Ultramercial, Inc. v. Hulu, LLC (Fed. Cir. 2013)

UltramercialIt has been just over a month since the Federal Circuit's fractured en banc ruling in CLS Bank Int'l v. Alice Corp. regarding patent-eligibility of computer-implemented inventions under 35 U.S.C. § 101.  Last week, the Court decided another § 101 case, Ultramercial, Inc. v. Hulu, LLC.  Of interest is that the panel for the latter included the authors of the two main opposing opinions in CLS Bank -- Judge Lourie and Chief Judge Rader.  However, instead of throwing down, the judges agreed that the claims at issue met the requirements of § 101, even if they disagreed on the rationale for this conclusion.

This action began when 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, the District Court held that the '545 patent does not claim patent-eligible subject matter.  On appeal, the Federal Circuit reversed and remanded.  However, that decision was vacated by the Supreme Court.  Back in the Federal Circuit again, Chief Judge Rader authored the majority opinion, joined by Judge O'Malley, once again reversing the District Court.  Judge Lourie concurred in the outcome.

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;
        an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

First, Chief Judge Rader noted that it is rare for a patent to be dismissed in the pleading stage, because issued patents enjoy a presumption of validity.  Thus, factual allegations of patent-ineligibility must be viewed in the most favorable light for the patentee.  Indeed, there must be "clear and convincing evidence of ineligibility," and consequently, "12(b)(6) dismissal for lack of eligible subject matter will be the exception, not the rule."  Chief Judge Rader also noted that the various § 101 analyses propounded by the judges of the Federal Circuit generally require some degree of factual inquiry.  As a result, the presence of these factual issues would normally "render dismissal under Rule 12(b)(6) improper."

Turning to the history of title 35, Chief Judge Rader emphasized, like he did in CLS Bank, that Congress intended § 101 to be read expansively.  Congress made no exceptions to patentable subject matter -- those were introduced by the courts.  Particularly, the well-known exceptions of abstract ideas, laws of nature, and natural phenomena were introduced to "prevent the monopolization of the basic tools of scientific and technological work."

Following his 'broad statute with narrow exceptions' interpretation of § 101, Chief Judge Rader addressed the patentability of abstract ideas with respect to software and business method claims.  He noted that "a process need not use a computer, or some machine, in order to avoid abstractness."  In rejecting the machine-or-transformation test for § 101 eligibility in Bilski v. Kappos, Chief Judge Rader believes that the Supreme Court was attempting to allow the patent laws to accommodate new and future technologies of the information age.

Chief Judge Rader further indicated that, in doing so, the Supreme Court has set forth a number of guidelines.  These include the principles that (i) a claim that recites an abstract idea can be valid as long as the claim is directed to an application of the idea, and (ii) determining if this is the case requires consideration of the claim as a whole to ascertain whether the claim includes meaningful limitations restricting it to such an application.  Factors determining whether a limitation is meaningful were spelled out by Chief Judge Rader's concurrence-in-part and dissent-in-part in CLS Bank, and he revisits them here.

One of Chief Judge Rader's challenges in both CLS Bank and this case was to synthesize two opposing notions originally set forth by the Supreme Court in Parker v. Flook and Diamond v. Diehr, respectfully.  On one hand, Flook indicated that the § 101 inquiry should treat claimed abstract ideas as "a familiar part of the prior art."  On the other hand, Diehr held that "[t]he question therefore of whether a particular invention is novel is wholly apart from whether the invention falls into a category of statutory subject matter."  The Supreme Court's most recent ruling on patent-eligible subject matter, Mayo v. Prometheus, seems to defer more to Flook than Diehr in this regard.  For example, in Prometheus, the Justices stated that "in evaluating the significance of additional steps, the §101 patent-eligibility inquiry and, say, the §102 novelty inquiry might sometimes overlap."

