Federal Circuit Reverses Prior Opinions To Hold That, Under Alice, Patent Does Not Claim Eligible Subject Matter

Ultramercial, Inc. v. Hulu, LLC, __ F.3d __ (Fed. Cir. Nov. 14, 2014) (LOURIE, Mayer (concur), O'Malley) (C.D. Cal.: Klausner) (3 of 5 Stars)

Federal Circuit affirms Rule 12(b)(6) dismissal because the patent was invalid under section 101. The claims covered an 11-step method for Internet distribution of copyrighted media in which advertisers pay for the media and users receive the content for free if they agree to view an advertisement. Although the panel had twice determined the claims were patent-eligible, it now reached the opposite result after the Supreme Court vacated and remanded in light of Alice.

Applying Mayo/Alice's two-step test, the Federal Circuit first determined the claim was directed to an abstract idea: "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." Slip op. at 9. Although other limitations "add a degree of particularity, the concept embodied in the majority of the limitations describes only the abstract idea of showing an advertisement before delivering free content." Id. at 9-10. Moreover, "the addition of merely novel or non-routine components to the claimed idea" does not "necessarily turn[] an abstraction into something concrete," and anyway, novel implementation is relevant only to Alice's second step. Id. at 10. Despite deeming the claims here abstract, the Fed Cir disclaimed any per se rule against software parents: "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." Id. at 10.

Under Mayo/Alice's second step, the claims did 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." Id. at 11. The method steps either recited the abstract idea itself, were insignificant "data-gathering" or "[pre]-solution" activity, or limited the claims to the Internet, which was no real limit given the Internet's prevalence. "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." Id. at 12. Finally, the machine-or-transformation test was a "useful clue" the claims were patent-ineligible—they were tied to only a general purpose computer and "any transformation from the use of computers . . . is merely that computers do and does not change the analysis." Id. at 12-13.

Concurrence: Judge Mayer emphasized three points. First, section 101 is a threshold question to be determined at the outset of the case, similarly to a jurisdictional inquiry. This conserves scarce judicial resources, protects against vexatious infringement suits, and protects the public by providing an efficient tool for weeding out bad patents. Second, no presumption of validity applies to section 101 because the PTO has for years applied "an insufficiently rigorous subject matter eligibility standard." Concur at 6. Third, Alice effectively adopted a "technological arts" test for patent-eligibility, and the claims here were invalid because the "innovative aspect of the claimed invention is an entrepreneurial rather than a technical one." Id. at 11.