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Federal Circuit Invalidates Patent for Advertisement-Based Access to Online Content

By Amanda Liverzani – Edited by Yunnan Jiang Ultramercial, Inc. v. Hulu, LLC, No. 09-CV-6918, slip op. (Fed. Cir. Nov. 14, 2014) Applying the Supreme Court’s recent Alice Corp. v. CLS Bank decision that clarified the abstract idea exception to subject matter patent-eligibility, the Federal Circuit invalidated a patent for a method of accessing online content after viewing advertisements in Ultramercial, Inc. v. Hulu, LLC. U.S. Patent 7,346,545, ("the ‘545 patent"), owned by advertising company Ultramerical, claimed “a method for distributing copyrighted media products over the Internet where the consumer receives a copyrighted media product as no cost in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.” Ultramercial, Inc. v. Hulu, LLC, No. 09-CV-6918, slip op. (Fed. Cir. Nov. 14, 2014), at 3. Ultramercial brought suit against WildTangent, Youtube, and Hulu in the United States District Court for the Central District of California alleging infringement of the ‘545 patent. Id. Youtube and Hulu were dismissed from the case and WildTangent filed a motion to dismiss for failure to state a claim on the grounds that the subject matter of the ‘545 patent was not patent-eligible. Id. at 5. Following the District Court’s grant of WildTangent’s motion, the Federal Circuit twice reversed. Id. at 5–6 . On both occasions the Supreme Court vacated the Federal Circuit’s decisions and remanded the case for further consideration, first in light of its decision in Mayo, and again following its decision in Alice. Id. at 6. On November 14, 2014 the Federal Circuit, applying the Supreme Court’s Alice test, changed its previous position and found the ‘545 patent invalid. Id. at 3. Under the Patent Act, 35 U.S.C. §101, the scope of patent-eligible subject matter is limited to “processes, machines, manufacturers, and compositions of matter,” while “laws of nature, natural phenomena, and abstract ideas” are excepted from patentability. Id. at 7. In Alice, the Supreme Court outlined a two-step test to distinguish “patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.” Id. The first step requires courts to determine whether the patent is directed at a patent-ineligible concept. If it is, the court proceeds to step two, which asks “whether the claims contain an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id. at 7–8 (internal quotations omitted). If the claim contains no such transformative or inventive element, it is not patent-eligible. Id. at 10. Applying Alice, the Federal Circuit concluded that the ‘545 patent was invalid because it was not directed to patent-eligible subject matter. Id. at 8. Under the first step of Alice, the court found that the ‘545 patent described “the abstract idea of showing an advertisement before delivering free content.” Id. at 9–10 . The patent failed to pass the second Alice step because none of the processes outlined in the patent “transform[ed] the nature of the claim into patent-eligible subject matter.” Id. at *11. Citing its decision in CyberSource, the court stated that the ‘545 patent’s use of the Internet did not add an inventive concept because “use of the Internet is not sufficient to save otherwise abstract claims from ineligibility under §101.” Id. at 11. The court also cited the Supreme Court’s Bilski decision establishing that a claim may be patent eligible if it “is tied to a particular machine or apparatus, or…it transforms a particular article into a different state or thing,” but held that the ‘545 patent did not pass Bilski’s machine-transformation test because it was only tied to a general purpose computer. Id. at 12. For further discussion of how the Federal Circuit’s Ultramercial decision clarifies the limits of patent-eligibility for computer software see Law360Ipwatchdog, Patently-O, and  Bloomberg.