The Software IP Report

Internet Advertising Claims Are Patent-Eligible, Says Federal Circuit (Again)

By Charles Bieneman

Categories: Patent Eligibility, Software Patents, The Software IP Report

A Federal Circuit panel has held that claims directed to monetizing Internet advertising are patent-eligible under 35 U.S.C. § 101. Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544 (June 21, 2013). The Court’s opinion was authored by Chief Judge Rader, and joined by Judge O’Malley. Judge Lourie, the author of the en banc plurality opinion holding claims not patent-eligible in the recent CLS Bank case, wrote separately, concurring in the result.

This decision comes a year after the U.S. Supreme Court vacated the Federal Circuit’s 2011 decision holding that the claims at issue did not recite patent-eligible subject matter. The Supreme Court had remanded the case to the Federal Circuit with instructions to reconsider its earlier decision in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc. In these instructions, one might have inferred a hint that the Ultramercial claims should not be held patent-eligible. However, that was not the result here. And as if there were any doubt that the intellectual and political battle concerning the boundaries of patent-eligible subject matter rages on in the federal courts, it is only at page 25 of the Court’s 33-page opinion that Judge Rader states that, “[w]ith this background, the court turns to the asserted claims here.”

The Patent Claims At Issue

U.S. Patent No. 7,346,545 is entitled “Method and system for payment of intellectual property royalties by interposed sponsor on behalf of consumer over a telecommunications network,” and “claims a method for distributing copyrighted products (e.g., songs, movies, books) over the Internet where the consumer receives a copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.” Claim 1 of the ’545 patent is reproduced at the end of this post. The claim preamble recites “[a] method for distribution of products over the Internet via a facilitator,” and the claim recites eleven specific steps included in the method.

Procedural History

The District Court had granted defendant Wild Tangent’s motion to dismiss for failure to state a claim on which relief could be granted, holding that the claims of the ‘545 patent failed to recite patent-eligible subject matter. After the Federal Circuit reversed the District Court, the U.S. Supreme Court, as stated above, vacated and remanded the Federal Circuit decision. Following the remand from the U.S. Supreme Court, the Federal Circuit has now once again reversed and remanded, “again hold[ing] that the district court erred in holding that the subject matter of the ’545 patent is not a ‘process’ within the language and meaning of 35 U.S.C. § 101.”

Preliminary Issues

The Court began its opinion by noting that the District Court had granted Wild Tangent’s motion on the pleadings without performing claim construction. However, because a patent is presumed to have been properly issued, “the only plausible reading of the patent must be that there is clear and convincing evidence of ineligibility.” (Emphasis in original.) Therefore, “Rule 12(b)(6) dismissal for lack of eligible subject matter will be the exception, not the rule.”

Further, determination of patent eligibility is “rife with factual issues.” To determine whether a claim recites an abstract idea, or the scope of a claim’s preemption of use of an abstract idea, necessitates a factual inquiry. Moreover, because of these factual questions, claim construction is normally, although not always, required to resolve patent eligibility questions under Section 101. Further, because patent eligibility must be determined on a claim-by-claim basis, “[c]onstruing every asserted claim and then conducting a § 101 analysis may not be a wise use of judicial resources.”

Legal Framework of Patent Eligibility

Judge Rader, reinforcing his statement in the CLS Bank case, stated here that “[t]he statute controls the inquiry into patentable subject matter.” Judge Rader emphasized that Section 101 is to be read expansively, citing the statute’s history, as well as statements by the U.S. Supreme Court in cases such as Bilski. Moreover, “subject matter eligibility is merely a threshold check; patentability of a claim ultimately depends on “the conditions and requirements of this title,” such as novelty, non-obviousness, and adequate disclosure.” Again citing Bilski, the Court explained that there are “only three narrow categories of subject matter outside the eligibility bounds of § 101—laws of nature, physical phenomena, and abstract ideas.”

Furthermore, a patent issued by the Patent Office is presumed to recite statutory subject matter unless there is clear and convincing evidence to the contrary. In short, exceptions to the expansiveness of Section 101 should be rare.

“Abstract Idea” Test

The Court acknowledged that “[d]efining ‘abstractness’ has presented difficult problems, particularly for the § 101 ‘process’ category.” Moreover, use of a computer or machine was “clearly” not required for a process “to avoid ‘abstractness.’”

According to dictionary definitions, “[a]n abstract idea is one that has no reference to material objects or specific examples—i.e., it is not concrete.” The Supreme Court rejected the “machine-or-transformation” test in Bilski, because “that test has far less application to the inventions of the Information Age.” Indeed, a patent “claim can embrace an abstract idea and be patentable.” The inquiry, then is “to determine on which side of the line the claim falls: does the claim cover only an abstract idea, or instead does the claim cover an application of an abstract idea?”

