Federal Circuit No. 2010-1544

On November 14, 2014, the United States Court of Appeals for the Federal Circuit (CAFC) handed down its decision in Ultramercial Inc. v. Hulu LLC and WildTangent, Inc. regarding the question of whether the claims of U.S. Patent No. 7,346,545 are directed to patent-eligible subject matter under 35 U.S.C. 101. The CAFC had previously held that the ‘545 patent does claim patent-eligible subject matter. However, the case had been remanded to the CAFC for further consideration in light of the Supreme Court decision in Alice Corp. v. CLS Bank International, 134 S.Ct. 2347 (2014). Now, the CAFC has held that the ‘545 patent does not claim patent-eligible subject matter.

Regarding the issue of whether a patent claim is directed to patent-ineligible subject matter, the CAFC sets forth a two-part test. First, determine whether the claims at issue are directed to a patent-ineligible concept, i.e., laws of nature, natural phenomena, and abstract ideas. Then, if the claims are directed to such a concept, determine whether the claims contain an element or combination of elements that is sufficient to ensure that the patent, in practice, amounts to significantly more than protection for the ineligible concept itself. SeeUltramercial at pp. 7-8.

In applying the first step, the CAFC refers to the district court finding “that the abstract idea at the heart of the ‘545 patent was ‘that one can use [an] advertisement as an exchange or currency,” and then indicates its agreement with this finding, concluding that “the concept . . . describes only the abstract idea of showing an advertisement before delivering free content.” Id. at pp. 9-10.

In applying the second step, the CAFC refers to “examin[ing] the limitations of the claims to determine whether the claims contain an ‘inventive concept’ to ‘transform’ the claimed abstract idea into patent-eligible subject matter,” further stating that “[t]hose ‘additional features’ must be more than ‘well-understood, routine, conventional activity.” Id. at p. 10. The CAFC concludes that “the limitations of the ‘545 claims 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 p. 11. In particular, the CAFC states that “[a]dding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet does not transform an otherwise abstract idea into patent-eligible subject matter.” Id. The CAFC is careful to indicate that “we do not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea.” Id. at p. 10. However, the CAFC also reiterates that “adding a computer to otherwise conventional steps does not make an invention patent-eligible” because “[a]ny transformation from the use of computers or the transfer of content between computers is merely what computers do and does not change the analysis.” Id. at p. 13. Further, the CAFC states that “the Internet is not sufficient to save the patent under the machine prong of the machine-or-transformation test” because “[i]t is a ubiquitous information-transmitting medium, not a novel machine.” Id. at pp. 12-13.

This case represents a significant challenge in drafting software claims which will satisfy the test of patent eligibility under 35 U.S.C. 101. In particular, the requirement of a claim element that provides “significantly more” than the otherwise abstract idea appears to be similar to the requirements under 35 U.S.C. 102 and 103 of novelty and nonobviousness. For this reason, especially with respect to software-based claims that tend towards methods of doing business, patent applicants should emphasize a novel and nonobvious aspect with respect to how the data is being processed or manipulated, in order to have a colorable argument that these same features satisfy the requirement for “significantly more” than the underlying abstract idea. If possible, the data should be linked to a tangible representative feature, perhaps a lapsed playing or viewing time. Software-based claims that process data representative of a physical or tangible characteristic (such as in audio or video processing) should include that representative aspect within the claim language, as well as the specification.

For a link to CAFC's decision, click here.