In the June 21, 2013 Federal Circuit decision in Ultramercial, Inc. v. Hulu, LLC, the court again reversed the district court’s finding that the claims at issue fail to satisfy § 101. Writing the opinion for the court, Judge Rader delves into patent eligibility jurisprudence and provides guideposts that stakeholders wrestling with § 101 issues may find useful.

The Patent At Issue

The patent at issue was U.S. Patent No. 7,346,545. As summarized by the Federal Circuit, the “patent 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.” The Federal Circuit opinion identifies claim 1 as representative:

A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:
a first step of receiving, from a content provider, media products that are covered by intellectual property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;
a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;
a third step of providing the media product for sale at an Internet website;
a fourth step of restricting general public access to said media product;
a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;
a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;
a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;
an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;
a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;
a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and
an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

The Ultramercial Case

Ultramercial sued Hulu, LLC, YouTube, LLC, and WildTangent for infringing the ‘545 patent. (Hulu and YouTube have been dismissed from the case.) WildTangent moved to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the ground that the patent does not claim patent-eligible subject matter. The district court granted the motion, and Ultramercial appealed to the Federal Circuit. In a decision issued in 2011, the Federal Circuit reversed and remanded, but the Supreme Court vacated that Federal Circuit decision in the wake of its decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. In the decision issued June 21, 2103, the Federal Circuit “again holds 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,” and “again reverses and remands.”

Patent-Eligibility Generally Should Not Be Decided On A Motion To Dismiss

Judge Rader criticized the district court for dismissing Ultramercial’s case at such an early stage, without taking into account the presumption of validity that attaches to a granted patent, considering the underlying facts, or construing the claims.

[I]t will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter. This is so because every issued patent is presumed to have been issued properly, absent clear and convincing evidence to the contrary. … Further, if Rule 12(b)(6) is used to assert an affirmative defense, dismissal is appropriate only if the well-pleaded factual allegations in the complaint, construed in the light most favorable to the plaintiff, suffice to establish the defense. … Thus, 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.

With regard to the need to consider the underlying facts, Judge Rader notes:

[T]he analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues. … [T]here is no doubt the § 101 inquiry requires a search for limitations in the claims that narrow or tie the claims to specific applications of an otherwise abstract concept. … Further, factual issues may underlie determining whether the patent embraces a scientific principle or abstract idea. … If the question is whether “genuine human contribution” is required, and that requires “more than a trivial appendix to the underlying abstract idea,” and were not at the time of filing “routine, well-understood, or conventional,” factual inquiries likely abound…. Likewise, any inquiry into the scope of preemption—how much of the field is “tied up” by the claim—by definition will involve historic facts: identifying the “field,” the available alternatives, and preemptive impact of the claims in that field.

While recognizing that claim construction may not always be required, Judge Rader believes that “claim construction normally will be required,” particularly if there are any factual disputes. Further, “even if not required, on many occasions a definition of the invention by claim construction can clarify the basic character of the subject matter of the invention. Thus, claim meaning may clarify the actual subject matter at stake in the invention and can enlighten, or even answer, questions about subject matter abstractness. Judge Rader also reminds us that “the question of eligible subject matter must be determined on a claim-by-claim basis,” although “[c]onstruing every asserted claim and then conducting a § 101 analysis may not be a wise use of judicial resources.”

Judge Rader’s Explication of Patent-Eligibility Jurisprudence

Before addressing the claims at issue, Judge Rader provides a 17 page discussion of the patent-eligibility requirement embodied in § 101.

On the breadth of the statute:

The statute controls the inquiry into patentable subject matter. 35 U.S.C. § 101 sets forth the categories of subject matter that are eligible for patent protection: “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” (Emphasis added). Underscoring its breadth, § 101 both uses expansive categories and modifies them with the word “any.”

On the legislative history behind the breadth of the statute:

[T]he 1952 amendments added § 100(b) to ensure that doubts about the scope of a “process” under the pre-1952 version of the patent statute would not be read into the new Act. …. Thus, changes were made to the 1952 Act to broaden eligible subject matter and eliminate doubt caused by narrow interpretations given to the prior statute. … At a time when Congress considered § 101, it broadened the statute and certainly did not place any specific limits on it.

On the limited role of the patent-eligibility requirement:

As § 101 itself expresses, 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. … By directing attention to the substantive criteria for patentability, Congress made it clear that the categories of patent eligible subject matter are no more than a “coarse eligibility filter.” … After all, the purpose of the Patent Act is to encourage innovation, and the use of broadly inclusive categories of statutory subject matter ensures that “ingenuity . . . receive[s] a liberal encouragement.” … The plain language of the statute provides that any new, non-obvious, and fully disclosed technical advance is eligible for protection.

