Post-Alice Decision on Software Patents, Ultramercial Inc. v. Hulu LLC, Federal Circuit 2014

Ultramercial sued Hulu, YouTube, and WildTangent in 2009 for infringement of a patent related to distributing copyrighted material over the Internet to a consumer at no cost in exchange for viewing an advertisement, with the advertiser paying for the copyrighted material.

WildTangent filed a motion to dismiss, alleging that the claims were not statutory under 35 U.S.C. § 101.  The district court granted the motion.  The Federal Circuit reversed.  The Supreme Court vacated the decision and
remanded for consideration in view of its decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc.  A unanimous panel of the Federal Circuit again held the claims to be statutory.  WildTangent petitioned for Supreme Court review.  The Supreme Court again vacated the Federal Circuit’s decision and remanded for consideration in view of its more recent decision in Alice v. CLS Bank.  Judge Rader, a voice of reason, had since resigned and Judge Mayer was appointed to take his place.

Claim 1 of the 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; and
  • an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

According to Alice, the two prong circular logic of Mayo is to be used to determine if claims are directed to statutory subject matter.  The first prong is to determine whether the claims are directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea.   If so, the second prong is to determine whether any additional claim elements transform the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself.  No definition has been provided by the Supreme Court as to when an idea is abstract.  Similarly, no definition has been provided as to what amounts to “significantly more.”

In this case, the court conceptualized the claim as relating distributing copyrighted material over the Internet to a consumer at no cost in exchange for viewing an advertisement, with the advertiser paying for the copyrighted material.  The court ignored details of the claim in considering the first prong.

According to the Federal Circuit, claim 1 provided an “ordered combination of steps reciting an abstraction — an idea, having no particular concrete or tangible form.”  In addition, “[t]he 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.”  While the Court did state that “certain additional limitations, such as consulting an activity log, add a degree of particularity,” these limitations were insufficient to provide significantly more.

Further, even though some steps of the claim “were not previously employed in this art [that] is not enough — standing alone — to confer patent eligibility upon the claims at issue.”

This decision puts patent applicants in a difficult position.  Adding novel subject matter to a claim is not sufficient to render a claim statutory.

“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.”  Even though the claim recited use of the Internet, which is arguably a concrete, tangible system, the Court reiterated its reasoning from CyberSource Corp. v. Retail Decisions, Inc., stating that “use of the Internet is not sufficient to save otherwise abstract claims from ineligibility under § 101.”

Further, the Federal Circuit held that Ultramercial’s claims failed both prongs of the machine-or-transformation test.  The only machine recited in the claims was the Internet, which is a “ubiquitous information-transmitting medium, not a novel machine.”  As for any sort of transformation elicited by the many steps of claim 1, the Court wrote that “manipulations of public or private legal obligations or relationships, business risks, or other such abstractions” are not transformations “because they are not physical objects or substances, and they are not representative of physical objects or substances.”

Consequently, all of Ultramercial’s claims were invalid.  The point of Alice seemed to be to allow courts to avoid a complicated novelty analysis if the only hardware in claims was a computer.  The reasoning seemed to be that adding a computer to a conventional process was insufficient to make the claim statutory.  However, in this case there was novelty in the claim that was ignored.

Adapting to this case would seem to require passing the machine or transformation test using more machines than are included in the Internet.

USPTO Issues post-Alice Software Patent Examination Guidelines

The USPTO has issued preliminary guidelines for examination of software patent applications, and other patent applications, after the Supreme Court’s decision in Alice v. CLS Bank.  The Alice Supreme Court decision is discussed in another post.

The guidelines start by summarizing the Alice decision as follows:

The Court determined that Alice Corp.’s claims to methods were ineligible because “the claims at issue amount to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer.” Alice Corp.’s claims to computer systems and computer-readable storage media were held ineligible for substantially the same reasons, e.g., that the generically-recited computers in the claims add nothing of substance to the underlying abstract idea. Notably, Alice Corp. neither creates a per se excluded category of subject matter, such as software or business methods, nor imposes any special requirements for eligibility of software or business methods.