However, Chief Judge Rader reads Diehr into Prometheus to conclude that the Supreme Court was not actually suggesting that a novelty or non-obviousness analysis need be performed in a § 101 review.  Instead, he believes that:

[T]he Supreme Court's reference to "inventiveness" in Prometheus can be read as shorthand for its inquiry into whether implementing the abstract idea in the context of the claimed invention inherently requires the recited steps.  Thus, in Prometheus, the Supreme Court recognized that the additional steps were those that anyone wanting to use the natural law would necessarily use.  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.

Thus, Chief Judge Rader seems to be advocating that the "inventive concept" and "meaningful limitations" tests involve limited consideration of prior art.  This consideration would determine whether the non-abstract-idea features of a claim are essential, routine, or conventional facets of a recited abstract idea.

Applying this notion to computer-implemented inventions, he notes that mere reference to a general purpose computer in the claims falls into the essential, routine, or conventional category.  On the other hand, Chief Judge Rader suggests that if "the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something . . . they likely will be patent eligible."  He also notes that "meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology."  Such limitations would avoid pre-emption of a claimed abstract idea.

Turning finally to Ultramercial's claim, Chief Judge Rader held that the District Court erred in "requiring the patentee to come forward with a construction that would show the claims were eligible."  Instead, he indicated that, given the procedural posture of the case, the District Court "should either have construed the claims in accordance with Markman, required the defendant to establish that the only plausible construction was one that, by clear and convincing evidence rendered the subject matter ineligible (with no factual inquiries), or adopted a construction most favorable to the patentee."  In analyzing the claims, Chief Judge Rader opted for the latter approach.

In determining whether the claim encompassed an abstract idea, the parties agreed the claimed idea that "advertising can be used as a form of currency" is abstract, and focused their dispute on whether the claims include meaningful limitations to overcome this abstractness.  Chief Judge Rader answered this question in the positive, observing that some steps of claim 1 "plainly require that the method be performed through computers, on the internet, and in a cyber-market environment."  As a result, he found that the complexity of such a computer implementation involved "no risk of preempting all forms of advertising, let alone advertising on the Internet" and met the requirements of § 101.

Thus, despite a recitation of "the Internet" being the only concrete structure in the claim, a combination of the claim's many specific limitations, and the procedural requirement of construction most favorable to the patentee, led to the conclusion that the claim was patent-eligible.  Notably, Chief Judge Rader posited that the claim requires "controlled interaction with a consumer over an Internet website, something far removed from purely mental steps."

In concurring, Judge Lourie wrote separately to advocate "faithfully follow[ing] the Supreme Court's most recent guidance regarding patent eligibility in [Prometheus] and . . . the plurality opinion of five judges from this court in CLS Bank."  Judge Lourie agreed that the claims included the abstract idea of "using advertising as an exchange or currency."

However, he disagreed with Chief Judge Rader's focus on the complexity of the computer implementation of the claimed method, since a specific implementation is not recited.  Instead, Judge Lourie found that "the added limitations in these claims represent significantly more than the underlying abstract idea of using advertising as an exchange or currency and, as a consequence, do not preempt the use of that idea in all fields."  And he left it at that, with no further substantive analysis or discussion.

So . . . now what?  In a sense, this case is a valuable data point.  It demonstrates how a claim that encompasses an abstract idea can include sufficient "inventive concept" and "meaningful limitations" to satisfy the judges who disagreed so fiercely in CLS Bank.  But what analytical technique should be used to evaluate such a claim?  Do we turn to Chief Judge Rader's approach, which seems limited to the facts of this case, or to Judge Lourie's approach, which is conclusory at best?

One point seems clear, however.  The Federal Circuit is not going to abandon the "inventive concept" and "meaningful limitations" tests -- the progeny of Prometheus -- any time soon.

Ultramercial, Inc. v. Hulu, LLC (Fed. Cir. 2013)
Panel: Chief Judge Rader and Circuit Judges Lourie and O'Malley
Opinion by Chief Judge Rader; concurring opinion by Circuit Judge Lourie


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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