 On the judicially-created exceptions to patent-eligibility:

[C]ase law has recognized only three narrow categories of subject matter outside the eligibility bounds of § 101—laws of nature, physical phenomena, and abstract ideas. … The [Supreme] Court’s motivation for recognizing exceptions to this broad statutory grant was its desire to prevent the “monopolization” of the “basic tools of scientific and technological work,” which “might tend to impede innovation more than it would tend to promote it.” … To sum up, because eligibility requires assessing judicially recognized exceptions against a broad and deliberately expanded statutory grant, one of the principles that must guide our inquiry is these exceptions should apply narrowly.

 On the presumption of validity:

[W]hen a patent issues, it does so after the Patent Office assesses and endorses its eligibility under § 101, just as it assesses and endorses its patentability under the other provisions of Title 35. … Accordingly, any attack on an issued patent based on a challenge to the eligibility of the subject matter must be proven by clear and convincing evidence.

On the “abstract idea” exception:

Clearly, a process need not use a computer, or some machine, in order to avoid “abstractness.” … An abstract idea is one that has no reference to material objects or specific examples—i.e., it is not concrete. … [A] claim is not patent eligible only if, instead of claiming an application of an abstract idea, the claim is instead to the abstract idea itself. The inquiry here 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?

On applying the “abstract idea” exception:

In determining on which side of the line the claim falls, the court must focus on the claim as a whole. … 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. … For these reasons, a claim may be premised on an abstract idea and, indeed, the abstract idea may be of central importance to the invention—the question for patent eligibility is whether the claim contains limitations that meaningfully tie that abstract idea to an actual application of that idea through meaningful limitations.

 On “preemption”:

[If] a claim covers all practical applications of an abstract idea, it is not meaningfully limited. … While this concept is frequently referred to as “pre-emption,” it is important to remember that all patents “pre-empt” some future innovation in the sense that they preclude others from commercializing the invention without the patentee’s permission. Pre-emption is only a subject matter eligibility problem when a claim pre-empts all practical uses of an abstract idea. … As noted at the outset, whether a claim preempts “too much” will often require claim construction and factual inquiries.

 On the possibility of a research exception:

 The pre-emption analysis must also recognize that the Patent Act does not halt or impede academic research, without commercial ends, to test, confirm, or improve a patented invention. See Sawin v. Guild, 21 F. Cas. 554, 555 (C.C.D. Mass. 1813) (No. 12,391) (Story, J.) (infringement does not occur when the invention is used “for the mere purpose of philosophical experiment, or to ascertain the verity and exactness of the specification”).

The Ultramercial Claims

Turning to the case at issue, Judge Rader states:

[T] he claims in this case are not highly generalized. Instead, the ten specific steps in the claim limit any abstract concept within the scope of the invention. Further, common sense alone establishes that these steps are not inherent in the idea of monetizing advertising. There are myriad ways to accomplish that abstract concept that do not infringe these claims. …

Judge Lourie’s Concurrence

Judge Lourie joined in the court’s judgment but wrote a concurring opinion urging the court to “concisely and faithfully follow the Supreme Court’s most recent guidance regarding patent eligibility in Mayo Collaborative Services v. Prometheus Laboratories, Inc.,” and “the plurality opinion of five judges from this court in CLS Bank International v. Alice Corp.” Judge Lourie outlines the following analytical process:

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.

In the case of abstractness … we must determine whether the claim poses “any risk of preempting an abstract idea.” … To do so we must first “identify and define whatever fundamental concept appears wrapped up in the claim”; a claim construction may be helpful in this analysis. … Then, proceeding with the preemption analysis, the balance of the claim is evaluated to determine whether “additional substantive limitations . . . narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.”

Judge Lourie follows this analytical framework, and concludes that the Ultramercial claims satisfy § 101. 

Putting § 101 Back in Its Place?

As I read this decision, I got the impression that Judge Rader was doing his best to put  § 101 back in its place as a minor hurdle on the road to obtaining a patent. He emphasizes that the statutory language defining what is patent eligible is broad, the judicially-created exceptions to patent eligibility are narrow, and the statute has a limited role. While it is good to know that Judge Rader is on our side, it seems likely that patent applicants and patent holders will have to wrestle with  § 101 until a stronger body of case law interpreting and applying Bilski, Prometheus, and Myriad is developed.