The guidelines go on to state that The Supreme Court made clear in Alice Corp. that it applies the framework set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. _ (2012) (Mayo), to analyze all claims directed to laws of nature, natural phenomena, and abstract ideas for subject matter eligibility under 35 U.S.c. § 101. The Mayo framework is currently being used by the USPTO to examine claims involving laws of nature, but had not been used for claims involving abstract ideas. Therefore, the new examination guidelines differ from prior USPTO guidance in two ways:
1) The Mayo analysis should be used for all types of judicial exceptions, whereas prior USPTO guidance applied a different (i.e., Bilski) analysis to claims with abstract ideas than to claims with laws of nature (Mayo guidance in MPEP 2106.01).
2) Alice Corp. also establishes that the same analysis should be used for all categories of claims (e.g., product and process claims), whereas prior guidance applied a different analysis to product claims involving abstract ideas (relying on tangibility) than to process claims (Bilski guidance).

For purposes of the preliminary guidelines, only claims that involve abstract ideas are
addressed, since the USPTO’s current guidance for claims that involve laws of nature/natural phenomena already uses the Mayo framework.

The examination guidelines state that, following Alice Corp., Examiners are now to analyze all claims (product and process) having an abstract idea using the following two-part analysis set forth in Mayo :
Part 1: Determine whether the claim is directed to an abstract idea.
Part 2: If an abstract idea is present in the claim, determine whether
any element, or combination of elements, in the claim is sufficient to
ensure that the claim amounts to significantly more than the abstract
idea itself.

As emphasized in Alice Corp., abstract ideas are excluded from eligibility based on a concern
that monopolization of the basic tools of scientific and technological work might impede
innovation more than it would promote it. At the same time, the courts have tread carefully in
construing this exclusion because, at some level, all inventions embody, use, reflect, rest upon
or apply abstract ideas and the other exceptions. Thus, an invention is not rendered ineligible
simply because it involves an abstract concept. In fact, inventions that integrate the building
blocks of human ingenuity into something more by applying the abstract idea in a meaningful
way are eligible.

The guidelines provide examples of abstract ideas, referenced in Alice Corp.:
-Fundamental economic practices ;
-Certain methods of organizing human activities;
-An idea of itself; and
-Mathematical relationships/formulas

Claims that include abstract ideas like these should be examined under Part 2 to determine whether the abstract idea has been applied in an eligible manner.

For Part 2, examiners are to determine whether there are there other limitations in the claim that show a patent-eligible application of the abstract idea, e.g., more than a mere instruction to apply the abstract idea.  They are to consider the claim as a whole by considering all claim elements, both individually and in combination.

The guidelines provide the following non-exclusive examples of limitations referenced in Alice Corp. that may be enough to qualify as “significantly more” when recited in a claim with an abstract idea:
-Improvements to another technology or technical fields;
-Improvements to the functioning of the computer itself; and
-Meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.

The guidelines provide the following non-exclusive examples of limitations referenced in Alice Corp. that are not enough to qualify as “significantly more” when recited in a claim with an abstract idea:
-Adding the words “apply it” (or an equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer; and
-Requiring no more than a generic computer to perform generic computer functions that
are well-understood, routine and conventional activities previously known to the industry.

If there are no meaningful limitations in the claim that transform the exception into a patent
eligible application such that the claim amounts to significantly more than the exception itself, the claim should be rejected under 35 U.S.C. § 101 as being directed to non-statutory subject
matter.

Interestingly, and contrary to my prediction in the Alice summary, after conducting the two-part analysis, examiners are instructed to proceed with examination of the claim, regardless of
whether a rejection under § 101 has been made, to determine patentability in accordance with
the other requirements of 35 U.S.C. § 101 (utility and double patenting), non-statutory double
patenting, and §§ 112, 102, and 103 (indefiniteness, novelty, and obviousness).