Ultramercial v. Hulu

Addressing patentable subject matter eligibility of an online method for distributing media to consumers by having the consumers first watch a paid advertisement, the U.S. Court of Appeals for the Federal Circuit reversed a lower court’s ruling of patent ineligibility, finding that the method was the application of an idea and constituted patent-eligible subject matter under 35 U.S.C. § 101. Ultramercial v. Hulu, Case No. 10-1544 (Fed. Cir., June 21, 2013) (Rader, C.J.).

Ultramercial obtained a patent claiming a method of distributing copyrighted products (e.g., songs, movies and books) over the internet. Under the patented method, the consumer receives a copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content. After Ultramercial sued Hulu, YouTube and WildTangent for infringement of its patent, the district court, citing Bilski (see IP Update, Vol. 11, No. 11) granted WildTangent’s motion to dismiss on the basis that the patent did not claim patent-eligible subject matter, but only an abstract idea. The Federal Circuit reversed the district court and remanded for further proceedings. However while that remand was pending, the Supreme Court vacated the Federal Circuit’s decision for reconsideration in view of its decision on Mayo (IP Update, Vol. 16, No. 6). Based on the earlier Federal Circuit remand order (IP Update, Vol. 14, No. 10), the district court again found that the patent did not claim patent-eligible subject matter, rather, that it claimed the abstract idea of using advertising as currency. Again, Ultramercial appealed.

Again, the Federal Circuit reversed, explaining that § 101 is a threshold check on patent eligibility and should be given wide scope to liberally encourage ingenuity. As the Court explained, the Supreme Court has over time created categories of ineligible subject matter, including abstract ideas and laws of nature. However, the Federal Circuit has cautioned that to be patent-ineligible, an abstract idea should exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter and that even the application of an abstract idea may well be deserving of patent protection.

As a procedural matter, the district court found the patent ineligible in the context of defendant’s Rule 12(b)(6) motion to dismiss for failure to state a claim. The Court noted that finding a patent invalid under § 101 based on a 12(b)(6) motion to dismiss should be the exception, not the norm, as even though it is ultimately a question of law, the decision will often be wrought with questions of fact. The Court further noted that there is a presumption that issued patents claim eligible subject matter and that the accused infringer must provide clear and convincing evidence to prove the contrary. Further, the Court noted the district court did not construe the claims, which is normally required when deciding patent eligibility under § 101. The Federal Circuit found that the district court erred in requiring the patentee to come forward with a claim construction that would show the claim were eligible. This requirement flips the burden of persuasion on its head, as the claim is presumed to be patent-eligible due to the patent office’s issuance of the claim.

The Federal Circuit focused on the distinction between a patent directed to abstract idea compared to an application of an abstract idea. The Court noted that the whole claim must be considered, and the analysis cannot ignore steps of a method that are found in the prior art, as a new combination of prior art steps can lead to a patentable claim. The Court confirmed that the relevant query is whether a claim, as a whole, includes meaningful limitations restricting it to an application of an idea, rather than merely an abstract idea. The Court found that a claim is not meaningfully limited if its purported limitations provide no real direction, cover all possible ways to achieve the provided result or are overly-generalized. Further, a claim is meaningfully limited if it requires a particular machine implementing a process or a particular transformation of matter, or if it recites added limitations which are essential to the invention.

The Federal Circuit agreed that the idea of using advertising as a form of currency is an abstract idea. However, the Court found that the asserted claims put meaningful limitations on that idea, specifically that the steps of the method require intricate and complex computer programming, and several steps require that the method be performed through computers, on the internet and in a cyber-market environment. The application of the idea overcomes the problem that viewers of copyrighted material could ignore banner ads or skip over advertising before accessing the copyrighted material.