Judge Rader implicitly criticized the District Court for “hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.” The proper question, Judge Rader stated, “is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea.”

To illustrate his point, Judge Rader spent some time discussing the 1854 U.S. Supreme Court case of O’Reilly v. Morse. This was the case in which the Supreme Court denied the patentability of a claim to “the motive power of the electric or galvanic current . . . however developed for marking or printing intelligible characters, signs, or letters, at any distances.” In contrast, the Supreme Court upheld Morse’s claim to “making use of the motive power of magnetism, when developed by the action of such current or currents, substantially as set forth in the . . . description.” That is, Morse could claim the motive power of electricity in conjunction with particular machines or applications, but not in any way so as to preempt all uses thereof. The lesson from Morse is to draw a distinction between denying patentability to an idea itself, as opposed to applications of the idea.

As explained in Prometheus and Gottschalk v. Benson, “[p]re-emption is only a subject matter eligibility problem when a claim pre-empts all practical uses of an abstract idea.” Further, insignificant pre-solution or post-solution activity will not save a claim. However, there are examples of claims that include specific applications of abstract ideas, e.g., the claim to a method for curing rubber in Diamond v. Diehr.

Further, while a computer-implemented process is not necessarily patent eligible, “the fact that a claim is limited by a tie to a computer is an important indication of patent eligibility.” The question is whether the computer is “integral to the performance of the method, or contain[s] an improvement in computer technology.”

Analysis of Ultramercial’s Patent Claims

Turning to the patent claims at issue, the Court, this time explicitly, criticized the District Court for failing to construe the claims. For purposes of Wild Tangent’s motion, the District Court should have: conducted a Markman hearing,  required the defendant to show by clear and convincing evidence that the only plausible construction of the claims rendered them patent-ineligible, or construed the claims in the light most favorable to the patent owner. For purposes of this decision, the Federal Circuit took the latter approach.

The claim here clearly satisfied the “process” requirement of 35 U.S.C. § 101. The parties had focused on the second step of the two-step Section 101 analysis (first, determining whether a claim recited an abstract idea, and then determining whether the claim meaningfully limited the abstract idea to specific applications), so the Court did as well. The question for the Court here was whether “the claim is meaningfully limited to something less than an abstract idea that pre-empts use of an abstract concept.” The Court concluded that the District Court erred in holding that the ’545 patent did not recite a practical application of the concept of allowing advertising to serve as currency.

The Court noted that claim 1 of the ’545 patent recited 11 steps “for monetizing copyrighted products.” The District Court had erroneously stripped away limitations that confined the claim to a specific application of this concept. Further, Figure 1 of the ’545 patent included a network diagram showing a specific application of the claimed method. Likewise, Figure 2 of the patent showed that the recited steps were all tied to a particular computer.

The Court declined to specify a particular level of programming that would make a claim patent-eligible, but noted that “[v]iewing the subject matter as a whole, the invention involves an extensive computer interface.”

Moreover, the Court’s concluding paragraphs implicitly belied the notion that business methods claims are dead. Distinguishing this case from its 2011 CyberSource decision, the court stated that “the ’545 patent does not claim a mathematical algorithm, a series of purely mental steps, or any similarly abstract concept,” but instead “claims a particular method for collecting revenue from the distribution of media.” In short, the claimed invention could not be held patent-ineligible because it was a “practical application of the general concept of advertising as currency and an improvement to prior art technology products over the Internet.”

Judge Lourie’s Concurrence

Judge Lourie’s concurrence in the result is interesting if for no other reason than that Judge Lourie authored the plurality opinion in the recent CLS Bank decision, finding that the claims there were not patent eligible. According to Judge Lourie, the Court’s result should have been reached by “tracking” to that plurality opinion, and to the Supreme Court’s Mayo v. Prometheus decision. Judge Lourie noted that “this appeal was specifically vacated by the Supreme Court and remanded for further consideration in light of” Prometheus.”

According to Judge Lourie:

The plurality opinion in CLS Bank identified a two-step process, derived from Mayo, for analyzing patent eligibility under § 101. First, a court must identify “whether the claimed invention fits within one of the four statutory classes set out in § 101.” Second, one must assess whether any of the judicial exceptions to subject-matter eligibility apply, including whether the claims are to patent-ineligible abstract ideas.

(Citations omitted.) Under this analysis, where abstractness was found, it was necessary to consider whether the patent claim risked preempting the abstract idea. Judge Lourie agreed that the claims of the ’545 patent required more than simply an abstract idea.

However, Judge Lourie disagreed with the majority’s implication that whether a claim was computer-implemented should be the focus of the analysis. Instead, while the number of claim limitations here did not create patent eligibility, the claims here, unlike the claims in CLS Bank, included “added limitations” that “represent significantly more than the underlying abstract idea of using advertising as an exchange or currency and, as a consequence, do not preempt the use of that idea in all fields.”