Federal Circuit Rules on Patentability of Business Method Patent

by Cadwalader, Wickersham & Taft LLP


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.


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.


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.

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.

© Cadwalader, Wickersham & Taft LLP | Attorney Advertising

Written by:

Cadwalader, Wickersham & Taft LLP

Cadwalader, Wickersham & Taft LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.