United States: A Method For Distributing Copyrighted Products Over The Internet Does Not Lack Subject Matter Eligibility

In Ultramercial, Inc. v. Hulu, LLC, No. 10-1544 (Fed. Cir. June 21, 2013), the Federal Circuit reversed and remanded the district court's judgment that the subject matter of U.S. Patent No. 7,346,545 ("the '545 patent") is not a "process" within the language and meaning of 35 U.S.C. § 101.

The '545 patent claims an eleven-step method for distributing copyrighted products over the Internet where the consumer receives a copyrighted item paid by an advertiser in exchange for viewing the advertisement.  Several of these steps require the method being performed through computers, over the Internet, and in a cyber-market environment.  Many of the steps also require intricate and complex computer programming.

Ultramercial, Inc. and Ultramercial, LLC (collectively "Ultramercial") sued Hulu, LLC ("Hulu"), YouTube, LLC ("YouTube"), and WildTangent, Inc. ("WildTangent") for infringement of the '545 patent.  Hulu and YouTube have been dismissed from the case.  WildTangent moved to dismiss the case for failure to state a claim, arguing that the '545 patent lacked patent-eligible subject matter.  The district court concluded that the subject matter of the '545 patent is not a "process" within the language and meaning of § 101.  Thus, the district court dismissed Ultramercial's claim without formally construing the claims and, further, without requiring defendants to file answers.  Ultramercial appealed. 

On appeal, the Federal Circuit reversed and remanded the district court's dismissal of Ultramercial's claim, holding that the district court erred in concluding that the '545 patent's subject matter is not considered a "process," one of the subject matter categories listed under § 101.

"The Court has long-recognized that any claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed.  A court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.  Instead, the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea."  Slip op. at 15-16.

As an initial matter, the Court addressed the district court's use of Federal Rule of Civil Procedure
12(b)(6) in dismissing Ultramercial's claims, noting that "it will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter," because every issued patent is presumed to have been issued properly, absent clear and convincing evidence to the contrary.  Slip op. at 5.  The Court further noted that when Rule 12(b)(6) is used as a defense, dismissal is appropriate only if the factual allegations in the complaint, construed in the light most favorable to the plaintiff, suffice to establish the defense.  Therefore, the Court indicated that for a Rule 12(b)(6) dismissal, "the only plausible reading of the patent must be that there is clear and convincing evidence of ineligibility.  For those reasons, Rule 12(b)(6) dismissal for lack of eligible subject matter will be the exception, not the rule."  Id. at 6.   

The Court held that the district court erred by requiring the patentee to present a claim construction that would show that the claims were subject matter eligible.  The Court noted that the claims are presumed to be eligible, and that the district court should have either required the defendant to establish by clear and convincing evidence that the only plausible construction of the patent rendered the subject matter ineligible, or should have adopted a construction most favorable to the patentee. 

The Court then turned to the district court's conclusion that the claims are ineligible subject matter, noting that for purposes of the appeal, a construction of the claims most favorable to the patentee will be adopted.  The claims recited a method for monetizing and distributing copyrighted products over the Internet, which the Court noted easily satisfies the meaning of a "process" under § 100 and hence falls within an eligible subject matter category.  Therefore, the Court also had to decide whether the claim is meaningfully limited to something less than an abstract idea that preempts the use of an abstract concept.  While the claimed method involved an abstract idea that advertising can be used as a form of currency, the Court noted that there are also meaningful limitations showing that the patent claim is a specific application of such an idea.

The Court then began to list several meaningful limitations included in the patent claim, noting that many of the steps require intricate and complex computer programming.  The Court noted that even without going into the specifics of the patent claim and by just looking at the claim on a general level, the claim cannot be considered an abstract idea and that "it wrenches meaning from the word to label the claimed invention 'abstract.'"  Id. at 27.  Based on the recited steps, the claim involved not an abstract idea, but a very specific application of the idea that advertising could be used to generate money.  Moreover, the record showed no evidence that the recited steps of the claim are all token presolution or postsolution steps.  Therefore, the Court ruled that the district court erred in deciding that the recited limitations did not limit the abstract idea.

Next, the Court turned to the contention that software programming necessary to facilitate the invention does not deserve patent protection or constitutes abstract subject matter.  In In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc), the Court reasoned that software programming essentially creates a "new machine," because the added programming transforms a general purpose computer into a special purpose computer programmed to perform particular functions pursuant to instructions from program software.  The Court noted that this "new machine" could be efficiently claimed in terms of the programming that facilitates a unique function.   Moreover, both the Court and the PTO have long recognized that improvements made through interchangeable software or hardware enhancements deserve patent protection.

The Court then addressed the issue of the '545 patent not outlining any specific detailed mechanism for delivering the media content to the consumer.  The Court noted that this lack of specificity does not make the patent claim abstract.  As long as the patent discloses sufficient information to allow a person of ordinary skill in the art to practice the invention and to satisfy the written description requirement, the disclosure does not have to provide detailed information for every step in the process.  In addition, written description and enablement are conditions that must be met for patentability, and not for subject matter eligibility.

The Court then distinguished this case from CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1373 (Fed. Cir. 2011), a case involving a patent describing a method and system for detecting fraud in credit card transactions.  The Court noted that, unlike the patent claims in CyberSource, the claims here require, among other things, controlled interaction with a consumer over an Internet website, which is "something far removed from purely mental steps."  Slip op. at 32-33.

Accordingly, the Court reversed the district court's dismissal of Ultramercial's patent claims for lack of subject matter and remanded for further proceedings. 

In a concurring opinion, Judge Lourie agreed with the Court's reversal of the judgment on appeal and its remand for further proceedings.  While he agreed with the Court that no formal claim construction is needed to interpret the claims at this stage, Judge Lourie would have followed a two-step inquiry, derived from Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012), for determination of patent eligibility under § 101.  Specifically, a court has to determine (1) whether the claimed invention falls within the four classes defined by § 101; and (2) whether the exceptions to subject matter eligibility apply to the invention.  CLS Bank Int'l v. Alice Corp., 2013 WL 1920941, at *9 (Fed. Cir. May 10, 2013).  In terms of abstractness, Judge Lourie would have determined whether the claim bears any risk of preempting an abstract idea by analyzing the fundamental concept embedded in the claim and then determining whether there are additional limitations to narrow the claim not to cover the full abstract idea.

Judges: Rader (author), Lourie (concurring), O'Malley

[Appealed from C.D. Cal., Judge Klausner]

This article previously appeared in Last Month at the Federal Circuit, July, 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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