea from the patent eligible application of that idea. Practitioners should note the Federal Circuit's rationale on patent eligibility and advise clients accordingly with respect to software patents. It should also be noted that a Rule 12(b)(6) dismissal for lack of eligible subject matter will be the exception, not the rule, because factual issues are generally necessary for a § 101 analysis. Lastly, the Federal Circuit's ruling in Ultramercial seems at odds with the U.S. Supreme Court's order to reconsider in light of Mayo v. Prometheus, where the Supreme Court held that the claims at issue were invalid under 101, reversing the Federal Circuit in that case. See Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1305 (U.S. 2012). In Ultramercial, the U.S. Supreme Court vacated and remanded the Federal Circuit's first finding of patent eligibility under § 101, ordering the Federal Circuit to revisit the issue in light of the Prometheus ruling.  But once again, the Federal Circuit found that the Ultramercial claims were to eligible subject matter under § 101. This tension may lead to a visit back to the U.S. Supreme Court, where the issue of the patentability of business method patents may be further clarified post-Bilski.

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