New Life for Business Method and Software Patents: Ultramercial v. Hulu

June 24th, 2013




CAFC Finds Patentable Subject Matter in Computer-Implemented Process for Distributing Copyright Product Free in Exchange for Viewing Ads

 By:  John R. Harris

On June 21, 2013, the Court of Appeals for the Federal Circuit (CAFC) handed down a major panel decision finding that a claim directed to a computer-implemented method for distributing copyright 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 – was patentable subject matter.  Ultramercial, Inc. v. Hulu, LLC and Wildtangent, Inc., Case No. 2010-1544 (June 21, 2013)(Judges Rader, Lourie, and O’Malley on the panel).

The decision resulted from a remand from the U.S. Supreme Court.  Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1325 (Fed. Cir. 2011), vacated sub nom. WildTangent, Inc. v. Ultramercial, LLC, 132 S.Ct. 2431 (2012).  The new CAFC decision might well be viewed by the Supreme Court as throwing it back at them, so it is likely to be controversial.

A link to the June 2013 decision can be found here.

This case is the first major decision since the controversial and confusing en banc decision in CLS Bank Int’l v. Alice Corp., __ F.3d __, 2013 WL 1920941, *33 (Fed. Cir. May 10, 2013).  In that case, a split en banc panel resulted in the affirmance of a finding that a business process type patent claim was not patentable subject matter.  Both cases (Ultramercial and CLS Bank) significantly affect the prospects for obtaining patents for software- and Internet-implemented inventions (including business processes), as well as the prospects for successful enforcement.

The patent under review is U.S. Patent No. 7,346,545 (“the ‘545 patent”).  This patent claims a particular internet and computer-based method for monetizing copyrighted products, consisting of the following steps:

(1) receiving media products from a copyright holder,

(2) selecting an advertisement to be associated with each media product,

(3) providing said media products for sale on an Internet website,

(4) restricting general public access to the media products,

(5) offering free access to said media products on the condition that the consumer view the advertising,

(6) receiving a request from a consumer to view the advertising,

(7) facilitating the display of advertising and any required interaction with the advertising,

(8) allowing the consumer access to the associated media product after such display and interaction, if any,

(9) recording this transaction in an activity log, and

(10) receiving payment from the advertiser. (From the’545 patent col. 8, line 5-48.)

This summary (from the ‘545 patent) shows that there is, arguably, some specific Internet and computer-implementation of the claimed process, and thus should not be read as being “too abstract” – at least as far as this CAFC panel is concerned.

The area of computer software patents and business process patents is and has been controversial and difficult for many years.  The courts have struggled with the legal concepts for determining whether there is truly “invention” in the notion of computer programs, used for many modern business, telecommunication, and industrial problems.  In the past several years, the U.S. Supreme Court has provided some guidance on the subject in the cases of Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012) and Bilski v. Kappos, 130 S. Ct. 3218 (2010).  Those cases have set forth some basic principles for assessing whether a claimed process in a patent is patentable subject matter or might be deemed “too abstract” to be eligible for patenting.  Those guiding principles, however, are difficult to apply in practice because, oddly enough, they are also arguably “too abstract” to be really helpful.

Defining “abstractness” has long presented difficult problems for the courts, including the Supreme Court.   The Supreme Court has said, in fact, that a process need not use a computer, or some machine, in order to avoid “abstractness.” In this regard, the Supreme Court examined the relevant statute in the Bilski decision (35 U.S.C. § 101) and found that the ordinary, contemporary, common meaning of “method” may include even methods of doing business. See Bilski, 130 S. Ct. at 3228. Accordingly, the Supreme Court has refused to deem business methods per se ineligible for patent protection and cautioned against “read[ing] into the patent laws, limitations and conditions which the legislature has not expressed.” Bilski at 3226 (quoting Diamond v. Diehr, 450 U.S. 175, 182 (1981)). (Diamond v. Diehr was arguably the most cohesive Supreme Court decision involving computer software as patentable subject matter.)

The Supreme Court and the CAFC are not totally to blame for the controversy in the law of patentable subject matter determinations.  The lack of meaningful legislation on the issue from the U.S. Congress can be blamed for a lot of this controversy.  Congress, in this writer’s opinion, apparently cannot get sufficiently motivated (or lobbied) to pass truly meaningful and helpful patent legislation. The America Invents Act (AIA), passed in 2011, took over a decade to pass through Congress, and with great consternation.  The opportunity for better reform was there, but better reform was not in the cards.  Rather, stakeholders in the patent system now have to wrestle with a new paradigm of “first-inventor-to-file” type legal issues – rather than the more important issues of what should be patentable – by way of patentable subject matter, novelty, and nonobviousness.  Those also-difficult legal issues were barely touched in the AIA.

