Judges:  Lourie (author), Mayer (concurring), O’Malley

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

In Ultramercial, Inc. v. Hulu, LLC, No. 10-1544 (Fed. Cir. Nov. 14, 2014), the Federal Circuit affirmed the district court’s determination that the asserted patent did not claim patent-eligible subject matter.

Ultramercial, Inc. and Ultramercial, LLC (collectively “Ultramercial”) own U.S. Patent No. 7,346,545 (“the ’545 patent”), which is directed to a method for distributing copyrighted media over the Internet to consumers in exchange for them viewing an advertisement.  Ultramercial sued WildTangent, Inc. (“WildTangent”), Hulu, LLC (“Hulu”), and YouTube, LLC (“YouTube”), alleging infringement of  the ’545 patent.  Hulu and YouTube were subsequently dismissed.  WildTangent moved to dismiss for failure to state a claim, arguing that the ’545 patent did not claim patent-eligible subject matter.  The district court granted WildTangent’s motion.  Ultramercial appealed.

“That some of the eleven steps were not previously employed in this art is not enough—standing alone—to confer patent eligibility upon the claims at issue.”  Slip op. at 12.

On appeal, the Federal Circuit initially reversed the district court’s grant of WildTangent’s motion.  WildTangent then filed a petition for a writ of certiorari to the Supreme Court, who granted the petition, vacated the Court’s decision, and remanded for further consideration in light of Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. __, 132 S. Ct. 1289 (2012).  On remand, the Federal Circuit again reversed the district court’s grant of the motion.  WildTangent then filed a second petition for a writ of certiorari, which the Supreme Court granted, vacating the Federal Circuit’s second decision and remanding for further consideration in light of Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014).  On the second remand, the Federal Circuit applied the Supreme Court’s two-part § 101 framework set forth in Alice and Mayo, and held that the claims of the ’545 patent are not directed to patent-eligible subject matter.  

Under this framework, the Federal Circuit first considered whether the ’545 patent’s claims were directed to an abstract idea.  After examining the eleven steps recited in claim 1, the Court concluded that the claim “describes only the abstract idea of showing an advertisement before delivering free content.”  Slip op. at 9-10.  The Court further explained that these steps have “no particular concrete or tangible form.”  Id. at 9.  The Court rejected Ultramercial’s position that “the addition of merely novel or  non-routine components to the claimed idea necessarily turns an abstraction into something concrete,” explaining that “any novelty in [the] implementation of the idea is a factor to be considered only in the second step of the Alice analysis.”  Id. at 10.

Next, the Federal Circuit turned to the second step of the Alice framework and considered “whether the claims do significantly more than simply describe [the] abstract method.”  Id.  The Court concluded that the additional limitations of the ’545 patent do not transform the abstract idea into patent-eligible subject matter because “the claims simply instruct the practitioner to implement the abstract idea with routine, conventional activity.”  Id. at 11.  The Court explained that routine additional steps of updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet were only “‘conventional steps, specified at a high level of generality,’ which [are] insufficient to supply an ‘inventive concept.’”  Id. (quoting Alice, 134 S. Ct. at 2357).  The Court further explained that several of the recited steps were mere data-gathering and presolution activity, which did not create patent-eligible subject matter.  The Court also stated that “invocation of the Internet also adds no inventive concept,” id. at 11, because limiting the use of the abstract idea to a particular technological environment is insufficient to provide any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself,” id. at 12 (alteration in original) (quoting Mayo, 132 S. Ct. at 1297).  The Court then held that the fact that “some of the eleven steps were not previously employed in this art [was] not enough—standing alone—to confer patent eligibility upon the claims at issue.”  Id.

The Court next considered whether the claims satisfied the machine-or-transformation test, but noted that this test is not the sole test governing § 101 analyses.  The Court explained that the claims were not tied to a particular novel machine or apparatus, but only a general purpose computer.  The Court also stated that tying the claim to the Internet was insufficient to satisfy the machine prong of the test because the Internet “is a ubiquitous information-transmitting medium, not a novel machine.”  Id. at 13.  The Court explained that the ’545 patent’s claims do not transform any article to a different state or thing because they refer to a transaction involving the grant of permission and viewing of an advertisement by a consumer, and the exchange of money between a sponsor and a content provider.  Because these were “manipulations of ‘public or private legal obligations or relationships, business risks, or other such abstractions,’” the Court held that the claims did not transform any article into a different state or thing. Id. (quoting In re Bilski, 545 F.3d 943, 963 (Fed. Cir. 2008) (en banc), aff’d on other groundsBilski v. Kappos, 561 U.S. 593 (2010)).

The Court thus affirmed the district court’s grant of the motion to dismiss on the ground that the ’545 patent does not claim patent-eligible subject matter.

Judge Mayer concurred with the opinion, but wrote separately to emphasize three points.  First, Judge Mayer asserted that whether claims satisfy 35 U.S.C. § 101 is a threshold question that must be addressed at the outset of litigation.  Second, Judge Mayer asserted that no presumption of eligibility attends the § 101 inquiry.  Third, Judge Mayer asserted that Alice, “for all intents and purposes, sets out a technological arts test for patent eligibility.”  Mayer Concurrence at 1.  Judge Mayer concluded that, because “the purported inventive concept in Ultramercial’s asserted claims is an entrepreneurial rather than technological one, they fall outside section 101.”  Id.