Ultramercial Inc. v. Hulu LLC -- Party Briefs

By Michael Borella --

Introduction

This case has a storied history.  Ultramercial sued Hulu, YouTube, and WildTangent for infringement of U.S. Patent No. 7,346,545.  Hulu and YouTube were eventually dismissed from the case.  On a 12(b)(6) motion, the District Court held that the '545 patent does not claim patent-eligible subject matter under 35 U.S.C. § 101.  On appeal, the Federal Circuit reversed and remanded.  However, that decision was vacated by the Supreme Court.  Back in the Federal Circuit again, a unanimous panel of Chief Judge Rader, Judge O'Malley, and Judge Lourie once again reversed the District Court, finding the claims did indeed address patent-eligible subject matter.  Notable here was the agreement between Chief Judge Rader and Judge Lourie, who had previous adopted opposing views regarding the test to apply to claims that incorporate one of the exceptions to § 101.

WildTangent petitioned for Supreme Court review.  On June 30th of this year, the Court granted the petition for writ of certiorari, vacated the Federal Circuit's judgment, and remanded the case back to the Federal Circuit for further consideration in view of the Court's then-recent Alice Corp. v. CLS Bank decision.  Since Chief Judge Rader has stepped down in the interim, the remand will be heard by Judges O'Malley and Lourie.  If these two judges cannot reach an agreement about the case, a third Federal Circuit judge will be appointed to break the tie.  (See Fed. Cir. R. 47.11.)

While oral arguments have yet to be scheduled, both Ultramercial and WildTangent submitted supplemental briefs in late August.  These briefs argue why the Alice decision should or should not change the panel's ruling.  Bubbling under the surface of these arguments, however, is evidence that the Supreme Court's Alice decision not only muddied the waters between patent-eligibility and obviousness, but has essentially turned the patent-eligibility analysis into an obviousness analysis in which prior art does not need to be cited.

Example Claim

Claim 1 of the '545 patent recites:

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.

WildTangent's Brief

WildTangent begins its brief by restating the two-prong subject matter eligibility test of Alice.  The first prong is to determine whether the claims are directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea.  If so, the second prong is to determine whether any additional claim elements transform the nature of the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself.

WildTangent then characterizes the '545 patent as being drawn to "the abstract idea of offering free media in exchange for watching advertisements," contending that this "basic concept of using advertising as a form of currency, which has grounded the broadcast television industry for decades, is unquestionably a fundamental economic practice."  WildTangent then contends that this concept is similar to the concepts in other "business method" inventions that were found to be abstract by the Federal Circuit, including those of Accenture Global Servs. v. Guidewire Software, Inc., Bancorp Servs., LLC v. Sun Life Assurance, Dealertrack, Inc. v. Huber, Fort Props., Inc. v. American Master Lease LLC, and CyberSource Corp. v. Retail Decisions, Inc.

Moving to the second prong of the Alice test, WildTangent asserts that the '545 patent's lengthy claim 1 merely breaks this abstract idea into a series of steps without introducing any meaningful, narrowing limitations.  Eight of these steps, according to WildTangent, "simply instruct the practitioner to implement the abstract advertisement-media-exchange idea or various necessary prerequisites," while the remaining three steps recite insignificant pre- or post-solution activity.  Further, WildTangent contends that the claims being directed to distribution of a media product is a field of use limitation that is insufficient to provide subject matter eligibility under Alice.

WildTangent also takes the position that the adding "well-known . . . Internet functionality" to a claim is the same as adding well-known generic computer functionality to a claim, in that such functionality is not a significant limitation that would lend patentability to the claim.  In doing so, WildTangent essentially argues that the claimed use of the Internet is in the prior art.  When all is said and done, WildTangent represents that the "claims themselves provide no guidance beyond restating the abstract idea and directing practitioners to apply it," which places the '545 patent in the same place as Alice's patents with regard to § 101.

If WildTangent's argument seems like it seeks to establish obviousness under § 103 rather than patent-ineligibility under § 101, that is no mistake.  After Alice, these notions appear to be analogous, because claims that fail that case's § 101 test are effectively obvious per-se.

Turning to the procedural issue (which may have won the day for Ultramercial in the previous Federal Circuit opinion), WildTangent notes that "patent-eligibility is a question of law and no formal claim construction or fact finding is necessary to dispose of this case under § 101."  Thus, WildTangent believes that this action is suitable for a 12(b)(6) motion, and no fact discovery or claim construction is needed for the Federal Circuit to invalidate of the claims.

Ultramercial's Brief

Ultramercial starts off its argument by describing the patented technology as new, noting that the invention "did not appear in brick-and-mortar stores, and it did not appear online, where all advertising was passive in nature."  Ultramercial accuses WildTangent of "shoehorn[ing] the claimed method into the artificial construct of advertising as currency . . . artfully recasting [the] claim at the highest possible level of generality" in a way that was forbidden by Alice.

