Federal Circuit's Post-Alice Eligibility Analysis of Business Methods

The Federal Circuit in Ultramercial, Inc. v. WildTangent, Inc., held that an “entrepreneurial” multi-step process for distributing copyrighted media products over the Internet to consumers is not patent-eligible under 35 U.S.C. § 101 even though the specific method of advertising and content distribution was neither previously known nor employed on the Internet. Although the patent in question is directed to a consumer-related business method, the Federal Circuit’s analysis of business-related discoveries is a must read for its view of patenting any technology that might be categorized as an “abstract idea” such as the analysis of patient-related data and management of clinical trials in the field of personalized medicine.

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Ultramercial owns U.S. Patent No. U.S. Patent No. 7,346,545 (the ‘545 patent) entitled “Method and system for payment of intellectual property royalties by interposed sponsor on behalf of consumer of a telecommunications network.” As noted by the court, the patented claims relate to a “method for distributing copyrighted media products over the Internet where the consumer receives a copyrighted media product at no cost in exchange for viewing an advertisement and the advertiser pays for the copyrighted content.” Slip Op. at page 3. Claim 1 was deemed representative. It recites:

1. 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.

A History of the Dispute

The present appeal to the Federal Circuit follows an “up and down journey to and from the Supreme Court.” Slip Op. at 2. Briefly, Ultramercial sued Hulu, LLC, YouTube, LLC and WildTangent, alleging infringement of all claims of the ‘545 patent. Hulu and YouTube were dismissed from the case, and WildTangent moved to dismiss the suit for failure to state a claim, arguing that the ‘545 Patent did not claim patent-eligible subject matter. The Central District of California granted WildTangent’s motion to dismiss for failure to state a claim, without formally construing the claims. Ultramercial appealed and the Federal Circuit reversed on the ground that the district court erred in granting WildTangent’s motion to dismiss for failing to claim statutory subject matter. The Supreme Court then vacated and remanded the case for further consideration in light of its decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 __ U.S. __, 132 S. Ct. 1289 (2012).

On remand, the Federal Circuit again reversed, concluding that the district court erred in granting WildTangent’s motion to dismiss. WildTangent again filed a petition for certiorari requesting Supreme Court review. While the petition was pending, the Supreme Court issued its decision in Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014) (“Alice”). According to the Federal Circuit, the Supreme Court in Alice “made clear that a claim that is directed to an abstract idea does not move into § 101 eligibility territory by ‘merely require[ing] generic computer implementation.’” Slip Op. at 6.

Subsequently, the Supreme Court granted WildTangent’s petition for writ of certiorari, vacated the Federal Circuit’s second decision, and remanded to the Federal Circuit for further consideration in light of Alice.

The § 101 Test

In its November 14^th decision on remand, the Federal Circuit began by reiterating a § 101 test, as interpreted by the Supreme Court in Alice:

A § 101 analysis begins by identifying whether an invention fits within one of the four statutorily provided categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter…. Section 101 contains an important implicit exception: Laws of nature, natural phenomena, and abstract ideas are not patentable…. In Alice, the Supreme Court identified a ‘framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts… First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts… If not, the claims pass muster under § 101. Then, in the second step, if we determine that the claims at issue are directed to one of those patent-ineligible concepts, we must determine that the claims contain ‘an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”

Slip Op. at pages 7-8, internal citations and quotations omitted.

Claims Fail Alice and the Machine or Transformation Test

            Step 1 of the Alice Analysis

The court first analyzed the claims to determine if the elements, as a whole, are directed to patent-ineligible subject matter. The court determined that the steps of claim 1 recite an abstract idea, having no particular concrete or tangible form or tangible application. The Federal Circuit dismissed Ultramercial’s contention that the claims are not directed to an abstract idea, because they embody a specific method of advertising and content distribution that was previously unknown and never employed on the Internet. The court explicitly dismissed Ultramercial’s argument that “abstract ideas remain patent-eligible under § 101 as long as they are new ideas, not previously well known, and not routine activity.” Slip Op. at page 8.

The Federal Circuit also dismissed Ultramercial’s argument that the use of select advertisements – a change from prior methods of passive advertising – involves more than merely implementing an abstract idea, and therefore embodies a patent-eligible method.

