Arbitrary and Capricious: Exploring Judge Lourie’s flip-flop in Ultramercial

In the aftermath of the Supreme Court’s decision in Alice v. CLS Bank, there have been several key rulings from the Federal Circuit. While we could have an interesting discussion about whether the game of bingo is an abstract idea (see Planet Bingo v. VKGS), there is little doubt that post-Alice the Federal Circuit decisions have made it clear computerized processes will have an uphill battle if there is a real-world analog to the process. This reality makes the November 14, 2014 decision in Ultramercial v. Hulu and Wild Tangent an important decision point in our overall understanding of the patentability of computerized processes (i.e., software) because the method at issue in the case did not have a real world analog and was specifically invented to deal with a problem unique to an Internet environment.

Ultramercial has the dubious distinction of having been decided several times by the Federal Circuit. In the most recent Federal Circuit ruling Judge Lourie starts the majority opinion by recognizing the yo-yo procedural history saying: “This appeal has returned to the court following an up and down journey to and from the Supreme Court.”

The first time the Federal Circuit had the opportunity to opine, in Ultramercial I, the Court reversed the district court dismissal of Ultramercial’s patent infringement lawsuit. The district court had ruled that the claims in question in U.S. Patent No. 7,346,545, did not define a patent eligible invention. WildTangent filed a petition for writ of certiorari to the Supreme Court. In the wake of the Supreme Court’s ruling in Mayo v. Prometheus, the Supreme Court remanded Ultramercial for reconsideration in light of the Mayo decision. Once again, this time in Ultramercial II, the Federal Circuit found that the claims in the ‘545 patent constituted patent eligible subject matter. Once again there was an appeal. This time the Supreme Court remanded Ultramercial for reconsideration in light of the Court’s recent decision in Alice v. CLS Bank. This time, in Ultramercial III, the Federal Circuit ruled that the claims int he ‘545 patent were not patent eligible.

Perhaps at first glance the Federal Circuit flip-flop after the Supreme Court’s ruling in Alice is not surprising. The Supreme Court was clearly skeptical of at least certain computer implemented processes, so it would seem logical that the Federal Circuit finally got the hint. The problem, however, is found in the details. For reasons known only to himself, in Ultramercial III, Judge Lourie changed course on a critical decision point without any explanation. Furthermore, Judge Lourie’s changed view had nothing to do with the Supreme Court’s decision in Alice.

In 2013, in a concurring opinion in Ultramercial II, Judge Lourie wrote:

As the majority correctly notes, the ’545 patent “claims a particular method for collecting revenue from the distribution of media products over the Internet” and, as a process, “falls within a category of patent-eligible subject matter.” Majority Op. at 25–26. The abstract idea at the heart of the ’545 patent, which the district court properly identified, is “us[ing] advertising as an exchange or currency.” Ultramercial, LLC v. Hulu, LLC, No. CV 09-06918 RGK, 2010 WL 3360098, at *6 (C.D. Cal. Aug. 13, 2010). The ’545 patent claims, however, require more than just that abstract idea as part of the claimed method.

The additional claim limitations reciting how that idea is implemented “narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.” CLS Bank, 2013 WL 1920941, at *10. While a computer or complex computer program, as discussed by the majority opinion, may be necessary to perform the method, it is not what the claim specifically requires and thus should not be the focus of the analysis. Likewise, although the number of claim limitations is also not an indication of patent-eligibility, unlike the method claims in CLS Bank, in my view, the added limitations in these claims represent significantly more than the underlying abstract idea of using advertising as an exchange or currency and, as a consequence, do not preempt the use of that idea in all fields. See CLS Bank, 2013 WL 1920941, at *15. Thus, under the CLS Bank plurality analysis, I agree with the majority that the district court erred in dismissing Ultramercial’s claims for lack of subject matter eligibility under § 101 due to abstractness.

(emphasis added).

But then in 2014, in writing for the majority in Ultramercial III, Judge Lourie wrote:

We conclude that the limitations of the ’545 claims do not transform the abstract idea that they recite into patent-eligible subject matter because the claims simply instruct the practitioner to implement the abstract idea with routine, conventional activity. None of these eleven individual steps, viewed “both individually and ‘as an ordered combination,’” transform the nature of the claim into patent-eligible subject matter. See Alice, 134 S. Ct. at 2355 (quoting Mayo, 132 S. Ct. at 1297, 1298). The majority of those steps comprise the abstract concept of offering media content in exchange for viewing an advertisement Adding 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… Given the prevalence of the Internet, implementation of an abstract idea on the Internet in this case is not sufficient to provide any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.” Mayo, 132 S. Ct. at 1297. In sum, each of those eleven steps merely instructs the practitioner to implement the abstract idea with “routine, conventional activit[ies],” which is insufficient to transform the patent-ineligible abstract idea into patenteligible subject matter. Id. at 1298. That some of the eleven steps were not previously employed in this art is not enough—standing alone—to confer patent eligibility upon the claims at issue.

(emphasis added).

