by Dennis Crouch

The key language from the Federal Circuit’s most recent pronouncement in Ultramercial v. Hulu (Fed. Cir. 2014) is as follows:

We do not agree with Ultramercial that the addition of merely novel or non-routine components to the claimed idea necessarily turns an abstraction into something concrete. In any event, any novelty in implementation of the [abstract] idea is a factor to be considered only in the second step of the Alice analysis. . . . [And, the Internet] is a ubiquitous information-transmitting medium, not a novel machine. And adding a computer to otherwise conventional steps does not make an invention patent-eligible. 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.

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Following Alice Corp., the Federal Circuit has now flipped its prior two rulings in the Ultramercial case — finding this time that the computerized business method patent lacks patent eligibility. Both prior Federal Circuit decisions in favor of patent eligibility had been vacated by the Supreme Court without opinion except with orders to consider Mayo v. Prometheus and Alice Corp v CLS Bank respectively.

This decision offers a strong signal from the Federal Circuit that the court is now understanding what the Supreme Court meant in its recent quartet of Bilski, Mayo, Myriad, and Alice and that the court will support the 101 eligibility decisions being laid-down by the lower courts and the Patent Office.

The patent at issue here covers a method of distributing copyrighted products over the internet – instead of paying for the product, the consumer watches a paid-advertisement. U.S. Patent No. 7,346,545. The claims include some further limitations, such as using an “activity log” to select the advert to be shown based upon criteria (such as whether the advertiser has paid for another transaction). Claim 1 is pasted below.

It turns out that the advertising model works for the internet just as it previously worked for radio and television. And, as a result, the patent would be quite valuable, but only if it were valid. It is not valid. The decision here does not eliminate all software patents, but it again calls-into question patents where the focus of the invention is either the content of information being transferred/transformed or a business transaction. It is telling that the court added the following the caveat to its decision here: “[W}e 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.”

The district court in this case found that the claims embodied the abstract idea of using “advertisement as an exchange or currency.” On appeal, the Federal Circuit rejected that restatement for a more detailed analysis:

The process of receiving copyrighted media, selecting an ad, offering the media in exchange for watching the selected ad, displaying the ad, allowing the consumer access to the media, and receiving payment from the sponsor of the ad all describe an abstract idea, devoid of a concrete or tangible application. Although certain additional limitations, such as consulting an activity log, add a degree of particularity, the concept embodied by the majority of the limitations describes only the abstract idea of showing an advertisement before delivering free content.

With that abstract idea in hand, the court moved to the second step of the Alice Corp test — whether the claim adds significantly more in its implementation such that the abstract idea is transformed into a patent eligible invention.

We conclude that the limitations of the ’545 claims do not transform the abstract idea that they recite into patent-eligible subject matter because the claims simply instruct the practitioner to implement the abstract idea

with routine, conventional activity. None of these eleven individual steps, viewed “both individually and ‘as an ordered combination,’” transform the nature of the claim into patent-eligible subject matter. The majority of those steps comprise the abstract concept of offering media content in exchange for viewing an advertisement. Adding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet does not transform an otherwise abstract idea into patent-eligible subject matter. Instead, the claimed sequence of steps comprises only “conventional steps, specified at a high level of generality,” which is insufficient to supply an “inventive concept.” Indeed, the steps of consulting and updating an activity log represent insignificant “data-gathering steps,” and thus add nothing of practical significance to the underlying abstract idea. Further, that the system is active, rather than passive, and restricts public access also represents only insignificant “[pre]-solution activity,” which is also not sufficient to transform an otherwise patent-ineligible abstract idea into patent-eligible subject matter. The claims’ invocation of the Internet also adds no inventive concept. As we have held, the use of the Internet is not sufficient to save otherwise abstract claims from ineligibility under § 101. Narrowing the abstract idea of using advertising as a currency to the Internet is an “attempt[] to limit the use” of the abstract idea “to a particular technological environment,” which is insufficient to save a claim. Given the prevalence of the Internet, implementation of an abstract idea on the Internet in this case is not sufficient to provide any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.” In sum, each of those eleven steps merely instructs the practitioner to implement the abstract idea with “routine, conventional activit[ies],” which is insufficient to transform the patent-ineligible abstract idea into patenteligible subject matter. That some of the eleven steps were not previously employed in this art is not enough—standing alone—to confer patent eligibility upon the claims at issue. While the Supreme Court has held that the machine-or-transformation test is not the sole test governing § 101 analyses, that test can provide a “useful clue” in the second step of the Alice framework. A claimed process can be patent-eligible under § 101 if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” The claims of the ’545 patent, however, are not tied to any particular novel machine or apparatus, only a general purpose computer. As we have previously held, the Internet is not sufficient to save the patent under the machine prong of the machine-or-transformation test. It is a ubiquitous information-transmitting medium, not a novel machine. And adding a computer to otherwise conventional steps does not make an invention patent-eligible. 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. Although the preamble of claim 1 also requires a facilitator, the specification makes clear that the facilitator can be a person and not a machine. Thus, nowhere does the ’545 patent tie the claims to a novel machine. The claims of the ’545 patent also fail to satisfy the transformation prong of the machine-or-transformation test. The method as claimed refers to a transaction involving the grant of permission and viewing of an advertisement by the consumer, the grant of access by the content provider, and the exchange of money between the sponsor and the content provider. These manipulations of “public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” We therefore hold that the claims of the ’545 patent do not transform any article to a different state or thing. While this test is not conclusive, it is a further reason why claim 1 of the ’545 patent does not contain anything more than conventional steps relating to using advertising as a currency.

The majority panel here was written by Judge Lourie and joined by Judge O’Malley. Judge Mayer (who replaced Judge Rader on the panel) wrote in concurrence to emphasize the following 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.

Although Judge Mayer’s conclusions here veer somewhat from the patent eligibility doctrine, he provides a roadmap for district courts to use the doctrine in deciding Section 101 cases going forward.