The court found that even though the claims included 11 separate steps, the steps as a whole recite an abstract idea: “[t]he process of receiving copyrighted media, selected 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.” Slip Op. at pages 9-10.

Step 2 of the Alice Analysis

The court stated that the second step of the Alice analysis requires an evaluation of whether the claims do significantly more than simply describe that abstract idea. Stated another way, do the claim limitations contain an “inventive concept” to “transform” the claimed abstract idea into patent-eligible subject matter? The additional features must be more than “well-understood, routine, conventional activity.” Slip Op. at page 10.

The court determined that the claims fail on this ground too, noting that the claims simply instruct the practitioner to implement the abstract idea with routine, conventional activity: “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.” Slip Op. at page 11. The court further found that patentee’s attempt to narrow the abstract idea by using advertising as a currency to the Internet (described as a particular technological environment), is insufficient to save the claim.

The Machine or Transformation Test

The court also applied the “machine or transformation” test, as a “useful clue” in applying the second step of an Alice analysis. In applying this test, the court noted that the claims of the ‘545 patent are not tied to any particular novel machine or apparatus, only a general purpose computer. Adding a ubiquitous information-transmitting medium to otherwise conventional steps does “not make an invention patent-eligible.” Slip Op. at page 13. The court stated that while the machine or transformation 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.” Id.

Mayer’s Concurring Opinion – The Gatekeeper Function of Section 101

Judge Mayer (designated to replace Judge Rader) penned a 12 page concurrence to explicitly emphasize three points.

First, whether the claims meet the demands of the 35 U.S.C. § 101 is a threshold question, one that must be addressed at the onset of litigation. Second, no presumption of eligibility attends the section 101 inquiry. Third, Alice Corporation v. CLS Bank International, 134 S. Ct. 2347, 2356-59 (2014), set out a technological arts test for patent eligibility. Because the purported inventive concept in Ultramercial’s asserted claims is an entrepreneurial rather than a technological one, they fall outside section 101.”

Concurrence at page 1.

In his view, a Section 101 analysis is the “gateway to the Patent Act … the sentinel, charged with the duty of ensuring that our nation’s patent laws encourage, rather than impede, scientific progress and technological innovation.” Concurrence at page 2. In his opinion, a Section 101 “determination bears some of the hallmarks of a jurisdictional inquiry” and therefore a court should address in each instance whether an asserted claim is eligible for patent protection before addressing questions of invalidity or infringement. Id. He implicitly disagreed with the prior panel’s view that the district court erred by failing to construe the claims, stating that no formal claim construction was required because the asserted claims did not claim patent-eligible subject matter. Elevating the Section 101 inquiry would protect the public from vexatious litigation and conserve judicial and the public’s resources.

Finally, Judge Mayer interpreted Alice as articulating a “technological arts test for patent eligibility.” Concurrence at page 8. “In assessing patent eligibility, advances in non-technological disciplines – such as business, law or the social science – simply do not count.” Id.

Points To Ponder

The WildTangent panel opinion and Judge Mayer’s concurrence provides insight into the Federal Circuit’s current thinking on inventions that relate to abstract ideas. In this decision, the Federal Circuit analyzed the claim as whole for the purpose of Section 101. This analysis is in contrast to current USPTO practice of dissecting a claim into steps or elements that relate to an excluded category of eligibility from those that do not.

Division of a claim into a multi-step process, even with a high degree of particularity for each step, will not save the claim from patent-ineligibility if the claim as whole is no more than an embodiment of an abstract idea. In contrast, a concrete or tangible application of the abstract idea, preferably one that involves novel technology, will move the claim to eligibility status. Thus, for the application of technology related to an abstract idea, merely attaching the use of the Internet, similar to a general purpose computer, will not save a claim from patent-ineligibility.

Moreover, the “machine or transformation” test remains relevant and useful in determining whether the claimed invention satisfies the second prong of the Alice analysis. Finally, those seeking to assert a patent claim that relates to an excluded category of discovery or invention (laws of nature, natural phenomena, and abstract ideas) should be prepared to address Section 101 issues at the earliest stages of litigation.