The decision reached by Judge Lourie in Ultramercial II is diametrically opposite from the decision in Ultramercial III. In Ultramercial II, Judge Lourie says that the limitations in the claims represent significantly more than an abstract idea, but then in Ultramercial III, when reviewing the same claim language, he concludes that the claims repent nothing more than an abstract idea. What changed? Why do the claims no longer contain “significantly more”?

It seems that Judge Lourie has grown tired of being overruled by the Supreme Court and rather than continue to exercise his own independent judgment he is trying to decide cases and issues in a way consistent with how he imagines the Supreme Court might ultimately decide the issue.  But even attempts to scrupulously apply Supreme Court precedent results in the Federal Circuit being overruled, as the Court learned in Bilski v. Kappos. Further, Supreme Court decisions on patent eligibility are internally inconsistent and their precedent is hopelessly irreconcilable, particularly when you add in Parker v. Flook and Diamond v. Diehr. Attempting to channel the Supreme Court isn’t wise, is hardly even possible, and in my opinion it is an abdication of the Constitutional duties of a federal Judge.

In Mayo the Supreme Court refused to address the question about whether the claims were valid under sections 102, 103 and 112. Justice Breyer, writing for the Court, said:

These considerations lead us to decline the Govern­ment’s invitation to substitute §§102, 103, and 112 inquir­ies for the better established inquiry under §101.

It is nearly incomprehensible that any Judge on any level could utter such nonsense. Since Chief Justice John Marshall’s decision in Marbury v. Madison, the role of the Supreme Court has been as the final arbiter on the constitutionality of legislation. If a statute is unconstitutional the Supreme Court can strike it down. If the statute is constitution and not ambiguous then the Supreme Court is suppose to interpret it, not rewrite it. Increasingly this Supreme Court is acting as a legislative body and rewriting the patent laws section by section.

It was no “invitation” to apply §§102, 103, and 112, but rather it is a Constitutional mandate. The patent statutes are siloed, with each section meant to accomplish a different task. The Supreme Court in Mayo inexplicably overruled a litany of its own decisions that had chided other courts for forcing decision making into a single section rather than appropriately applying each section individually. But not only did the Supreme Court overrule its own long standing precedent, in doing so it engaged in ultra-Constitutional activity. The Congress makes the laws, not the Supreme Court.

As ridiculous and legally incorrect as the statement about lumping all of the patentability requirements into a single 101 inquiry is, this statement by Justice Breyer is hardly the most egregious statement made by the Supreme Court in a patent eligibility case over the past several years. In Association of Molecular Pathology v. Myriad Genetics, writing for a unanimous Court, Justice Thomas wrote:

But that isn’t correct either. The Patent Act says otherwise. Specifically, 35 U.S.C. 101, which was the statute that the Supreme Court was supposed to be interpreting, says this:

The statute has only 35 words, but it seems the Supreme Court couldn’t be bothered with reading it in its entirety. Had the Supreme Court actually read the statute they would have learned that discoveries are indeed patent eligible.

Clearly the Supreme Court is not infallible, and neither are they beyond rewriting an otherwise clear statute to make the law what they prefer it to be. In situations like this it is the Constitutional duty of federal judges to ignore the Supreme Court. Call it dicta if you must, but a clearly incorrect statement that directly contradicts a constitutional statute cannot under our system of government be considered to be binding legal precedent. We have checks and balances and the Supreme Court is not allowed to both write and interpret the law. If the statute is constitutional and not ambiguous the Supreme Court is required to apply it as written, period. The same goes for subordinate federal Judges, regardless of what the Supreme Court might say otherwise.

District Court and Appellate Court Judges in the federal system take an oath to defend the Constitution. These subordinate Judges have an extraordinarily important role to play in our system of government. Blindly following Supreme Court precedent in situations where the Supreme Court has acted beyond its Constitutional authority is an abdication of this enormous responsibility. It is time for the federal judiciary to point out that the Supreme Court is mistaken when it makes clearly erroneous statements. Discoveries are patent eligible and no federal court should ever rule otherwise.

Once upon a time Judge Lourie was a staunch defender of patent rights and a proponent of broad patent eligibility, as the explicit terms of the statute requires. It would be extremely unsettling if the Supreme Court has weakened Judge Lourie’s resolve to independently and properly interpret the Patent Act. If there is another explanation for his flip-flop on matters of patent eligibility I would love to hear it, but so far an explanation for diametrically different opinions has not been forthcoming. I don’t expect Judge Lourie to make a speech or hold a press conference like a politician, but if he is going to make diametrically opposite decisions in the same case, on the same facts, relating to the same claims, he owes litigants and the industry an explanation. Without an explanation it makes the entire process seem nothing more than arbitrary and capricious.

Many in the industry are asking, both privately and publicly, what has happened to Judge Lourie? The question is discussed in small groups at conferences, and increasingly on panels discussing patent eligibility of computer implemented inventions. I’ve even heard some suggest that perhaps it is time for Judge Lourie to retire.