In CyberSource Corporations v. Retail Decisions, Inc., Judge Dyk (joined by Judges Bryson and Prost) ruled that a method and system for detecting credit card fraud in Internet transactions was patent-ineligible under 35 U.S.C. §101. But in Ultramercial, LLC v. Hulu, LLC, Chief Judge Rader (joined by Judges Lourie and O’Malley) just ruled that a claimed method for monetizing and distributing copyrighted products over the Internet was patent-eligible. In fact, our good Chief Judge has “thrown down the gauntlet” at his Federal Circuit colleagues by stating “breadth and lack of specificity does not render the claimed subject matter impermissibly abstract.” Wow! That “judicial donnybrook” I mentioned in my recent article on the remand decision in Classen Immunotherapies, Inc. v. Biogen IDEC (see CAFC on Patent-Eligibility: A Firestorm of Opinions in Classen ) on what the standard is (or should be) for patent-eligibility under 35 U.S.C. §101 has now broken out.
In Ultramercial, the patentee (Ultramercial) asserted that U.S. Pat. No. 7,346,545 (the ‘545 patent) was infringed by Hulu, LLC (“Hulu”), YouTube, LLC (“YouTube”), and WildTangent, Inc. (“WildTangent”). The ‘545 patent,relates to a method for distributing copyrighted products (e.g., songs, movies, books, etc.) over the Internet for free in exchange for viewing an advertisement with the advertiser paying for the copyrighted content. What is interesting in this case is that Claim 1 of the ‘545 patent that is allegedly infringed by Hulu, YouTube, and WildTangent recites a method having not one, not two, but eleven total steps. (Side note: One might wonder how anyone can infringe an eleven step method.) WildTangent’s motion to dismiss for failure to state a claim was granted by the district court based on the claimed method being patent-ineligible under 35 U.S.C. § 101. (Hulu and YouTube were dismissed from the case apparently for other reasons.)
In reviewing Ultramercial’s appeal, Chief Judge Rader noted that the district court had failed to formally construe the claims of the ‘545 patent. Rader acknowledged that formally construing the claims was not required for determining patent-eligibility 35 U.S.C. § 101, as patent-eligibility is a “coarse” gauge, citing his opinion in Research Corp. Technologies v. Microsoft Corp. But the Chief Judge also observed that on “many occasions, however, a definition of the invention via claim construction can clarify the basic character of the subject matter of the invention,” and that “claim meaning may clarify the actual subject matter at stake in the invention and can enlighten, or even answer, questions about subject matter abstractness.”
Most significantly, Rader also observed that patent-eligibility under 35 U.S.C. § 101 “is merely a threshold check; claim patentability ultimately depends on ‘the conditions and requirements of this title,’ such as novelty, non-obviousness, and dequate disclosure,” citing to the decision in the Classen remand in which he joined Judge Newman’s majority opinion. Citing again to his opinion in Research Corp. Technologies, Rader further observed that the broad statutory categories in 35 U.S.C. § 101 “are certainly not substitutes for the substantive patentability requirements set forth in [35 U.S.C.] § 102, § 103, and § 112.” Amen to that statement!
The Chief Judge then stated that the “judicial case law” had created only three exceptions to patent-eligibility, namely laws of nature, physical phenomena, and abstract ideas, citing to the Supreme Court’s recent decision in Bilski v. Kappos. Noting that laws of nature and physical phenomena “cannot be invented,” Rader made an interesting yet astute statement regarding the third category of exceptions (abstract ideas): “Abstractness, however, has presented a different set of interpretive problems, particularly for the [35 U.S.C.] § 101 ‘process’ category.” Amen to that statement as well!
In what may become the definitive answer to a question that has (unfortunately) lingered since the Supreme Court’s ruling in Bilski, Chief Judge Rader categorically stated that the Supreme Court, in Bilski, “refused to deem business methods ineligible for patent protection.” That statement may cause an “Excedrin-size headache” for the “naysayers” of so-called “business methods” being patent-eligible. In fact, Rader’s next statement may truly cause a conniption for those who oppose the patent-eligibility of computer software: “this court [i.e., the Federal Circuit] detects no limitations or conditions on subject matter eligibility expressed in the statutory language [i.e., in reference to 35 U.S.C. § 101],” citing to Association for Molecular Pathology (AMP) v. USPTO and Prometheus Laboratories, Inc. v. Mayo Collaborative Services, as well as the Supreme Court’s Bilski decision.