Under the Supreme Court’s Prometheus decision, the relevant inquiry for process type patent claims is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea. See Prometheus, 132 S. Ct. at 1297 (“[D]o the patent claims add enough to their statements of the correlations to allow the processes they describe to qualify as patent-eligible processes that apply natural laws?”).  The Ultramercial court suggests that linking a process to a machine in a significant manner may save the claim.  If a process is linked to a machine, and use of the machine imposes meaningful limits on the claim’s scope, the claim might be deemed patentable subject matter.  (Ultramercial, p. 16).

And under the Supreme Court’s Bilski decision, a claim is meaningfully limited if it requires a particular machine implementing a process or a particular transformation of matter. See Bilski, 130 S. Ct. at 3227 (“This Court’s precedents establish that the machine-or-transformation test is a useful and important clue . . . for determining whether some claimed inventions are processes under § 101.”); see also Prometheus, 132 S. Ct. at 1302-03; Diehr, 450 U.S. at 184, 192.

The panel in the Ultramercial case took these suggestions from the Supreme Court and ran with them. Judge Rader wrote,

While the mere reference to a general purpose computer will not save a method claim from being deemed too abstract to be patent eligible, the fact that a claim is limited by a tie to a computer is an important indication of patent eligibility. See Bilski, 130 S. Ct. at 3227. This tie to a machine moves it farther away from a claim to the abstract idea itself. Moreover, that same tie makes it less likely that the claims will preempt all practical applications of the idea.  (Ultramercial, p. 23).

So, here is the way that patent claims directed to computer software or software-implemented processes (or business methods) are more likely to survive CAFC scrutiny – at least, scrutiny by a panel on which Judge Rader sits:

[Our patentability] inquiry focuses on whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something; if so, they likely will be patent eligible. On the other hand, claims directed to nothing more than the idea of doing that thing on a computer are likely to face larger problems. While no particular type of limitation is necessary, meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology.” Ultramercial, pp. 23–24 (italicized emphasis in original, underlined emphasis supplied).

Applying these principles, Judge Rader found that the ‘545 patent claims met the test, because they recited specific ways (limitations) of implementing the idea of using advertising for currency to pay for Internet-delivered content such as music, movies, etc.  The ‘545 patent was not deemed to simply claim the age-old idea that advertising can serve as currency:

“The ‘545 patent seeks to remedy problems with prior art banner advertising over the Internet, such as declining click-through rates, by introducing a method of product distribution that forces consumers to view and possibly even interact with advertisements before permitting access to the desired media product. ’545 patent col. 2, ll.14-18. By its terms, the claimed invention purports to improve existing technology in the marketplace. By its terms, the claimed invention invokes computers and applications of computer technology. Ultramercial, pp. 26–27 (underlined emphasis supplied).

It was clear to this panel of the CAFC, if perhaps not to several other members of the larger Court of Appeals judges (of which there are twelve positions), that several steps plainly require that the method be performed through computers, on the internet, and in a cyber-market environment. One clear example was the third step, “providing said media products for sale on an Internet website.”’

The Court does not seem to be suggesting that mere implementation of a business process will save a computer- or Internet-implemented business process, but it does seem to be suggesting that if one does not recite sufficient technical implementation details in the patent claim, it may not survive either the Supreme Court patentable subject matter test or the version of the test presently being applied by the CAFC on panels involving Chief Judge Rader:

“Viewing the subject matter as a whole, the invention [of the ‘545 patent] involves an extensive computer interface. … [T]he claims are not made without regard to a particular process. Likewise, it does not say “sell advertising using a computer,” and so there is no risk of preempting all forms of advertising, let alone advertising on the Internet. Further, the record at this stage shows no evidence that the recited steps are all token pre- or post-solution steps. Finally, the claim appears far from over generalized, with eleven separate and specific steps with many limitations and sub-steps in each category. The district court improperly made a subjective evaluation that these limitations did not meaningfully limit the “abstract idea at the core” of the claims.

Having said that, this court does not define the level of programming complexity required before a computer-implemented method can be patent-eligible. Nor does this court hold that use of an Internet website to practice such a method is either necessary or sufficient in every case to satisfy § 101. This court simply holds the claims in this case to be patent-eligible, in this posture, in part because of these factors.” Ultramercial, p. 30 (underlined emphasis supplied).

Because this decision was merely a panel decision and not en banc, and because the CLS Bank case demonstrated that a number of other judges on the CAFC may not be on board with Judge Rader, we do not expect this decision to be the end of the controversy involving subject-matter patent eligibility for computer software, computer-implementation, or business methods.  This is and has been a very contentious area in patent law, with a lot of strongly held positions and emotions on the issue.  We do not hold out much hope that the Congress will soon involve itself in the controversy – even though there may be upcoming further rounds of patent reform.  However, it would be a welcome development if Congress would consider this difficult area, pass some meaningful reforms, and thus provide the business community with increased certainty as to these important types of patents.  Love them or hate them, computer software patents are ubiquitous, still being filed and granted, and can be a formidable competitive weapon.


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This information is presented for educational purposes and is not intended to constitute legal advice. Opinions expressed are those of the author and not of Morris, Manning & Martin, LLP; see disclaimer at Contact John Harris for more information at