"Alice" as Game-Changer: Federal Circuit Changes Course on Advertising Patent in "Ultramercial"

The third time is the charm in Ultramercial v. Hulu: After twice finding that an advertising method patent was directed to patent eligible subject matter, in its third Ultramercial decision the Court of Appeals for the Federal Circuit has applied Alice v. CLS Bank to find that the asserted patent claims an abstract idea that is not patent eligible. 

The decision is important because the Federal Circuit now seems on board with what district courts have been increasingly doing in recent months – considering subject matter eligibility early in a patent case and, if the patent is directed to patent ineligible subject matter, granting a defendant’s motion to dismiss.

The Ultramercial litigation is also interesting because it is a microcosm of the recent furor over patent eligible subject matter and its evolution from Bilski to Alice. The patent-in-suit is directed to distributing copyrighted works over the Internet at no charge if the purchaser views an advertisement before receiving the work.

Following the Supreme Court’s In re Bilski decision, the Ultramercial district court determined that the patent was not directed to patent eligible subject matter and granted the defendant’s motion to dismiss under Rule 12(b)(6). The Federal Circuit previously considered that decision twice – first after Bilski and then after the Supreme Court’s Mayo v. Prometheus decision – reversing the district court both times. In particular, in its second Ultramercial decision, the Federal Circuit stated that granting a motion to dismiss under Section 101 should be a “rare” occurrence.

But the Supreme Court vacated and remanded each of those Federal Circuit decisions – first in view of Mayo and then in view of Alice. Now the Federal Circuit appears to have fallen into line and, in its third Ultramercial decision, has affirmed the district court’s early disposition of the litigation.

Judge Mayer’s concurrence is particularly prescient and may be a harbinger of what is to come:

First, whether claims meet the demands of 35 U.S.C. § 101 is a threshold question, one that must be addressed at the outset of litigation. Second, no presumption of eligibility attends the section 101 inquiry [for subject matter eligibility]. Third, Alice …, for all intents and purposes, set out a technological arts test for patent eligibility. 

The future of many business method and software patents issued under pre-Bilski or pre-Alice rules may be in doubt, but the court also offered some hope for patentees in these areas: “[W]e do not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea. Future cases may turn out differently.” 

The recent developments emphasize the opportunities for taking advantage of these shifting grounds and the necessity to consider patent eligibility when protecting your valuable intellectual property.

If you have any questions, or would like to discuss any of these issues, please contact  the author of this alert, Reza Sadr, Ph.D. You can reach Reza at rsadr@pierceatwood.com or 617.488.8163.