In somewhat nostalgically noting how the “machine-or-transformation” logic (rejected by the Supreme Court in Bilski as the exclusive test for determining patent-eligibility under 35 U.S.C. § 101) “served well as a tool to evaluate the subject matter of Industrial Age processes,” the Chief Judge stated “that test has far less application to the inventions of the Information Age.” In fact, Rader also astutely observed that “[t]echnology without anchors in physical structures and mechanical steps simply defy easy classification under the machine-or-transformation categories.” What a refreshing comment from the judiciary aboutthe reality of today’s “growth” technology!
In an ultimate “truism,” the Chief Judge stated that “[b]oth members of the Supreme Court and this court have recognized the difficulty of providing a precise formula or definition for the judge-made ineligible category of abstractness.” (Rader pointed to Judge Steven’s comment in Bilski about the Supreme Court never providing a “satisfactory account of what constitutes an unpatentable abstract idea,” which is the only part of Steven’s concurring/dissenting opinion I agree with at all.) In a real “cathartic” moment for patent-eligibility determinations under 35 U.S.C. § 101, Rader said: “Because technology is ever-changing and evolves in unforeseeable ways, this court gives substantial weight to the statutory reluctance to list any new, non-obvious, and fully disclosed subject matter as beyond the reach of [T]itle 35.” (Rader also made reference to 35 U.S.C. § 101 a being a “dynamic provision designed to encompass new and unforeseen inventions,” citing the Supreme Court’s 2001 decision in J.E.M Ag Supply, Inc. v. Pioneer Hi-Bred International, Inc.) The Chief Judge concluded this exposition on where the law on patent-eligibility should (hopefully) go in the future by saying that, while “abstract principles” are not patent-eligible, “an application of an abstract idea may well be deserving of patent protection,” citing the trio of early Supreme Court cases directed to the patent-eligibility of computer technology (i.e., Diamond v. Diehr, Parker v. Flook, and Gottschalk v. Benson).
Turning next to the claims of the ‘545 patent, the Chief Judge first noted that, as reciting a method, these claims easily fell within the definition of “process” in 35 U.S.C. § 100(b), and thus were within the statutory categories set forth in 35 U.S.C. § 101. Next, Rader made reference to his Research Corp. Technologies opinion again: “’[I]nventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act.” In this regard, he noted the following with respect to the claimed method: (1) it “purport[ed] to improve existing technology in the marketplace; and (2) it “invoke[d] computers and applications of computer technology.” Unlike the “vague, unapplied concept of hedging” in Bilski, the method of the ‘545 patent “discloses a practical application of [the age-old idea that advertising can serve as currency].” For example, Rader observed that many of the eleven steps recited in the claimed method “are likely to require intricate and complex computer programming.” Rader later noted that the 1994 Federal Circuit case of In re Alappat had confronted the “contention” that software programming wasn’t entitled to patent protection, and that he had, in a concurring opinion, essentially considered a software process to be the functional equivalent of hardware circuitry (and thus not “abstract”).
At that point, the Chief Judge made his “quintessential” statement above about “broadness” and “lack of specificity” not being necessarily equivalent to “impermissible abstractness.” But Rader also had to confront one other case law “obstacle” that loomed in the way: Judge Dyk’s opinion in CyberSource to the contrary on what might appear, at first blush, a similar method involving transactions on the Internet. But the Chief Judge deftly distinguished CyberSource as involving a claimed method considered to be purely “mental steps” which was a “particularly narrow” exclusion. By contrast, the claimed method in Ultramercial was “something far removed from purely mental steps,” as well as requiring at least “controlled interaction with a consumer via an Internet website.” Rader then concluded with yet one last reference to his Research Corp. Technologies opinion that the claimed method in Ultramercial was not “so manifestly abstract as to override the statutory language of [35 U.S.C. § 101].” (Well, at least concluded with respect to the patent-eligibility question, as the opinion then finished with the following statement: “This decision does not opine at all on the patentability of the claimed invention under the substantive criteria set forth in [35 U.S.C.] § 102, § 103, and § 112.”)
Some will undoubtedly view the Chief Judge’s basis in Ultramercial for distinguishing the ruling in CyberSource as being “slight of hand” and using “mirrors,” but it certainly illustrates the wide gulf of views between the various members on the Federal Circuit on the patent-eligibility question. I wouldn’t be surprised (and frankly it needs to happen) if both Ultramercial and CyberSource ended up before the en banc Federal Circuit. As I’ve noted previously, we’ve currently got what appear to be irreconcilable decisions in the Classen, Prometheus, and AMP cases in determining the patent-eligibility of certain medical (e.g., diagnostic) methods. With what appears to be similarly conflicting decisions in Ultramercial and CyberSource, the gauntlet has truly been thrown down. An en banc Federal Circuit needs to step in soon, or the conflagration that currently exists in the patent-eligibility “war” might soon consume us all.
*© 2011 Eric W. Guttag.