Similarly, Ultramercial disputes WildTangent's notion that the '545 patent was directed to a fundamental, longstanding economic principle.  Instead, Ultramercial writes "[i]f the '545 patent reflected such well-understood, routine, conventional activity, one would expect to find at least some evidence that this activity existed before the claimed method was disclosed in the '545 patent."  Ultramercial states that WildTangent has been unable to cite any such evidence, and that the "patented process was the very opposite of well-understood, routine, or conventional, which is exactly why it proved a groundbreaking and successful means of operating commercial website."

If it seems as if Ultramercial is making a non-obviousness argument and invoking a secondary consideration while doing so, that is also no mistake.  Without actually coming out and saying it, Ultramercial is viewing a § 101 defense under Alice in the same light as a § 103 defense.  In fact, Ultramercial accuses WildTangent of having such a dearth of prior art to cite against the '545 patent that WildTangent relies on § 101 because it is "reluctant to rely instead on §§ 102 or 103 for its defense."

Ultramercial sets forth a measured view of the first prong of Alice, asserting that the Supreme Court "offered no indication that every idea - including novel, groundbreaking innovations - were automatically included within § 101's exceptions so long as an accused infringer could somehow reduce the claimed invention to some form of abstract concept."  Indeed, the Court warned that the exclusions to § 101, if improperly applied, could "swallow all of patent law" because "at some level, all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas."

Ultramercial further rebuts the notion that its patent is directed to "advertising as currency."  Instead, Ultramercial describes the invention as pairing "copyrighted content with advertisements on a web server, and gat[ing] that content to limit accessibility until a user (after making an affirmative election) viewed the advertisement in its entirety, completed any interactive steps, or purchased a product."  Ultramercial characterizes its technology as "a dramatic shift [because it held] back an advertisement until [the advertisement] was affirmatively selected by the user."

Again addressing a secondary consideration of non-obviousness, Ultramercial contends that "[o]nce reduced to practice, the patented method was quickly adopted by major advertisers and online publishers."  Ultramercial staked out this position to rebut WildTangent's claims that the patented process is fundamental or longstanding.

Moving to the second prong of the Alice test, Ultramercial offered that "claims are patent-eligible if they improve an existing business process in a way that involves more than simply migrating an existing business process to a generic computer."  To back up this point, Ultramercial points to specific and rather narrow claim elements, such as when "a server sends each individual end-user an interactive page containing very specific items:  an explicit offer to purchase content or the choice of activating a prompt to begin an interposed message to obtain the same content," and when "the computer receives the end-user's selection and either completes a credit or debit sale or delivers the interposed advertisement."

Finally, Ultramercial reminds the Federal Circuit that on review of the 12(b)(6) motion, the claims have to be interpreted in its favor.  Ultramercial again invokes § 103, by contending that the extent of claim interpretation necessary for a § 101 analysis is "a question of law, [that] still rests on fact-bound considerations," and that the District Court is the place to introduce such evidence.

Analysis

The Federal Circuit can make quick work of this remand by denying WildTangent's 12(b)(6) motion, either because the § 101 analysis does require at least some findings of fact, or because interpreting the claims in Ultramercial's favor results in the claims being patent-eligible.  However, the Federal Circuit may take this opportunity to expound upon the Alice test, and signal how it is going to view the patent-eligibility of computer-implemented inventions in the future.

If the panel gets beyond the procedural issues of this case, the outcome will depend on how expansively the Court views the notion of an abstract idea.  When considered piece by piece, claim 1 of the '545 patent indeed seems to recite well-known aspects of communication technology.  However, when viewed as a whole, Ultramercial's point that the claimed configuration of these pieces is novel becomes compelling.

This case also illustrates the ambiguity that the Supreme Court has left us with post-Alice.  It is a bedrock principle that a patented invention is defined by its claims.  But, when a claimed invention is boiled down to a mere "concept" or considered piecemeal in order to determine whether that invention incorporates an abstract idea, the exposition of this concept, rather than the language of the claims, can determine whether the patent is valid or invalid.  Such a dissection of claim language, in the words of the Supreme Court itself from Diamond v. Diehr, is inappropriate.

Comments

[Skeptical]

"Peace for our time" did not last too long for Mr. Chamberlain either.

[EG]

Michael,

What you've said about the Ultramercial remand just reaffirms that the Alice test is utterly broken. The Royal Nine should be verbally scourged for creating this nonsensical test that conflates both 101 and 103.

[Paul F. Morgan]

If, as it appears, 103 is the key issue in dispute along with proper claim interpretation in cases like this, defense clients should start asking why IPR is not a far cheaper, faster and more effective way to deal with such claims?

[Mike Borella]

Paul,

My understanding is that patent litigation in courts is way down in the second half of 2014, while IPR and CBM procedures in the PTO are on the rise.

Mike