Ultramercial Inc. v. Hulu, LLC: Federal Circuit Invites Early Challenges to Subject Matter Eligibility of Software Patents

November.21.2014

Earlier this year, in Alice v. CLS Bank, the Supreme Court set out guidelines for determining whether patents claiming software and hardware features are statutorily eligible for patentability under 35 U.S.C. § 101. Following the Supreme Court's lead, the Federal Circuit recently provided additional guidance on how—and procedurally when—patentability challenges under 35 U.S.C. § 101 should be made by alleged infringers and considered by district courts.

In Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544 (Fed. Cir. Nov. 14, 2014), the Court of Appeals affirmed a district court's ability to rule on patent eligibility at the motion to dismiss stage, without the benefit of discovery or formal claim construction. With this decision, the Federal Circuit departs from its previous procedural and substantive views on patentable subject matter eligibility in favor of a less rigid approach that occurs earlier in litigation. The decision also tacitly approves the mechanisms that several district court have recently employed in granting motions to dismiss infringement claims under Alice pursuant to Federal Rule of Civil Procedure 12(b)(6) and 12(c).

Background

The plaintiff, Ultramercial, brought suit in 2009 in the Central District of California, alleging infringement by three defendants of a patent that covers a method for distributing copyrighted media over the Internet to a consumer at no cost in exchange for viewing an advertisement, with the advertiser paying for the copyrighted content. Claim 1, for example, has 11 distinct but generic steps such as "providing the media product for sale at an Internet website" and "restricting general public access to said media product."

One of the defendants filed a Rule 12(b)(6) motion to dismiss, asserting that the claims were not patent-eligible under § 101. The district court granted the motion and ruled, without formal claim construction, that the claims did not claim eligible subject matter. Ultramercial, LLC v. Hulu, LLC, No. 09-06918, 2010 WL 3360098, at 6-7 (C.D. Cal. Aug. 13, 2010).

The tortured appellate history of Ultramercial that followed reveals the evolution of the § 101 standard over the next four years in both the Federal Circuit and the United States Supreme Court. The Federal Circuit twice reversed the finding of non-patentability, only to have both decisions vacated by the Supreme Court in the wake of its respective decisions in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and Alice v. CLS Bank. Now, three years after its first effort, the Federal Circuit has issued a new ruling that reaches a different outcome than the first two.

Recent Opinion

In its recent third opinion on the subject, the Federal Circuit completely abandoned its prior views on Rule 12(b)(6) and patent ineligibility and charted a different course based on the Alice framework. Under Alice, a court decides first whether a patent claim is directed to a patent-eligible concept and, if not, whether the claim transforms the abstract idea into a patent-eligible invention. The Ultramercial decision provides further insight into how and when this two-part test should be applied.

Applying the first part of the Alice test, the Federal Circuit in Ultramercial found—without construing the asserted patent claims—that those claims recited an abstract idea. This was the same conclusion reached by the court in its first opinion on patent eligibility, in which it nevertheless found that the claims were patent-eligible because they claimed a practical application of the abstract idea.

This time, applying the second step of the Alice framework, the Federal Circuit held that Ultramercial's patent claims were not patent-eligible because they did not describe "significantly more" than the abstract idea. Citing the "machine-or-transformation" test for patent eligibility—which has been deemed a useful tool, but not a mandatory requirement—the court noted that the claims were not tied to any novel machine or apparatus. More importantly, the claims' invocation of a general computer and the Internet added no inventive concept; rather, the "transfer of content between computers is merely what computers do." In other words, the claimed steps simply instructed the practitioner to implement the abstract idea with "routine, conventional activity" and thus failed to transform the idea into patentable subject matter. The decision sets a high bar for novel computer implementation, holding that the mere fact some method steps may not previously have been employed in the art is insufficient to confer patent eligibility upon an idea.

Judge Mayer's Concurrence

A concurring opinion by Judge Mayer raises three critical points that will be of keen interest to practitioners raising the issue of patentable subject matter.

First, Judge Mayer noted that whether claims meet the demands of 35 U.S.C. § 101 is a threshold question, which he felt "must be addressed at the outset of the litigation." As with a jurisdictional inquiry, a court must "likewise first assess whether claimed subject matter is even eligible for patent protection before addressing questions of invalidity or infringement." A failure "to recite statutory subject matter is the sort of 'basic deficiency,' that can, and should, 'be exposed at the point of minimum expenditure of time and money by the parties and the court.'"

Second, Judge Mayer contended that no presumption of eligibility should attend the § 101 inquiry. The presumption of validity relies on the assumption that the United States Patent and Trademark Office (USPTO) "in its expertise, has approved the claim." However, Judge Mayer felt that because the Supreme Court has only recently "righted the ship and returned the nation's patent system to its constitutional moorings" with regard to § 101 in Alice, the USPTO for years had applied an incorrect subject matter eligibility standard.

Finally, Judge Mayer contended that Alice essentially set a technological arts test for patent eligibility. It has long been acknowledged that the patent system is meant to encourage "the onward march of science," and so "its rewards do not flow to ideas—even good ones—outside of the technologic arena."  Judge Mayer felt that because the purported inventive concept in Ultramercial's asserted claims was an entrepreneurial rather than technological one, it fell outside of the ambit of § 101.

Conclusion

Whether or not the views in Judge Mayer's concurrence gain widespread approval, Ultramercial encourages alleged infringers to consider the issue of patent eligibility early in litigation, and the majority opinion provides a clear blueprint on how to proceed in the context of a motion to dismiss without the need for expensive discovery or claim construction.